Economy Gearing Up In Malaysia For 2017

Four Pillars of GDP: Growth rising in 1Q17

Malaysia’s GDP made a run for it in the first quarter of 2017, clocking in at 5.6%—a rate not seen since the first quarter of 2015. This pushed up the annualized rate to 4.6%, a move that has investors thinking the slowdown of 2016 is gone for good.

The economy was primarily driven by growth in private consumption, 52% of GDP, but was also aided by the resumption of a positive, albeit small, trade surplus, which had been negative in recent quarters.

Despite inexpensive book value, lower profits still dog Malaysia

Valuation on a price-to-book basis, which currently sits at an expected value of 1.6x for 2017, is not expensive relative to the rest of Asia.

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But the relatively low PB comes with a lower profitability in terms of ROE. Analysts expect just 1.1% growth in earnings per share this year.

A. Stotz Four Elements: Malaysia’s rank relative to Asia

Overall, Malaysia is relatively unattractive in Asia, considering all our four elements: Fundamentals, Valuation, Momentum, and Risk.

Fundamentals: Expected return on equity remains below 10% in 2017.

Valuation: Price-to-book is relatively cheap and the dividend yield is in line with the Asian average.

Momentum: Earnings growth and price momentum are both poor.

Risk: The market has a low beta relative to Asia ex-Japan, as well as a generally low price volatility.

All sectors fell in the Q3

Top 3 largest sectors: Financials: 21% of the market; Industrials: 16%; Consumer Staples: 12%.

Best sector & stock: Technology: +31.6%; MY EG Services Bhd: +36.2%.

Worst sector & stock: Utilities: +0.1%; Petronas Gas Bhd: -6.7%.

Article by Dr. Andrew Stotz, Become A Better Investor

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Dr. Andrew Stotz, CFA is the CEO of A. Stotz Investment Research, a company providing institutional investors with ready-to- invest portfolios in Asia that aim to beat the benchmark through superior stock selection. The company also provides buy- and sell-side clients with financial models to value any company in the world and World Class Benchmarking to determine what companies are financially world class. Previously, as Head of Research at CLSA, Andrew was voted No. 1 Analyst in Thailand in the Asiamoney Brokers Polls for 2008 and 2009. He was also voted No. 1 Analyst in Thailand in the 2009 Institutional Investor magazine All-Asia Research Team Report. Andrew earned his PhD in finance at the University of Science and Technology of China in Anhui province, with a focus on answering questions raised by fund managers and analysts during his career about picking stocks and managing portfolios. In addition, Andrew has been a lecturer in finance for 22 years at various universities in Thailand. Since 2013, he has been the president of the CFA Society of Thailand. He is also the author of How to Start Building Your Wealth Investing in the Stock Market.