Malaysia Market Strategy
● We expect stock market volatility to increase in the short term as there is uncertainty over what lies ahead. If global stock markets go into a risk-off mode, then Malaysia will outperform, as Malaysia is a relatively defensive market due to the presence of huge domestic institutional funds which are natural buyers..
● Our US Team views Trump's policies as inflationary. This will likely spur outflows from Emerging Markets and broader risk assets, including from Malaysia.
● With the Republicans controlling both the White House and Congress, we expect a faster pace of interest rate increase in the US. Thus, Asian currencies could weaken, including the Ringgit.
● A Trump win means more trade protectionism. TPP will unlikely happen. Malaysia is one of the most export-oriented countries in the region, with exports of value-added accounting for 49% of GDP, the second highest in Asia after Singapore. Even if Trump doesn’t follow through with his talk about banning Muslims, this will hurt sentiment as Malaysia is a Muslim country.
● Our US Team views Trump's policies as inflationary. This will likely spur outflows from Emerging Markets and broader risk assets, including from Malaysia.
● With the Republicans controlling both the White House and Congress, we expect a faster pace of interest rate increase in the US. Thus, Asian currencies could weaken, including the Ringgit.
● A Trump win means more trade protectionism. TPP will unlikely happen. Malaysia is one of the most export-oriented countries in the region, with exports of value-added accounting for 49% of GDP, the second highest in Asia after Singapore. Even if Trump doesn’t follow through with his talk about banning Muslims, this will hurt sentiment as Malaysia is a Muslim country.
What does a Trump win mean for Malaysia?
Trump has won the US Presidential Election. We expect stock market volatility to increase in the short term. Although Trump might not practise all that he has preached, there is uncertainty over what lies ahead. What does a Trump win mean for Malaysia?
Stock market: Malaysia will be a relative outperformer
Malaysia is seen as a relatively defensive market due to the presence of huge domestic institutional funds, which are natural buyers and are supporters of the Malaysian stock market. This is reflected in Malaysia’s relatively low beta. If global stock markets go into a risk-off mode, then Malaysia will outperform other high beta markets. Moreover, domestic funds have been net sellers of Malaysian equities year-to-date, and we can assume that they are waiting to buy back into equities when the time is right.
Malaysia is seen as a relatively defensive market due to the presence of huge domestic institutional funds, which are natural buyers and are supporters of the Malaysian stock market. This is reflected in Malaysia’s relatively low beta. If global stock markets go into a risk-off mode, then Malaysia will outperform other high beta markets. Moreover, domestic funds have been net sellers of Malaysian equities year-to-date, and we can assume that they are waiting to buy back into equities when the time is right.
Figure 2: Malaysian domestic institutions have been net sellers of
equities and are likely waiting to come back
equities and are likely waiting to come back
Currency: MYR to potentially weaken With the Republicans now controlling both the White House and Congress, the chance of the US pushing through a major fiscal stimulus would increase materially. This would at least reduce the burden on the US Fed to keep policy rate lower to support the economy, and eventually result in a faster pace of interest rate increase in the US. We expect most Asian economies to cope with higher US rates by allowing their currencies to weaken, including the Ringgit.
Fiscal policy: Bond yields may rise
Our US team views Trump's policies as inflationary. This is due to easier fiscal policy (e.g., tax cuts and infrastructure spending), and a negative supply-side shock over the longer term (e.g., raising path of national debt, reduced immigration, reversal in trade deals and tariff reductions). Under a Trump presidency, our strategists expect global yields to rise and also for yield curves to steepen, driven by increased policy uncertainty and higher inflation expectations. This will likely spur outflows from Emerging Markets and broader risk assets, including from Malaysia.
Trade: Protectionism
Malaysia stands to lose out from eroding US support for free trade agreements, including the Trans Pacific Partnership (TPP).
Under Trump, our US team believes that the TPP is unlikely to happen. In addition to his strong opposition to the TPP, Trump has also on occasion criticised other bilateral trade deals. Vietnam and Malaysia are the biggest losers if the TPP were to be abolished. Malaysia would lose in a Trump win as he is pushing more broadly for trade protectionism. Malaysia is one of the most export-oriented countries in the region, with exports of value-added accounting for 49% of GDP, second highest in Asia after Singapore (56%).
Foreign policy: Malaysia’s shift to China
A Trump win could result in a less interventionist US in Asia. This could result in a more decisive shift among Asian economies towards China and away from the US, including for Malaysia. Malaysia appears to be already leaning towards China.
Prime Minister Najib’s recent official visit to China has taken “bilateral relations between Malaysia and China to a higher level, a new high.” PM Najib witnessed the signing of 14 agreements between Malaysia and China worth RM144 bn.
We expect more China inflows, especially with China’s aspiration of the “One Road, One Belt”. China’s keen interest in Malaysia is a positive as Malaysia needs China’s balance sheet to pump prime the economy. This is clearly positive for the construction sector. Immigration:
More uncertainties
Trump has talked about a ban on Muslims, a negative for Malaysia as Malaysia is a Muslim country. Even if Trump chooses not to follow through with this policy, this will hurt sentiment as Malaysia is a Muslim country.
Fiscal policy: Bond yields may rise
Our US team views Trump's policies as inflationary. This is due to easier fiscal policy (e.g., tax cuts and infrastructure spending), and a negative supply-side shock over the longer term (e.g., raising path of national debt, reduced immigration, reversal in trade deals and tariff reductions). Under a Trump presidency, our strategists expect global yields to rise and also for yield curves to steepen, driven by increased policy uncertainty and higher inflation expectations. This will likely spur outflows from Emerging Markets and broader risk assets, including from Malaysia.
Trade: Protectionism
Malaysia stands to lose out from eroding US support for free trade agreements, including the Trans Pacific Partnership (TPP).
Under Trump, our US team believes that the TPP is unlikely to happen. In addition to his strong opposition to the TPP, Trump has also on occasion criticised other bilateral trade deals. Vietnam and Malaysia are the biggest losers if the TPP were to be abolished. Malaysia would lose in a Trump win as he is pushing more broadly for trade protectionism. Malaysia is one of the most export-oriented countries in the region, with exports of value-added accounting for 49% of GDP, second highest in Asia after Singapore (56%).
Foreign policy: Malaysia’s shift to China
A Trump win could result in a less interventionist US in Asia. This could result in a more decisive shift among Asian economies towards China and away from the US, including for Malaysia. Malaysia appears to be already leaning towards China.
Prime Minister Najib’s recent official visit to China has taken “bilateral relations between Malaysia and China to a higher level, a new high.” PM Najib witnessed the signing of 14 agreements between Malaysia and China worth RM144 bn.
We expect more China inflows, especially with China’s aspiration of the “One Road, One Belt”. China’s keen interest in Malaysia is a positive as Malaysia needs China’s balance sheet to pump prime the economy. This is clearly positive for the construction sector. Immigration:
More uncertainties
Trump has talked about a ban on Muslims, a negative for Malaysia as Malaysia is a Muslim country. Even if Trump chooses not to follow through with this policy, this will hurt sentiment as Malaysia is a Muslim country.
source: Credit Suisse – 10/11/16
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