Economic woes far from over

KUALA LUMPUR: While certain global and regional bourses have been going strong lately, economists and heads of research are not ready to call a bottom yet for the equity markets, including Bursa Malaysia Securities.

While a firm rebound in the stock markets could foretell a recovery in the real economy six or nine months down the road, they believe it is still early to say if the global economy has seen the worst.

Furthermore, a U-shape recovery in the global economy means that equity markets will show even greater resistance on the upside in the near and medium terms.

Expecting Malaysia’s gross domestic product (GDP) to contract 2.5% this year, Bank Islam Malaysia Bhd senior economist Azrul Azwar said the performance of the equity market would depend on the state of the economy.

He forecasts the country’s real GDP to post a 3% to 4% contraction in the first half and a 1.5% to 2.5% contraction in the third quarter. He expects to see a flat growth in the fourth quarter.

“I think the GDP forecast of -1% to 1% by the government is a little bit on the bullish side. It is very conditional on the global recovery in the second half and the implementation of the two stimulus packages.

“Judging from the implementation of the first stimulus package, I think the implementation of the mini-budget will be slow too. Therefore, it is not easy for the country to avoid recession this year,” he told The Edge Financial Daily.

Azrul said the country could begin to see signs of recovery by the middle of next year, when the implementation of the two stimulus packages and the monetary easing measures began to take effect.

“We may see further weaknesses in the economy because the global crisis is still revolving. Don’t forget that there is a lag time for monetary and fiscal policies to be  implemented,” he added.

Sharing a similar view, Jupiter Securities Sdn Bhd’s research head Pong Teng Siew did not expect to see sustainable recovery in the equity market for the next 12 months.

“Other equity markets are currently going strong, but it is just another rally. I don’t think there will be a sustained uptrend,” he said.
Pong believed that more bad news could come out of the United States whose banking problems were far from over.

Besides companies related to consumer products and food, Pong said investors could invest in commodity-based corporates such as oil & gas (O&G) and plantation companies, as commodity prices have begun to go up while inventory cost has gone down.

Azrul nevertheless said investors should avoid equity at this point in time, except for those in recession-proof sectors. “Investing in commodities such as gold is better as it is resilient in times of crisis,” he added.

Source: http://www.theedgemalaysia.com/business-news/2992-economic-woes-far-from-over.html