KUALA LUMPUR: Low bond yields, rebound in corporate earnings and the expected weakening of the US dollar will provide more room for Asian equities, including Malaysian shares, to rally, says Standard Chartered.
Head of fixed income, currencies and commodities investment strategy, Manpreet Gill, said among the drivers for possible rally were low bond yields and central banks’ efforts to cap bond yields.
“Rebound in corporate earnings expectation, regardless of where we look, is all fairly standard cycle for the equity markets. We saw earnings falling down sharply but now they are beginning to bottom out.
“When recovery in earnings gets priced in, we think that will be another driver for rally in Asian equities,” he told a virtual press conference on Standard Chartered Global Market Outlook H2 2020 today.
Standard Chartered views Asia ex-Japan equities as attractive relative to global equities from a growth, policy stimulus and positioning perspective and scores them as “preferred” on a 12-month horizon.
Furthermore, he said, the bank was starting to see US dollar weakness taking hold, which would be supportive of capital flows into emerging markets (EM).
“Within equities, we believe, Asian EM equities are better positioned to benefit from US dollar weakness. In EM bonds, modest currency gains will likely be insufficient for local currency bonds to outperform their US dollar peers given the lower yields,” he said.
Asked on the possibility of another round of Overnight Policy Rate (OPR) cut, executive director and head of investments, product and wealth management, Danny Chang, said Standard Chartered expected Bank Negara Malaysia (BNM) to keep the rate at 1.75 per cent for the rest of the year.
However, citing the Bloomberg’s poll, he said economists were expecting one further cut in OPR by the central bank in the fourth quarter, from 1.75 per cent to 1.50 per cent.
“If we look at the average Bloomberg consensus poll, as of yesterday one-third of 19 economists say they are expecting one further reduction by the central bank,” he said.
On July 7, the central bank reduced the OPR by 25 basis points (bps) to 1.75 per cent to provideadditional growth stimulus for the Malaysian economy.
Cumulatively, BNM has reduced the benchmark rate by 125 bps since January 2020 as economic activities slowed down, especially after the government imposed the Movement Control Order in response to the COVID-19 outbreak.