HSBC forecasts 6% GDP growth in 2021 for Malaysia, ringgit to hit 3.96 by year-end

MCO 2.0 may pose economic challenges in early 2021, but HSBC is quite confident that these economic effects will dissipate quickly


THE reintroduction of the Movement Control Order (MCO) across major states in Malaysia is expected to pose some challenges to economic activity early in 2021, though experts anticipate the effects to gradually disappear as the year unfolds.

HSBC Holdings plc co-head of Asian economics research Frederic Neumann forecast Malaysia’s economy to grow at 6.7% this year, following an estimated contraction of 5.4% last year.

“The MCO 2.0 in place poses economic challenges in the beginning of the year, but we are quite confident that these economic effects will dissipate quickly over the course of this year, allowing Malaysia’s economy to achieve 6.7% growth,” he said at a press briefing on HSBC’s Asian Outlook for 2021.

HSBC expects another policy rate cut by Bank Negara Malaysia due to the lockdown and its economic impact at the beginning of the year.

From a regional perspective, Neumann expects South-East Asia to register strong growth from the second quarter onwards as the roll-out of vaccines in the region may take longer than some developed markets, which may impede recovery in sectors like tourism.

“There are downside risks if the vaccination programmes are not handled on time, but we think the risk is relatively low. “We look forward to a reasonable normalisation of domestic activity starting in the second half of the year, which is slightly delayed from the normalisation in developed parts of Asia like North-East Asia, Australia and New Zealand, but we think it is coming through,” he added.

On the ringgit, HSBC global head of foreign-exchange research Paul Mackel forecasts the local note to strengthen and trade at RM3.96 against the US dollar by year-end.

He expects the headwinds that are working against the ringgit currently to ease throughout the year, with higher commodity prices supporting the currency further.

“We deem it to be a relatively undervalued currency and that should help bolster the case for the ringgit to appreciate. Perhaps, there may even be some silver lining at some point with regard to the tourism angle as well,” he said.

Mackel expects Asian currencies to be resilient this year as a “benign” US dollar would help alleviate currencies in the region.

HSBC’s preference leans more towards emerging-market (EM) currencies, with the ringgit, Singapore dollar and the Philippines peso likely to stand out this year.

On the equity market, HSBC head of equity strategy for Asia Pacific Herald van der Linde pro- jects the benchmark FTSE Bursa Malaysia KLCI to edge towards 1,780 points by year-end.

He said Malaysia is typically considered to be a “defensive” market due to the good domestic demand for its equities and little volatility in valuation.

“That has changed to a certain extent because you have glove makers who have done phenomenally well.

“It was not a surprise for Malaysia to be the best performing Asean market, which was up 3.6% last year compared to most Asean markets which were down 20% to 30%,” he said.

Read our earlier report

2021 GDP may be revised down