Sound macro fundamentals and positive policies to continue supporting economy

PETALING JAYA: Corporate assets are likely to provide better returns over government bonds in the medium to long term while riskier assets such as equities offer the best opportunities based on valuations and long-term fundamentals, according to the 4Q14 investment outlook report by HSBC Global Asset Management (HSBC).
The valuation gap between corporate assets and government bonds has, however, narrowed over the past year. The relatively higher level of risk is expected to generate bouts of volatility in the short run.
"As the market moves to an environment of rising interest rates as a result of the normalization of US monetary policy such as withdrawing liquidity from the market in the long term, we expect a repricing of assets as risk premiums will inevitably change," said HSBC Bank Malaysia Bhd head of retail banking and wealth management Lim Eng Seong.
However, HSBC Malaysia said the country's sound macro fundamentals and government policies should help cushion the effect of volatility in the equity market due to increasing interest rates in the US.
"Malaysia's sound macro fundamentals such as the current account surplus and low inflation will, however, help weather potential fallout arising from the increasing interest rates in the US," Lim added.
HSBC Malaysia also said that government policies such as reform of fuel subsidy and the implementation of the goods and services tax next year are "positive policies" for the economy.
It noted that institutional investors, particularly the government affiliated funds and corporate pension funds who dominate the Malaysian equity market make Malaysian equities expensive.
However, recent under-performance could open up opportunities.
Lim advised that investors should stay globally diversified to manage risks and returns in the Asian markets as he expects volatility to continue.
"Strong credit and stock selection will help to unlock returns in an environment where risks are being re-priced," said Lim.