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KUALA LUMPUR: After an uneven and underwhelming recovery in 2021, Malaysia’s economy will likely emerge as one of the fastest-growing economies in Asean next year, according to economists and equity analysts.
A report by Credit Suisse projected that the country’s economy would grow by 4.4% in 2021 and more than 6% in 2022.
This will put it ahead of most of its regional peers in terms of gross domestic product (GDP) growth.
“To a large extent, the economic rebound is dependent on a recovery in private sector consumption, which is the biggest component of the GDP (close to 60%),” the investment bank said.
Despite the government’s one-off hike in corporate tax for 2022, Credit Suisse still projected a market net profit growth of 10% in 2022 (versus Asia-excluding-Japan average of 9%) and core net profit growth of close to 14%.
It opined that Malaysia has investment opportunities from developing trends such as a shift from pandemic to endemic, “self-help initiatives” by corporates, supply chain disruptions, growing dominance of the digital economy, as well as valuation divergence caused by environmental, social and governance.
A report by Credit Suisse projected that the country’s economy would grow by 4.4% in 2021 and more than 6% in 2022.
The research unit also noted that equities are trading at attractive valuations, as Malaysia has been the worst-performing market in Asean despite earnings recovery.
“The market is not expensive relative to its historical valuations and is now trading at an average price-to-earnings of 14.4 times, which is one standard deviation below its historical average of 16.9 times,” said Credit Suisse.
In terms of price-to-book value, the market is trading at a post-global financial crisis low of 1.4 times, with return on equity projected at 8.7% in 2021-2022 (versus 5.9% in 2020).
Credit Suisse expects the FBM KLCI to hit 1,730 points by end-2022, implying a 16% upside.
In terms of stock and sector preferences, it favours those that are well positioned to benefit from the economic re-opening, and more specifically the pick-up in private consumption.
It also prefers stocks and sectors that are at a valuation discount to historic levels, comparatively more insulated from possible political disruptions, potential beneficiaries of supply-chain disruptions that might take a longer-than-expected time to resolve, and beneficiaries of digital economy growth.
Stocks that meet Credit Suisse’s investment criteria are CIMB Group Holdings Bhd (target price or TP: RM7.05), IHH Healthcare Bhd (TP: RM8), Pentamaster Corp Bhd (TP: RM6.70) and CTOS Digital Bhd (TP: RM2.50).
Other preferred stocks are MR DIY Group (M) Bhd (TP: RM4.30), Telekom Malaysia Bhd (TP: RM7), Genting Malaysia Bhd (TP: RM3.50), S P Setia Bhd (TP: RM1.40), Sime Darby Bhd (TP: RM3) and Sime Darby Plantation Bhd (TP: RM5.20).
Meanwhile, DBS Bank Research opined that Malaysia’s economic prospects already look brighter in the fourth quarter of 2021 and should carry forward into 2022.
It said the country’s economic rebound will likely be broad-based, driven by pent-up private consumption, investment activity and production to meet order backlogs that were accumulated from the lockdowns (resulting in global supply chain disruptions), alongside higher oil prices.
“Virus infections are down significantly from their peak, vaccinations have reached a critical mass, the domestic economy has largely reopened (with 90% of the economy in the last phase of the government’s National Recovery Plan), and gradual international border reopening is on the cards,” it said.
DBS Bank Research expects Malaysia’s economy to expand by 5% in 2022, recouping its pre-pandemic GDP level by early 2022, barring downside virus risks.
However, the research unit pointed out that at a time when domestic demand is recovering, the external environment will turn trickier for the country’s small and open economy.
“Economic momentum of its key trading partner, notably China, has begun to wane and is likely to cool in 2022,” noted DBS Bank Research.
Also, political risks could resurface in the second half of 2022 despite near-term policy certainty from the government’s pact with the opposition.
DBS Bank Research expects Malaysia’s economy to expand by 5% in 2022, recouping its pre-pandemic GDP level by early 2022, barring downside virus risks.
“Elections are to be called by mid-2023, but the timing is unclear and could be held in the second half of 2022, bringing uncertainty to future policy direction,” it said.
The research unit also expects Bank Negara to remain supportive of growth and be mindful of any premature withdrawal of monetary support.
“The timing of policy normalisation will depend on the recovery pace. Our expectations are for Bank Negara to raise its policy rate by a modest 25 basis points in early second half of 2022 to 2%,” said DBS Bank Research.
Maybank Kim Eng Research expects Malaysia’s real GDP to grow by 6% in 2022, assuming a sustained economic re-opening for a broad-based recovery on the adoption of “living with Covid-19”, enabled by mass immunisation.
It also forecasts the country’s macro policy to remain pro-growth, with the overnight policy rate to stay at a record-low of 1.75% well into 2022, prior to a 25-basis-point hike to 2% in the fourth quarter of 2022.
The research unit pointed out that Budget 2022 remains expansionary with the third consecutive year deficit of more than 6% of GDP (2022 estimate: 6%; 2021: 6.5%; 2020: 6.2%).
This is on the back of a record RM332bil in total spending allocation that includes all-time-high gross development expenditure of RM75.6bil, plus the upsizing of Covid-19 Fund’s allocation for 2020-2022 to RM110bil (from RM65bil).
Meanwhile, the Medium Term Fiscal Framework (2022-2024) and the 12th Malaysia Plan (2021-2025) target to lower the budget deficit-to-GDP ratio to 4.8% in 2023, 4.3% in 2024 and 3.0% to 3.5% in 2025 to keep the government’s domestic debt within the 65% of GDP ceiling.
Maybank Kim Eng Research noted that the Medium Term Revenue Strategy will be unveiled in 2022, among others outlining revenue measures to address a narrow tax base, ineffective tax incentives, tax avoidance and evasion, and untapped informal sectors.
“With the target to aggressively reduce budget deficit in 2023 to 2025, and amid global initiatives to address issues like base erosion and profit shifting, climate change and emissions, we expect more revenue and compliance-enhancing tax measures ahead, thus not ruling out a goods and services tax comeback as well as the introduction of carbon and digital economy taxes,” it said.