Malaysian stocks have received a much-needed upgrade from leading banks as the US-China trade war continues, leading investors to look elsewhere in the region for opportunities.
Swiss financial behemoth UBS recently upgraded Malaysia to ‘overweight’ from ‘neutral’ just after HSBC reported it had also upgraded the country to ‘neutral’ from ‘underweight’.
It comes at an opportune time: Malaysia’s stock benchmark, the Kuala Lumpur Composite Index, has lost around 5 percent so far this year and the country is currently one of the worst-performing Asian emerging markets.
Much of the negative sentiment comes from the uncertainty caused by Prime Minister Mahathir bin Mohamad’s ruling alliance Pakatan Harapan’s election victory in May 2018 and the coalition’s economic plans.
Given the tensions between the US and Chin, however, and the potential of this situation to upset global growth, Malaysia is being seen in a different light.
‘We think the economy looks resilient, with domestic demand strong and manufacturing growth holding up,’ HSBC observes in its report. ‘Low earnings growth is a concern but we see limited further downside. Valuations, while not as attractive as other markets in the region, are not particularly expensive. The market has strong defensive qualities, which should reduce downside risks if trade tensions escalate.’
That view is shared by UBS, which says Malaysia fits the bill as a market that’s ‘defensive’ and offers ‘safety’ in the current tumultuous global environment.
