KUALA LUMPUR, Dec 5 — Political stability and clarity on mega projects can be the ‘wow’ factors which could boost the ringgit and FBM KLCI performance next year.

Bank Islam Bhd chief economist Dr Mohd Afzanizam Abdul Rashid said the East Coast Rail Link (ECRL) contract awards and implementation, as well as clarity on the Prime Minister’s power transition, will help to drive investors’ sentiment.

He said currently, the ringgit and Bursa Malaysia have been dampened by risk aversion amid cautious sentiments both locally and overseas.

Malaysia’s net foreign fund outflow stood at RM10 billion year-to-date, while the FBM KLCI declined by 7.6 per cent.

Speaking at a press conference after Bank Islam’s Economic Outlook 2020’s knowledge sharing session today, Mohd Afzanizam said FBM KLCI is expected to hover at the 1,650 level next year, driven by the bullish outlook for the oil and gas (O&G), construction and electrical and electronic (E&E) sectors.

He said the commencement of the Refinery and Petrochemical Integrated Development (RAPID) project in Pengerang and other mega project developments are set to support the O&G as well as construction counters, while E&E counters are expected to be bolstered by improved semiconductor demand.

Meanwhile, he said financial counters — which account for one-third of the 30 counters in FBM KLCI — may be pressured if Bank Negara Malaysia (BNM) cuts its Overnight Policy Rate (OPR) next year, as net interest margins (NIM) are expected to be impacted by the move.

Bank Islam is expecting the BNM to slash its OPR by 25 basis points to 2.75 per cent from the current 3.00 per cent, and the ringgit is expected to hover between RM4.20 and RM4.30 in 2020 as risk aversion continues.

Dr Mohd Afzanizam Abdul Rashid
Next year, Malaysia’s gross domestic product (GDP) growth is estimated to moderate to 4.3 per cent from 4.5 per cent this year.

In the first nine-month of 2019 (9M 2019), the country’s GDP growth moderated to 4.6 per cent from 4.7 per cent in the same period a year ago.

Mohd Afzanizam said consumers are likely to be more careful in their spending next year, while businesses would remain cautious as the outlook for final demand looked increasingly challenging.

He said if consumer spending grows strongly, Malaysia could achieve the GDP growth prediction of 4.7 per cent.

In 9M 2019, domestic demand growth declined to 4.1 per cent from the 5.5 per cent recorded in the same period last year.

Growth in private spending eased to 7.5 per cent from 7.8 per cent in 9M 2018, and public spending growth slowed down to 2.4 per cent from 3.0 per cent previously.

Mohd Afzanizam said BNM and the government are expected to enact more expansionary economic policies in order to cushion the impact from slower global growth next year.

Asked if a stimulus is needed to support the country’s economic growth,he said he believed the government had mulled the move in Budget 2020.

“I think we need it but I think it has been reflected in the Budget 2020 to some degree, because the government is looking at a wider fiscal deficit target of 3.2 per cent next year and has allocated RM56 billion for development expenditure, which is higher from the average of RM46 billion between 2010 and 2018,” he added.



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