KUALA LUMPUR (July 23): Malaysia's economic growth will be on the high side of 5.0%, driven by a number of government initiatives and in line with the growth trajectory of other Asean countries, said Manulife Investment Management (Manulife IM) today.

Its senior portfolio manager on equities Marco Giubin said, however, that it would still have to be cognisant of the inflation rate for this year.

“We don't expect Malaysia, in particular, to cut rates this year. We think the GDP (gross domestic product) will be somewhere in the high 5.0% growth rate ... at 5.8%. We have to wait and see what will happen next year," he said during a question-and-answer session at a virtual media briefing on the 2024 mid-year regional market outlook today.

In late June, Economy Minister Rafizi Ramli said the initiative to rationalise fuel subsidies is expected to impact the country's inflation rate but the implementation through well-designed strategies coupled with targeted cash assistance will help mitigate these effects.

He noted that the government continues to subsidise and maintain the diesel price at RM2.15 per litre for 23 types of logistics vehicles under the Subsidised Diesel Control System 2.0, while keeping the diesel price at RM1.88 for land public transport including school buses, express buses, ambulances and fire department vehicles.

Malaysia's inflation rate climbed to 2.0% in May compared to a 1.8% hike in April, driven by price increases in the main groups of housing, water, electricity, gas and other fuels of 3.2% and another 3.2% hike in restaurant and accommodation services.

Despite inflation being largely under control in Asia, persistent headwinds from higher US interest rates have constrained consumption and investment in Asian economies.

Giubin said easing headwinds combined with an upward earnings revision trend for Asia, excluding Japan, and attractive valuations could catalyse a potential re-rating in Asian equities.

"Within Asean, from our perspective, we do have at this point in time a preference for the Philippines and we think the Philippines will be one of the biggest beneficiaries if there are going to be rate cuts," he added.

Other points of interest for Manulife IM were the Indonesian and Thai markets.

"Indonesia has always been our favourite in the Asean market. In the short term, I think we have to keep our eyes on Indonesia, on some of the earnings trajectory.

"There is a bit of a wait and see approach to see how transition occurs from the previous government to (President-elect) Prabowo Subianto and see how that comes through as well but I think ultimately Indonesia looks like an attractive market," he added.

Meanwhile, reflecting on the aggressive tightening cycle of 2023, Manulife IM now anticipates a pivotal shift in the global economic landscape while noting that the US interest rate has likely peaked and expects the US Federal Reserve (Fed) to join the global easing cycle later this year.

Its head of asset allocation Luke Browne said economies like Europe, Japan and China had shown signs of stabilisation and improvement, with policymakers intervening to support challenged sectors such as the property market in China.

“The pace of disinflation globally, particularly in the US, will be our focus for the remainder of the year. Central banks in developed countries like Switzerland, Canada and recently the European Central Bank have cut rates over the past several months.

"However, the US Fed has been more cautious due to persistent inflationary factors like auto insurance and shelter costs, which have caused disinflation to progress unevenly,” he said.

Browne said that looking ahead, Manulife IM believed these one-off inflationary factors will stabilise, allowing the Fed to cut interest rates towards the end of the year.

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