Economy Gearing Up In Malaysia For 2017

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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.

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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