KUALA LUMPUR (Jan 12): Maybank Investment Bank’s (Maybank IB) projection of a 4.4% gross domestic product (GDP) growth for 2024 is “fair”, as it is a mere reversion to the economy’s historical growth average, according to chief economist Suhaimi Ilias.

“I don't think I am overly optimistic about Malaysia's economic outlook this year. It is a case of mean reversion, really, because bear in mind last year's growth to some extent slowed down, because of the extraordinary base effect, when growth surged to almost 9%, with the opening of the economy,” he told reporters over a virtual briefing on 2024's outlook on Friday.

Maybank’s 4.4% GDP growth projection for 2024 falls in between Malaysia’s official forecasts of a 4%-5% growth for the year.

Suhaimi also expects Malaysia's economy to have grown by 3.9% in 2023, after an 8.7% growth in 2022.

Besides resilient consumer spending, continued positive momentum in investment growth as well as an expected rebound in exports of goods and services underpin Maybank's expectations of Malaysia's growth for this year.

“On the issue of trade, whether or not the escalation of the situation in the Red Sea threatens to derail [Malaysia’s] trade recovery...perhaps there may be risks, but not so much to derail, but rather to delay the recovery, due to supply chain disruptions,” he said.

“The other concern, of course, is potential additional headwinds or upsides to inflation, because of this potential disruption to the important shipping route of the Red Sea. I think we have seen news, for example, how Tesco in the UK has warned against the risk of increases in prices of goods.

“Because of that, I think Tesla in Germany has also indicated potential delays in production and deliveries, because of the need to reroute the shipping, the shipping trajectory, or the shipping path away from Red Sea,” he said.

Suhaimi expects Malaysia’s headline inflation to accelerate by 3% this year, after a projected 2.6% in 2023, amid the government's moves to rationalise subsidies and new tax measures.

However, he said this will be cushioned by the government’s fiscal aid and potential strengthening of the ringgit, which is expected to appreciate to 4.40 levels against the US dollar by end-2024, from the 4.60 levels recorded at end-2023, on anticipation of the greenback weakening this year amid a “soft landing” of the US economy.

On the capital markets, Maybank IB head of equity research Wong Chew Hann is upbeat on the local stock market, citing potential further corporate earnings growth as the economy continues to recover.

“Essentially, we are looking at slowing global growth. But in Asean, we have bright spots. And filtering down to Malaysia, we are looking at quicker GDP growth this year,” she said, adding that Maybank IB is forecasting the FBM KLCI to end 2024 at 1,610 points, driven by the government’s efforts in executing various macroeconomic blueprints on the energy transition and the New Industrial Master Plan 2030.

“As implementation [of these blueprints] gets under way, I think this will also create momentum for interest in Malaysian equities. In that respect, we expect a better outlook for Malaysian equities this year.

“Now, what are the key risks? A lot of the key risks are actually external. And this is also a function of US interest rates — how long are they going to hold their interest rates? We look at US-China geopolitical rivalry, and the instability and war in Ukraine and the Middle East. These, to us, are actually the key risks to Malaysian equities,” she added.

Wong also pointed out that given the KLCI’s price-earnings ratio of 12.9 times, the benchmark index is undervalued based on its historical valuation.

“On a historical basis, [KLCI valuation] is also at a low already. The key point is that we do think that Malaysian equities are undervalued. But the question is, what will drive it higher? We hope that the economic transformation, fiscal reforms, corporate earnings delivery, and a stronger or firmer ringgit will drive the KLCI higher this year,” she said.

In terms of fund flows, Wong noted that foreign investors had pulled out RM52 billion from Malaysian equities since May 2018, following the country’s 14th general election.

“They (foreign investors) have been selling every year since 2018, except for 2022. Last year was also another net sell. The foreign shareholding fell to 19.5% last year, which was a new low since the global financial crisis. The high was 25%.

"What does this tell us? It implies an upside from a fund flow perspective, when Malaysia delivers on its economic transformation and fiscal reforms,” she added.

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