KUALA LUMPUR, March 9 — Citi analysts expect Malaysia’s 2022 gross domestic product (GDP) full year growth to reach 6.5 per cent, driven by optimism with the country’s imminent reopening of borders beginning next month.

Apart from this, the forecast incorporates additional boost to capex from reconstruction after the floods in mid-December, adding to earlier drivers from supply chain diversification and cyclical capacity tightness, it said in a statement today.

"Though dampened by floods in the Klang Valley in mid December, Malaysia’s fourth quarter 2021 (4Q21) GDP rose stronger than expected at 3.6 per cent year-on-year (YoY) on reopening, which should continue into 2022 despite Omicron uncertainties and external demand headwinds,” it said.

While Omicron delays reopening momentum, Citi economist Wei Zheng Kit said it does not derail it, both domestically and internationally.

"Despite the recent surge in daily infections since the start of 2022, the proportion of severe cases have declined drastically, with ICU capacity utilisation rates still low,” he said.

This, he said, partly reflects high and rising vaccination coverage, with 78.7 per cent of the population have received two doses and 41.2 per cent have received booster shots as at Feb 15, 2022.

Reopening has thus continued, with officials declaring Malaysia on course for a transition to endemic phase, and a full reopening of the borders without quarantine also on the cards.

"The impact could be significant as tourism receipts accounted for 5.8 per cent of GDP pre-pandemic. Currently, countries accounting for 57 per cent of 2019 arrivals have reciprocal no quarantine arrangements with Malaysia, led by Singapore (39 per cent),” he said.

On the global front, Citi said the economic recovery and bull market are maturing, with moderate growth expected ahead.

"Citi analysts expect less inflationary pressure in the coming year, albeit somewhat higher inflation over the next 10 years compared to the last decade. The assets that perform best over the next year and beyond are unlikely to be those that rebounded most strongly in 2021,” it said.

As the inflationary boom ends, and the US Federal Reserve (Fed) possibly overreacts, a peak in long-term yields may also define the trough for higher quality US growth stocks.

"When rates do peak, and Citi analysts think that may be sooner than many expect, the pressure on growth stocks is likely to abate. While timing is never clear with foresight, this could plausibly be after the Fed’s first interest rate increase, particularly if it takes bold action with a 50-basis point increase,” it said.

Meanwhile, in a research note, CGS-CIMB said the border reopening is not a surprise as the government had indicated its intention to do so over the past few weeks.

"We are positive on this news as this will spur economic activities and boost the tourism industry. The decision to no longer limit operation hours for businesses will also help to generate higher sales.

"Sectors that will benefit from higher foreign tourist arrivals are hotels and retail (via REIT sectors), consumer, gaming, transport, brewery and healthcare. Stocks that we like under this thematic play are Malaysia Airports (MAHB), Genting Malaysia, Genting, Carlsberg, Heineken, Bonia, IGB REIT, and IHH,” it said.

However, the research firm said this positive news is partially offset by concerns over the ongoing Russia-Ukraine war, rising inflation, labour shortage concerns, and political uncertainty.

"We maintain our end-2022 KLCI target of 1,622 points and our top three picks: Hong Leong Bank, Petronas Chemicals and Malaysia Airports,” it added.

Citi regional head of wealth management advisory Sumaira Franicevic said that more volatility is expected in the near term, and investors should improve the quality of their asset allocation by adding exposure to high-quality assets, including dividend growers, sectors with stronger returns and non-US developed markets large caps and China.

"These are times to keep calm, assess if fundamentals have actually changed, and act on data and analysis, not fear. This is particularly true for long-term investment strategies. History shows that impact of local geopolitical shocks on risky assets is short-lived and does not change the long-term trend,” she said. — Bernama