KUALA LUMPUR: Malaysia's economic potential has often been underestimated by international research firms, despite its good appeal to foreign investors, according to an economist.

Since the past few weeks, however, the country had gotten rave reviews from the likes of US investment banks JP Morgan and Golman Sachs, Singapore's UOB and Fitch Ratings.

The latest notable economic upgrade came from Nomura Group, Japan's largest investment bank and brokerage, on Monday.

Nomura, through its research unit, upgraded Malaysia to an "Overweight" rating given its strong fundamentals and robust second-quarter gross domestic product (GDP) growth.

Nomura's economics team expects above-consensus full-year 2024 GDP growth of 5.2 per cent.

Bank Muamalat Malaysia Bhd chief economist Dr Mohd Afzanizam Abdul Rashid said such review is long overdue and Malaysia as a country has a lot to offer to the foreign investors.

He added that the undervaluation of ringgit and equities markets suggests there is a clear motivation from the foreign investors to go long on Malaysian financial assets.

"The political stability in the country has been established and this will pave the way for the implementation of economic reforms which essentially will raise the long term potential gross domestic product (GDP) growth.

"By extension, this will improve productivity which will translate into better earnings prospects in the future.

"So Malaysia has all what it takes to attract foreign funds given that it has been lacklustre since 2018 and the present administrations have demonstrated their resolve for economic reforms," he told Business Times.

Afzanizam also noted that potential rate cuts in the US would certainly enhance the appeal of Malaysian assets, given the possible narrowing of the interest rate differential between the US and Malaysia.

Nevertheless, he said the slowdown in major economies such as the US and China, along with concerns over geopolitical risks that could disrupt global trade, remains a key risk.

"Such risks can be systemic. But at the end of the day, foreign investors will appraise the country individually in order to spot the market opportunities," he said.

Meanwhile, economist Dr Geoffrey Williams believes that the country's GDP growth for the second half of 2024 (2H24) will range from four per cent to 4.5 per cent.

"Inflation is expected to be around two per cent, with no change anticipated in the overnight policy rate (OPR) for this year. The fair value for the ringgit is estimated to be between RM4.20 and RM4.30," he said.

Williams also noted that a rate cut by the Federal Reserve is likely, following similar actions by the Bank of England and the European Central Bank.

He said this could narrow the interest rate differential and benefit the ringgit.

"However, there is also uncertainty about the US election in November and the likely outcome is not very clear. This may worry international markets," he added.

Last month, JP Morgan raised Malaysia's rating from "Underweight" to "Neutral" for the first time in nearly six years, crediting the nation's policy reforms, data centre investments and infrastructure development.

Its head of Asia-Pacific Rajiv Batra said Malaysia's rapid pace of progress was impressive with a 4.2 per cent GDP growth in the first quarter of 2024 (1Q24).

He added that earnings growth, which was nearly 10-11 per cent, was an upside surprise and that the country deserved credit for this.

Meanwhile, UOB increased its 2024 GDP growth forecast to 5.4 per cent, up from the previous projection of 4.6 per cent.

The firm highlighted that several factors contribute to Malaysia's optimistic economic outlook. This included the rising global technology cycle boosting electronics exports, a rebound in tourism enhancing the service sector and consumer spending, and ongoing targeted government cash aids.

Goldman Sachs also recently upgraded Malaysia's stock market to an equal weight rating due to the defensive nature of the local market in response to external shocks.

According to its analysis, investor sentiment towards Malaysia has improved since Prime Minister Datuk Seri Anwar Ibrahim began his second year in office, bringing political stability.

It noted that the strengthening Malaysian economy and a more robust currency have also boosted confidence in local assets.

Last week, Fitch's unit BMI Country Risk and Industry Research revised up its 2024 growth forecast for Malaysia to 4.7 per cent from 4.4 per cent.

The firm said it expected resilient domestic demand to support Malaysia's growth.

It also expects investment across the private sector in the country to be supported by increased capital expenditure across machinery and equipment.

https://www.nst.com.my/business/economy/2024/08/1097156/malaysia-back-international-investors-radar-us-rate-cut-view