HSBC Asia Pacific head of equity strategy Herald van der Linde said “we are not negative” on Malaysia, but added there are other markets in the region that look better for investors.
He said the local stock market remains relatively stable.
HSBC global research also attributed the country’s economic resilience to strong private consumption, rising 5.9% from last year.
“Malaysia has been leading the region in terms of recovery in retail sales, especially in auto sales. But it is not only about consumption of goods.
“In particular, consumption of services, including recreation and tourism activities, has continued to show the ongoing re-opening tailwinds,” he said during the HSBC H2 FY2023 Asian Outlook virtual media briefing.
HSBC also added that the strong local labour market and better-behaved inflation have been a “boon for the market”.
On Malaysia’s trade, HSBC noted it is an exporter with a well-diversified export base of both commodities, as well as heavy exposure to electronics manufacturing.
“Malaysia’s trade has been one of Asia’s outperformers. That said caution is warranted, as Malaysia will not be insulated from intensifying trade headwinds.
“In fact, Malaysia saw the first year-on-year decline in 31 months in its March export, with broad-based deceleration across major shipments,” it added.
Rate cuts coming, but not so soon
HSBC’s co-head for global research Asia and chief Asia economist Frederic Neumann said HSBC does not expect further overnight policy rate (OPR) hikes from the central bank, but it also does not expect any cuts until the end of 2024.
He said this is because of “the resilience of domestic demand in Malaysia, that we saw in the first few months of the year, particularly in the consumption side”.
He said Malaysia should be able to deliver a gross domestic product (GDP) growth of 4% this year as long as trade does not dissipate.
Meanwhile, HSBC does not see Malaysia falling into a recession.
“While we expect growth headwinds to materialise on both external and domestic fronts, this does not mean Malaysia will enter a recession,” the bank said.
It added that Malaysia’s inflation is the second lowest in the region, after Thailand.
“We have been arguing that tourism is the most direct transmission of China’s reopening boost to Asean. Even though Malaysia is not as dependent on tourism as peers like Thailand, international tourism receipts were still sizeable, accounting for 6% of GDP, above Asia’s average of roughly 4%,” it noted.
Ringgit to follow yuan’s trend
Joey Chew, head of HSBC’s Asia foreign exchange (FX) research, said the ringgit is expected to follow the trend of the renminbi (RMB) which has been on the uptrend this year.
She said the lower trade balance expected this year should not affect the ringgit.
“The trade balance could shrink due to commodity prices not rising and a downturn in the electronics sector globally.
“However, since it did not affect the ringgit last year, it should not affect the ringgit this year, she said.
Chew said keeping yields in Malaysia low will remain a challenge for Malaysia.
“We do see the dollar-ringgit eventually turning, but the setting is contingent on US yields also turning.”