EM Growth has underperformed DM in recent years.
The key aggregate demand that has benefitted EM in the past decade is mainly driven by Chinese urbanisation and US consumer demand.
However, these mega trends have tapered in the last five years, with US consumers and Chinese corporate deleveraging, with growth consequently easing as well.
Monetary policy to the rescue.
As global growth slows, investors are currently expecting central banks to ease monetary policy. But monetary policy has few bullets left after attempting to counter the 2008 Global Financial Crisis.
Investors should be cautious of high valuations in equity markets, especially in the US.
Low interest rates since the Global Financial Crisis have led global economies to be dependent on debt for growth.
It has also pushed equity market valuations higher. However, expensive valuation could be unsustainable as macro growth momentum is slowing.
Investors should tread with caution.
Key risks that could lead to a sharp equity market correction include the mismatch between investors’ expectation of lower interest rate level versus Federal Reserve’s guidance. Geopolitical risks such as the escalating Trade War or the US political landscape are also tilted to the downside.
There is value to be unlocked in Corporate Malaysia.
Corporate Malaysia, especially Government-Linked Companies (GLCs) have room for improvement in efficiency.
Major shareholders (EPF, PNB, Khazanah etc.) should focus on providing the right direction and leadership to improve GLC operations. If done right, it could lead to better returns to shareholders and uplift the Malaysian economy via higher wages to employees and a more vibrant economy.
Firms should be quick to adopt technology and respond to competition.
Fostering market competition and gradual adoption of automation could be catalysts to reinvigorate corporate Malaysia.