The China play, and six catalysts for stock market


By Koon Yew Yin

Earlier I had written about the impact of the 2017 Budget and that the average Malaysian household must prepare for a tough year ahead.

The same can be said also for Bursa Malaysia. Basically the Budget did not provide any carrots or freebies to business both at the macro or sectoral levels.

Perhaps the only sector which can be said to have benefited from the budget is the hospitality sector with incentives to pull in the targeted 32 million tourists for the coming year. All other sectors basically saw an “SOS” or “same old stuff”.

On the domestic front we can expect little that is encouraging for the stock market; at the global level, the British and European markets are entering a period of uncertainty and likely economic slowdown as a result of Britain’s surprising decision to quit the European Union.

The outcome of this decision is still playing itself out and its full impact on the global economy has still not sunk in yet. It will surely hit Malaysian companies that have sales and revenues oriented towards Britain and Europe.

This European uncertainty, however, will be counter-balanced by the steady performance of the American and Chinese economies. Although some die-hard American market analysts have been predicting the collapse of the Chinese economy for some time, I expect the Chinese economy to continue to grow and mature, and to act as a life line to our own stuttering performance.

The Coming Chinese Investment Wave

No other person in Malaysia realises this impact of the Chinese economy on the Malaysian one, or on the entire Asean economy, better than our own Prime Minister, Najib Razak, who is undertaking a weeklong trip to China.

The significance of this trip cannot be underestimated. He will be bringing along several dozen government leaders and business people in one of the biggest official cum business delegations ever to accompany our Prime Minister.

In a statement on Oct 26, Najib said Malaysia was committed to strengthening friendship with China and pushing ties to “new highs”.

“We will be signing many new agreements and understandings that will elevate the relationship between our two nations to even greater heights,” the prime minister said.

According to one investment banker, Ian Yoong Kah Hin: “There are many China-based corporations that are looking for assets in Malaysia and other Asean countries. Not just property or land assets. They are here to invest in manufacturing, infrastructure, tourism and hospitality as well as the finance sector. The Chinese are testing the water on investing in the manufacturing sector in Malaysia because of the excellent infrastructure, lower costs and the wide use of Mandarin,”

I recognise that our local share market has so far not had good experience with China-based counters, but I am sure that this will change, especially with labour cost in urban areas such as Shanghai and Guandong becoming much more expensive compared with costs in Malaysia.

Key Catalysts for Malaysian Share Market

Taking a cue from this very important emerging partnership, let me list the following key catalysts for our stock market:

1. The importance of foreign funds inflow to support the market.

As our ringgit can be expected to remain bearish, foreign investors will be able to pick up select Malaysian shares at bargain prices.

2. Chinese investment will build up even more rapidly. Already we have seen Chinese companies carving out mega-projects in Johore, Penang and Malacca.

3. Select small and mid-cap companies will benefit from the foreign and Chinese investment.

4. Companies such as wood and rattan-based furniture exporters, those providing niche and specialised electronic manufacturing services, etc. will continue to enjoy robust growth and upside in their share prices.

5. Locals will move money away from the property market that is experiencing a downturn to the stock exchange for better returns.

6. Property market will continue to be depressed. Even the biggest real estate and property brokerage firms such as C.H. Williams are predicting a difficult if not bad year ahead.

Koon Yew Yin is a retired chartered civil engineer and one of the founders of IJM Corporation Bhd and Gamuda Bhd.

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