MARKET REPORT SUMMARY ECONOMIC OVERVIEW DIVERGENT FORTUNES: MACRO DECELERATION VS. MARKET REVIVAL For Malaysia macro, economic growth is set to slow in 2023 to 4.0% (2022E: 8.0%) as global economy is expected to experience a mild recession (2023E: 1.7%; 2022E: 2.9%) amid stagnation/recession in major advanced economies (i.e. US, Eurozone, UK) on the impact of high inflation and the resultant high interest rates. Several factors mitigate the downsides to domestic economic outlook. First is the growth-friendly moderate OPR hikes from the “accommodative” record-low of 1.75% since May 2022 to the “neutral” level of 3.00% by Jan 2023. Second, drawdown of excess individual/household savings built since Jan 2020 amid lockdowns and economic stimulus measures provide a buffer to consumer spending. Third, recovery in inbound tourism provides the next leg for the growth tailwinds from full economic opening. Fourth, investment outlook is positive amid a technology-driven surge in approved investment/FDI since 2021 e.g. capex in electronics industry and data centres; automation and digitalisation; 5G infrastructure rollout. Several lookouts and wildcards are on our radar. Inflation and interest rates will remain the key macro variables to watch. China’s growth outlook (2023E: 4.0%; 2022E: 3.3%) will be dependent on its zero COVID-19 policy exit conundrum and the management of its real estate doldrum. Early and faster re-opening of China will be positive for global and Malaysia’s economic conditions in terms of trade, investment and tourism flows. Domestically, post-GE15, eyes will be on the re-tabling of Budget 2023 in early-2023 as well as the new government’s policies, including the medium-term fiscal stance. Re Malaysian equities, while fading reopening tailwinds and interest rate hikes will weigh on growth in 2023, market earnings expansion ex-Gloves is nonetheless forecast to strengthen to +17.3% YoY (2022E: +13.4%) as Cukai Makmur expires, bank sector profitability continues to improve and on accelerating recoveries at laggard sectors like casino-gaming and transport/ aviation. Political risk premium is moderating following Nov’s general elections (GE15) having ultimately yielded a PH-led ruling coalition with a solid majority in Parliament, boding well for improved governance and expedited policymaking. A fasttracked reopening by China will boost trade, tourism and commodities demand/prices. Growth/earnings-disruptive policy changes relating to subsidies and taxes are now unlikely to surface in 2023 as the government focuses on cost-of-living issues, with interim fiscal gap likely to be bridged by a combination of cost cuts, curbing of fiscal leakages and PETRONAS. Re thematics, with a new reformist-leaning government taking the helm, GLC Reform could be back on the table, potentially sparking secular economic and market impetus; interest rates and inflation headwinds are diminished but remain topical, as does dividend yield. Investors also need to pay attention to Sustainability/ESG, as detailed in MY ESG Compendium 2022 (“Shifting into higher gear”, dated November, 29) as well as market impacts from robust FDI inflows, underpinned by supply chain relocation. (Extracted from Maybank Report: Malaysia 2023 Outlook and Lookouts) AL-`AQAR HEALTHCARE REIT ANNUAL REPORT 2022 56
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