KUALA LUMPUR (July 12): Malaysia has been identified as one of the relative outperformers in the Asia-Pacific region from an economic perspective, given that it is not only insulated from but is also among the biggest beneficiaries in the region of both food and energy shocks, as well as a potential liquidity shock.

Joining Malaysia are Vietnam, Taiwan, Australia, and New Zealand, which have also been identified as biggest beneficiaries within the region from the shocks, said Manulife Investment Management head of Asia macro strategy Sue Trinh at the firm's 2022 mid-year outlook media briefing held virtually on Tuesday (July 12).

"The [domestic] economy has really rebounded very strongly from last year's Covid-19 outbreak. Bank Negara Malaysia's (BNM) recent monetary policy meeting sounded pretty upbeat in terms of the prospects for recovery and we would tend to agree.

"If we look now at inflation, it is much lower in Malaysia than in many parts of the world, especially relative to other emerging markets, thanks to the generous subsidies from the government which is worth about 3% of GDP (gross domestic product). So headline inflation is probably going to stay within a range of around 2% to 3% to maybe 3.5%," she said.

"It is really nothing to sound the alarm bell on and we doubt that BNM will be pressing on the panic button anytime soon in regard to the tightening cycle. If anything, like many central banks in Asia, we are expecting the tightening cycle [from Malaysia] to be relatively more muted than what we are seeing in other emerging markets," she added.

Sue also expects the reopening of international borders in April to be a tailwind for Malaysia's economy that will help the tourism sector continue to normalise.

In terms of local equity valuation, Manulife Investment's senior portfolio manager for equities Marco Giubin said the KLCI is mirroring its Asian peers, which are now derating.

The performance of Asian equities over the first half of 2022 was put under pressure by a combination of factors, such as tighter monetary conditions, the prospects of slower global growth, geopolitical events, and adverse regulatory interventions in China, he said.

"With the derating in valuations among Asian equities behind us, Asian market valuations are now close to trough levels. We believe the bulk of the derating in Asian equities has transpired, and we see limited scope for further meaningful derating based on our assumptions," Giubin added.

"The commodity complex since mid-April has seen a meaningful correction after having risen substantially in the preceding 12 months. Consequently, in the third quarter of 2022, we may start to see a combination of higher pricing and lower input costs alleviating margin pressure. In addition, input cost pressure related to supply chain disruptions is also forecast to alleviate," he said.

Against this backdrop, Giubin expects earnings growth prospects for Malaysian corporates to rebound from this year's flattish rate to between high single-digits and low double-digits next year.