Manulife’s head of macro strategy in Asia’s multi-asset solutions team Sue Trinh said from a macroeconomic perspective, Malaysia is “significantly” exposed to potential global economic recession, on top of overhang arising from domestic political uncertainty.

KUALA LUMPUR (Sept 22): The volatile market condition this year has made cash and cash-like investment instruments more attractive in asset allocation due to better yields and their defensive attributes, says a portfolio manager from Manulife Investment Management.

“Across the board, cash, treasury bills, crossed currencies are becoming a far more attractive allocation for portfolio not just because yields have increased, but also [because of] their defensive characteristics in volatile market conditions,” said Luke Browne, senior portfolio manager and head of asset allocation in Asia.

Browne also said credits remain a preference for him with attractive yields within US fixed income given a resilient US economy, coupled with selected spread opportunities in Asia.

“We believe the US high-yield market has the potential to deliver relatively better performance versus risk assets like equities, as it is better compensated under rising inflation.

“Also, US high yield has a lower default potential, as these bonds have a greater exposure to oil and gas sectors, as well as a relatively stronger US economy,” he said in a virtual media briefing on Thursday (Sept 22).

“Given attractive valuations, emerging market debts could begin to look attractive over the medium term, but we currently have less conviction here,” he added.

Browne said the equity markets experience heightened volatility given weaker economic growth momentum and ongoing geopolitical uncertainty.

However, he said markets with significant exposure to energy and materials — as inflation hedges — coupled with low volatility and defensive attributes like consumer staples, utilities and dividend play may find some insulation.

“The equity sleeve is predominantly in developed markets with a blend of value and growth characteristics, which is somewhat defensive and has helped avoid some of the relatively higher drawdowns in sectors like technology,” he said.

Be cautious, thoughtful in timing of moving in emerging markets like Malaysia

Although Browne thinks that emerging markets like Malaysia have positive tailwinds in the medium term, he would prefer to be “cautious” and “thoughtful” on the timing of investing into these countries.

“We do dive into some 140 asset classes in our multi-assets review process, and Malaysia alongside Indonesia [have] been some of those going relatively highly on our outlook. Similar to my observation on Hang Seng, it is really a question of when, and certainly for any position taking or active risk deployment, I’d want to be cautious, and be very thoughtful about the timing of moving in,” he said.

To elaborate further, Manulife’s head of macro strategy in Asia’s multi-asset solutions team Sue Trinh said from a macroeconomic perspective, Malaysia is “significantly” exposed to potential global economic recession, on top of overhang arising from domestic political uncertainty.

“What I mean by that is Malaysia exports to the likes of China, US and to the Eurozone, it is actually relatively higher versus the rest of the Asean region,” she explained.

Malaysia's exports increased by 48.2% to RM141.33 billion in August, the 13th successive month of double-digit growth, attributed to higher shipments of electrical and electronics (E&E) products, petroleum products, palm oil and palm oil-based agriculture products, liquefied natural gas (LNG) as well as optical and scientific equipment.

Exports to major trading partners, notably Asean, China, the US, the European Union and Japan, recorded double-digit growth, data from the Department of Statistics Malaysia showed.

BNM should be more aggressive in rate hike

Asked to comment on Bank Negara Malaysia’s “gradual and measured” manner of raising overnight policy rate (OPR), Browne said as a portfolio manager, he would prefer a more aggressive pace of increase.

“Not all portfolio managers think the same, I would prefer to see aggressive, fast-paced, get it done, take the pain, and then move forward. Clearly that has to be held in context of the current situation, you need clarity of data, ensuring that it is the right decision and then move aggressively. So, yes, I sit in the camp of fast and hard,” he said.

Trinh, on the other hand, said as the bulk of the inflation is driven by the supply side, there is very little that the central bank can do to address rising consumer prices.

“Unfortunately, Malaysia is [also] hampered somewhat by the political uncertainty, the risk of a snap election, that may weigh on the timeliness of any kind of fiscal support in the current environment,” she said.

Bank Negara has raised its benchmark interest rate by 25 basis points for the third time earlier this month, bringing OPR to 2.5%, with inflation remaining modest, thanks to fuel subsidies and various price controls on essential food items.