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KUALA LUMPUR – HSBC said it expects Malaysia’s economic growth to moderate from last year but it will still perform fairly well and grow by about 4% this year.
HSBC Southeast Asia Global Private Banking and Wealth chief investment officer James Cheo said 2022 was a stellar year backed by very strong consumption and investments.
“Malaysia’s export side was the most resilient and grew at a blistering pace. But I believe some of these tailwinds will kind of slow down this year in line with the global slowdown. It is not possible to repeat that very strong blistering pace in exports in 2023,” he said during a virtual media briefing on the 2023 HSBC Global Private Banking and Wealth Investment Outlook today.
However, he noted that inflation will be a bit sticky, although it has peaked.
Hence, he believed that Bank Negara Malaysia could still be on a tightening bias.
“We think that there will still be rate hikes, perhaps by about 75 basis points over the course of the first half of this year to bring a policy rate to 3.5%. From that perspective, we think that the Malaysian currency could still be quite resilient. The ringgit could be fairly stable and (it could) strengthen to about 4.35 against the US dollar by the end of this year,” he said.
Meanwhile, HSBC has maintained a “neutral” call on Malaysian equities, not because it is not doing well but due mainly to less positive catalysts to surprise investors on the upside.
“We are still monitoring China’s reopening and whether there will be an increase in demand from a production and commodity side to benefit Malaysia, or even on the tourism angle, to see how Malaysia could benefit from the return of Chinese tourists,” Cheo said.
He added that HSBC will monitor to see whether Malaysia will show any improvement from China’s reopening using high-frequency data and if there will be an earnings upgrade and revisions. But by and large, right now, we just want to hold a neutral position,” he said.
On another note, Asia Global Private Banking and Wealth chief investment officer Fan Cheuk Wan said HSBC is expecting a global growth deceleration with developed economies leading the downturn and a recession in Europe is expected in the first half of this year.
Last year’s growth was 3%. Based on their forecast, the global gross domestic product will decelerate to 1.9% this year. They are expecting a modest 2.4% growth in 2024. The United Kingdom is expected to contract 0.5% compared with a 0.8% growth in the US.
“We expect Asia ex-Japan to be an outperformer,” she added.
Fan noted that Asia ex-Japan will post a 4.3% economic expansion this year against a 3.5% growth last year, led mainly by China's growth recovery.
“We also expect ASEAN and India’s solid growth to be the key drivers to sustain Asia’s resilience,” she said.
Inflation is expected to ease further going into the next four quarters with global inflation to ease to 6.6% this year and edge down to 4.6% next year. In Asia, inflation pressure will continue to stay relatively contained, decelerating to 3.4% this year from 3.7% in 2022. It will decelerate further to 3.3% in 2024, she said.
On the 2023 investment outlook, with global growth slowing against an easing inflation backdrop, HSBC is expecting the US Federal Reserve to pause its rate hike after the Federal Open Market Committee’s February meeting.
“We expect the Fed to start cutting interest rates in the second quarter of 2024,” she said.
HSBC is overweight on fixed income and underweight on global equities. It is cautious on global equities and is underweight on European equities, with focus on resilient equity markets.
“Going into the first half of 2023 we are overweight in the US, Asian, and Latin American equities markets. For Asean, the choices are Indonesia and Thailand,” she said.
As for foreign exchange, HSBC has a neutral view on the US dollar and does not expect interest rate differentials between the US dollar and other currencies to widen further, Fan said. – Bernama, January 5, 2023
