Malaysia’s exports set to rebound

KUALA LUMPUR: While economists are positive on the impact of the easing of China’s zero-Covid restrictions on the Malaysian economy, fund managers believe investor sentiment on the Bursa Malaysia will be driven by domestic factors and relative valuations.

According to Sunway University economics professor Dr Yeah Kim Leng, China and Hong Kong combined absorbed 19.7% of Malaysia’s total exports in 2022, down from 21.7% in 2021.

“China’s exit from the zero-Covid restrictions in January 2023 will boost its growth from 3% in 2022 to 5% to 5.5% projected for this year.

“This will boost imports from Malaysia and help to offset the softening demand in other countries, especially Europe and the United States that are facing recessionary pressures,” he said.

Besides electronic components and other intermediate inputs, Yeah told StarBiz that Malaysia’s exports of primary commodities such as oil, gas and palm oil will benefit from stronger demand from China, which is Malaysia’s largest trading partner, followed by Singapore and the United States.

The higher outbound tourists from China is also expected to lift Malaysia’s tourism and hospitality-related industries including hotel, food and beverage as well as travel and transport services.

“The expected rise in Chinese outward foreign direct investment (FDI) and related property could also boost Malaysia’s investment activities,” Yeah pointed out.

He said the improved growth outlook along with the projected rise in trade, investment and tourism flows from China into Malaysia are expected to have a positive impact on the ringgit amid the likely strengthening of the Chinese yuan against the US dollar.

“The better performance of the ringgit in 2023 also stems from the tapering of US interest-rate hikes and downturn pressures confronting the US economy.

“Elevated oil and commodity prices, along with Malaysia’s declining political risk premium, will also underpin the appreciation trajectory of the ringgit against the US dollar and other currencies facing recessionary forces,” explained Yeah.

Malaysia University of Science and Technology economics professor Geoffrey Williams, meanwhile, pointed out that despite global headwinds, the risk of a recession in Malaysia has subsided and the overall growth prospects for 2023 are more stable “although lower than 2022”.

“Some of the more gloomy predictions for 2023 were made based on a continuation of the zero-Covid lockdowns in China. So now that these have ended, the economic prospects are not so gloomy,” he said.

Williams said sectors that could benefit in terms of exports are electrical and electronic products, oil and gas and palm oil.

“Tourism should also improve as well as the general environment for FDI from China,” he noted.

HSBC Global Research recently said that prior to the Covid-19 pandemic, about 12% of Malaysia’s inbound tourists came from mainland China (around three million).

It said Malaysia’s overall tourist receipts were sizeable, at 6.3% of gross domestic product in 2019, with broader tourism-related jobs accounting for as much as 30%.

Centre for Market Education chief executive officer Dr Carmelo Ferlito expects China’s reopening will help strengthen the ringgit, although there are many factors at play with regards to the fluctuation of the currency.

Beyond tourism, he said China’s reopening will “boost those sectors that distribute Chinese products on one side and on the other, boost those industries that export to China.”

He opined the country can “take better steps to attract investors out of China and to replace China as an investment destination.”

While the China story may help boost trade and investment, Tradeview Capital chief investment officer Nixon Wong said the local equity market’s outlook would depend more on policies of Putrajaya and the revised Budget 2023, which is set to be re-tabled in Parliament on Feb 24.

“Valuation wise, at the moment, China equities have more appeal after being broadly sold down last year,” Wong told StarBiz.

MIDF Research pointed out that year-to-date, foreigners net sold RM200.77mil worth of Malaysian equities.

Last week, the local bourse, which was closed for two days for Chinese New Year holidays, experienced the second-largest net foreign outflows (in Asia, after India) of US$13.6mil (RM57.7mil) as funds directed their attention towards China.

“China implemented strict lockdowns under its zero-Covid policy, leading to a decrease in market performance and making it more attractive due to its lower valuation. This caused interest movement from high-valued economies like India to China,” said the research unit.

Rakuten Trade head of equity sales Vincent Lau is positive about Bursa Malaysia this year, as there is upside potential for selected laggards and beaten-down stocks in tourism and tech-related sectors.

“For recovery and value upside, investors should look at Malaysian sectors such as steel, travel-related, oil and gas, plantations, semiconductors and even property and construction,” said Lau, adding that names like Malaysia Airports Holdings BhdCapital A BhdAirAsia X BhdGenting Malaysia Bhd and Tune Protect Group Bhd would gain from the tourism thematic.

On the year-to-date net foreign outflows, Lau said they are not sizeable relatively.

“Equities in China and Hong Kong fell a fair bit in 2022, and today, investors see value as the economy has reopened. But we think the FBM KLCI will definitely perform better this year.

“The initial public offering pipeline is strong and trading has been vibrant. The pace of rate hikes in the United States is perceived to be slowing, crude oil prices are higher and the current political stability has improved sentiment for Malaysian equities,” he said.