PETALING JAYA: Asia’s underlying fundamentals remain solid with resilient growth prospects despite headwinds from the US-China trade friction and rising US interest rates, said Maybank Kim Eng CEO Datuk John Chong.
In a statement, Chong said investors should look beyond short-term noise and focus on the region’s long term growth prospects, which is still expected to outshine that of developed economies.
“While there have been substantial capital outflows as a result of the stronger US dollar, higher interest rates and US-China trade friction, Asia is now better positioned to weather the volatility.
“Countries in the region have largely strengthened their current account balances, increased their foreign reserves and kept inflation in check over the past five years,” he said.
He said stronger private and infrastructure investments as well as a rising middle class are significant growth thrusts going forward.
“We believe investors will see real value emerging in Asian corporates after the recent market tantrums and should capitalise on the opportunity.”
The investment bank expects the United States and China to continue driving global growth and investment, which will benefit emerging Asia.
Rising demand from the world’s two largest economies supported Asia’s export recovery last year, it said adding that this year, Asia’s private investment is experiencing a revival after a long slump.
It said amid gradual US Fed rate hikes, Asian central banks have also begun normalising interest rates, mitigating the impact of a stronger dollar on emerging market currencies.
The Organisation for Economic Co-operation and Development (OECD) estimates that South-East Asia is poised to achieve average gross domestic product (GDP) growth of 5.2% between 2018 and 2022, it added.
“The region’s growth is underpinned by the improvement in trade prospects, big-ticket infrastructure projects, resilience in domestic demand, and the aggressive drive by some governments to develop industries related to information technology and e-commerce through investment incentives.”
Venture capital investments have been surging, allowing new emerging companies to push the boundaries in technology, fintech, and the sharing economy, according to the investment bank.
At the same time, China’s Belt & Road funds are being disbursed for developing major infrastructure projects, including rail transport, ports and power plants, across ASEAN, it said.
Chong added that the commitment of the Malaysian Government to adopt fiscal reforms and narrow the fiscal deficit bodes well for the economy.
“Malaysia’s economy is fundamentally robust, supported by a young demographic, rising oil prices and a reformist government which remains committed and open to trade and foreign investments.
“Following the recent market correction, the FBM KLCI is now priced attractively at 15.4 times on 12 months forward earnings as of June 19.
“This puts it at the lower end of its trading range of 15.4 times to 17.3 times over the past three years,” he said.
Meanwhile, S&P Global Ratings in its report “Apac economic snapshots for June 2018” said the macroeconomic environment in Asia-Pacific “looks good” despite simmering trade tensions between the US and China.
The rating agency said escalating trade tensions between China and the US dominate the headlines, adding to worries about a faster-than-desired slowdown in growth.
It added that activity indicators in China slowed further in May as fixed asset investment and retail sales growth declined more than expected.
Loan growth remained fast, but that reflected off-balance sheet items returning to the balance sheet.
Export growth rebounded and the trade surplus receded to about US$25bil. The People’s Bank of China held rates steady following the US Federal Reserve’s interest rate hike in mid-June.
“Trade risks remain front and centre as the US launched a new round of tariffs against China, as well as Europe and Canada,” said Paul Gruenwald, S&P Global Ratings’ chief economist.
“The objectives of US trade policy remain unclear to us, given the alternating focus on bilateral trade balances and broader investment and intellectual property objectives.”
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