The 3Q2017 GDP of 6.2% y/y again beat our estimate of 5.9% and consensus for the third time in a row in 2017 supported by investment, consumption and strong exports. Besides, the overall supply side of the GDP performance remained favourable. Taking into account of the first three quarters’ growth, we project the fullyear GDP to expand at 5.9%, which is in line with our best case scenario. For 2018, we project the GDP at 5.5% underpinned by investment, major infrastructure projects and exports.

With a strong GDP print, we now focus on the incoming inflation figures which we project to average at 4.0% for 2017 and 2.5% – 3.0% for 2018. A rate hike in January by BNM is on the table, if the GDP and inflation data, especially demand-driven inflation, are pointing towards a strong end. Otherwise, the OPR hike will likely be in March 2018. With our view that the normalization rate for OPR is around 3.50%, a total of 2 rate hikes, each by 25bps, are expected, probably both in 2018 or one hike each in 2018 and 2019.

With a better-than-expected GDP data, we expect the ringgit to continue exhibiting a firmer footing. We project the ringgit to trade between 4.15 and 4.17 in the near term. Our 2017 projection is still at 4.31 against the USD for the full-year average with our end period target at 4.12 and 4.15. For 2018, we project the ringgit would appreciate by 2% – 3%. For 2018, we anticipate the ringgit averaging around 4.16 against the USD with our end period target at 4.08.

On the KLCI, we reiterate our 1,745-point target for 2017 and 1,900 for 2018. We are positive on the market which is supported by favourable macro trends, an undervalued ringgit, underweight foreign portfolio and a recovery in corporate earnings. The market is also expected to benefit from trading opportunities from “noises”. And with a rising interest rate outlook, we could expect some shift in appetite from bonds to equities. We see 10-year MGS yields staying around 3.95-4.00% for 2017 and around 4.05% – 4.10% levels for 2018.

• The 3Q2017 GDP of 6.2% y/y again beat our estimate of 5.9% and consensus for the third time in a row in 2017. The continued better-than-expected growth was driven by domestic demand from both investment and consumption and further supported by strong exports. The overall performance from the supply side of the growth model was favourable, with firm growth from manufacturing and services.

Source: AmInvest Research - 20 Nov 2017