KUALA LUMPUR: Maybank Kim Eng Group says a recession in 2019 is unlikely but there is a possibility of it happening in the second half of 2020.
Its economist Lee Ju Ye was one of three panellists at Maybank Investment Bank Bhd’s (Maybank IB) second half 2019 market outlook (2H2019) on Saturday. “Trade-oriented economies will be most impacted but a slowdown is not a recession, ” Lee said. “Singapore is on the verge of a technical recession. Thailand and Malaysia are already seeing a decline in exports.”
She said US imports half of its furniture from China and the other half from Vietnam and Malaysia.
“Half of the demand will be split between Malaysia and Vietnam, which already saw a surge in furniture demand, ” Lee said.
Vietnam is cautious, as it does not want to be seen as “the backdoor” to USA.
The second biggest winner is Thailand, next comes Malaysia. She said this is both a trade war and a tech war.
US said it will control products related to Artificial Intelligence (A1) and 3-dimensional.
The list is expected to be out at the end of year.
This will impact Asean as well, Lee said.
Singapore, Malaysia and Vietnam are also on US’ currency manipulation watch list, she said.
The ringgit, US claims, is 5% undervalued.
Last week, Singapore cut full year gross domestic product (GDP) to zero to 1%, from its previous 1.5% to 2.5% projection.
This came after final second quarter GDP data showed a 3.3% quarter-on-quarter contraction on a seasonally-adjusted annualised basis.
The data confirmed that annual GDP expanded 0.1% in April-June from a year earlier, its slowest rate in a decade.
Singapore is heavily reliant on exports and China is its biggest trading partner. The Chinese economy is growing at its slowest pace in 27 years.
Lee said Malaysia can weather the slowdown by accelerating construction projects already in the pipeline, increase tourism and education services.
Chinese tourists to US has started to decline, its first after 15 years.
Malaysia can leverage on this by easing entry requirements. Thailand did and saw a surge. Chinese students who used to go to US have diverted to Australia. Malaysia My Second Home (MM2H) reduced last year’s backlog by 90%. MM2H will create interest.
In a press release, Maybank IB chief executive officer Fadl Mohamed said mergers and acquisitions (M&A) activity for Malaysian corporates are expected in the second half of this year.
In the first half of 2019 (1H19), Maybank IB said M&A and privatisations stirred at a fast pace with a total of ten attempts as the broad market weakness unlocked values.
“Companies in the property, steel, plantation and technology sectors are among those that may see further M&A activity as these sectors are in the midst of a down cycle.
“The current down cycle... has revealed long term investment opportunities that can weather the current short term volatility, ” he said, adding that corporates are actively looking to consolidate and acquire new assets and capacity with valuations coming to an optimum level.
It expects Malaysian equities to be resilient given the weak broader market environment from the expected moderation in global gross domestic product (GDP) growth and the mounting US-China trade war.
“The market remains supported by sizeable holdings of strategic and long-term investors, while at the same time policy risks are dissipating.
“Malaysia is also well-placed to benefit from rising manufacturing investments from overseas as a result of China’s diversion of its supply chain into Asean, ” it added.
The research house expects periods of volatility to take place in the 2H19; there would be “pockets of opportunities” for investors to trade on news flow and thematics.
Moving forward, it noted that the revival of the major infrastructure projects such as East Coast Rail Link (ECRL) would improve investors’ sentiment.
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