Maybank Investment Bank is cautiously optimistic about improved market traction over the second half of the year (2H 2023) despite mixed earnings guidance while the ringgit is expected to see a positive reversal in the fourth quarter as China’s economy stabilises.

Besides the peaking interest rates, the investment bank also said that the upcoming state elections and Budget 2024 could surprise positively with political/policy follow-through versus the current depressed expectations.

“Our foreign exchange team expect a positive ringgit reversal moving into 4Q 2023 as China’s growth outlook — and hence currency — stabilises and US Federal Reserve’s (Fed) narrative turns more dovish,” it said in a note today.

As for the equity market, Maybank IB said heavyweight sectors like banking and plantations have room to reverse year-to-date underperformance even as low-teens 2024 market earnings growth forecast comes into view.

“Furthermore, ramped-up sustainability initiatives and targets bode well for sectors such as auto with its focus on electric vehicle take-up and infrastructure and renewables/utilities,” the report said.

The investment bank is maintaining a general trajectory of slower headline inflation rates in 2023-2024 after the spikes in 2022. This also implies further moderation in monthly inflation rates for Singapore and Malaysia for the rest of the year.

However, Asean central banks indicate they remain ‘cautious’ about inflation risk, which underscores the need to continue focusing on ensuring and securing price stability mandates and to anchor inflation expectations, Maybank IB said.

It also said that inflation risks for many Asean economies are biased on the upside, being the highest in Malaysia due to the subsidy and consumption tax policy factors and overhangs.

It continues to see a positive medium-term outlook for the ringgit, adding that with the Fed’s rate upcycle approaching its peak and with US inflation expected to continue to trend lower into 2H 2023, there could be some US dollar unwinding.

“China’s economy could also show a more discernible recovery by 4Q 2023 which should boost appetite for regional emerging market assets,” the investment bank said