PETALING JAYA: After a year of a wavering local stock market marred by soft corporate results, Aberdeen Islamic Asset Management Sdn Bhd expects corporate earnings to improve by 5%-10% next year.
Aberdeen head of corporate governance David Smith said growth trajectory of corporate earnings for next year would be faster than the fund’s economic growth forecast on Malaysia of between 4% and 5% in 2017.
“Resilient domestic consumption, infrastructure spending as well as an uptick in global economic growth coming from the US and China would reflect better corporate earnings growth next year,” he said at Aberdeen’s 2017 market outlook briefing yesterday.
The local equity market has been shaken by weak corporate results on the back of slow economic growth as well as external factors such as US interest rate hikes, Brexit and the unexpected outcome of the US presidential election.
The FBM KLCI closed lower yesterday at 1,619, which represents a decline of more than 4% year-to-date.
“From a bottom-up perspective, the Asian region is still attractive for stock-picking especially companies with exposure to the domestic consumption sector. Earnings growth is starting to return with signs of upturn in many countries, for example, India,” Smith said.
In terms of valuation, Smith said the emerging markets are trading at a discount compared to global stock markets.
On the fixed income market, Aberdeen fixed income manager Mohamad Hasif Murad said the local bond market has becoming more attractive due to the weaker ringgit.
“Asian bonds are fundamentally still attractive. In this region, the number of quality corporate bonds issuers is higher than in other parts of the world,” he said.
He said the Malaysian market had institutional investors to absorb any significant selloff by overseas investors.
“Institutional investors such as the Employees Provident Fund and Retirement Inc Fund are well positioned to support the local market during times of uncertainties,” he said.
Although there is a high percentage of foreign ownership of Malaysian Government Securities, Hasif said foreign participants were mostly made up of long-term investors, which put the country in a better position compared to its neighbours such as Indonesia.
“The risk of outflow from the bond markets is always there because of the high foreign ownership,” he said.
Hasif reckoned the ringgit and bond market would remain under pressure in the medium term.
The ringgit has been on a bumpy ride since the outcome of the US presidential election. It has been one of the worst performers among regional currencies against the US dollar.
The ringgit closed at RM4.466 against the greenback yesterday.
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