GOLDMAN Sachs has reaffirmed its bullish view on the Malaysian economy, citing the country's participation in the regional export recovery, strong recovery in the private sector capital expenditure (capex) in the third quarter and expectations of bank lending growth to accelerate sharply next year.
In its latest newsletter, Goldman Sachs said it completely disagreed with the analysis that the country's economy was stuck in a low growth equilibrium amid a fading domestic demand impulse from private consumption.
We view the Malaysian business cycle lagging Thailand by one year. After a prolonged period of corporate sector de-leverage and under-investment, we expect to see private capex becoming the new driver of the business cycle. This broadening out of the business cycle creates more cycle duration and sustainability. The financial counterpart to greater business duration is a return of risk appetite, and this will drive a domestic portfolio switch from bonds and cash into equities. This macro view supports our overweight equity market strategy recommendation, it added.
Goldman Sachs said its bullish view of Malaysia was based on three key conclusions.
First, Malaysia is participating in the regional export recovery. The recent trade data slowdown had worried investors that Malaysia was losing competitiveness and not participating in the regional trade recovery.
The concerns were magnified by the differing trends in domestic industrial production (IP), accelerating IP growth coupled with slowing exports implied an unhealthy build-up in inventories.
We believe this concern is unwarranted. In our view, the export data have problems that are now being rectified and the IP data provide a much cleaner picture of the underlying trade recovery. Moreover, this export recovery is providing an additional growth stimulus to the ongoing domestic demand recovery, which is itself shifting to being more driven by the private sector with the return of private capex,'' it said.
Contrary to claims of the bears, there was no trade slowdown in the third quarter, it said.
Goldman Sachs said the only frustrating part of our bullish call on Malaysia earlier this year had been the lack of clear evidence of a private capex recovery but the evidence was now clearly emerging with its three partial indicators business confidence, bank lending and nominal private capex growth showing strong recovery.
With the demand for credit increasing with the capex cycle, this means that top-line bank lending growth should start to accelerate sharply next year, and should provide an additional catalyst for asset prices, it added.
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