KUALA LUMPUR, April 21 Morgan Stanley is
upbeat on Malaysian stocks, expecting them to benefit from a
likely fiscal boost ahead of an election that could be called as
early as September.
The U.S. bank initiated coverage on Malaysia in a note
released on Thursday, with an 'overweight' recommendation on
what it called its "second most-preferred market in ASEAN after
Morgan Stanley said in the note that the upcoming national
election may take place as early as September or October, based
on previous election periods and media reports, and this would
favour the Malaysian equities market.
"The best entry point is two months before the dissolution
of parliament; when Malaysia has outperformed Asia excluding
Japan and Southeast Asia by 4-6 percent," the bank said.
Malaysia is due to hold an election by August 2018, and a
government official has told Reuters that Prime Minister Najib
Razak could call for a poll in the second half of 2017.
"A fiscal boost helps to improve consumer and business
sentiment before elections. Given the high public debt to GDP
ratio and tight fiscal deficit target, there are concerns that
such measures may not precede this election. However, we believe
there are a number of spending incentives already in the 2017
budget," Morgan Stanley said.
The bank noted that the MSCI Malaysia index has risen 6.6
percent since the start of 2017, and is trading at higher than
historical price-to-earnings, but said there were other factors
in Malaysia's favour.
They include infrastructure development, with China as a new
source of funding, as well as rising oil and palm oil prices,
which are yet to be reflected in the market, and expectations of
an upturn in corporate earnings.
China has ramped up investments in Malaysia as part of its
"One Belt, One Road" projects. In November, Malaysia signed 14
agreements with China amounting to $34.4 billion, which included
collaboration to build rail projects in Malaysia.
A cheap and supported currency was also a boon to the
market, the bank said, as the real effective exchange rate of
the ringgit is at a 14 percent discount to its 10-year
Bursa Malaysia has climbed 6.9 percent so far this
year and the Bursa Small Cap Index has rallied 18.13
percent, making it one of the best performing indexes globally.
(Reporting by Liz Lee; Editing by Susan Fenton)