Malaysia Strategy:3Q17GDP stats,key read-throughs

Conclusion

    Consensus-beating 3Q17GDP growth (+6.2% YoY) was punctuated by manypositive data points, in particular accelerating real wage growth, expandingcurrent account surplus and capped debt ratios. Policy-wise, higher oil pricesare providing fiscal room to manoeuver even as monetary policy adopts atightening bias, though rate hikes are only expected post-elections (GE14;

    likely 2Q18). With the Ringgit on a fundamentally firmer footing and the KLCI10% off its year high (9% TSR vs. 12mth bottom-up 1,822KLCI target), stillelusivecorporate earnings momentum is key to market recovery. Favouredsectors are banks, construction and logistics - whilst GLC Reform remains astructural, over-arching theme, renewed traction is only likely post-GE14. Bigcappicks are Tenaga, Sime, CIMB, Telekom, Hartalega, AirAsia and POS(M).

    Impact

    3Q17macro stats impress: Malaysia’s 3Q GDP growth of 6.2% (consensusexpectation: 5.7%) was the fastest pace since 2Q14, underpinned by strengthin private consumption, net exports and a boost from the public sector (Fig 2).The 3Q fiscal balance surprised positively with overall balance surplus (Fig 4),while double-digit export growth saw current account (CA) surplus expandingto 3.7% of GNI (Fig 12; 2Q: 3.0%), continuing its rebound from 1Q’s 1.7% low.

    Policy reversals in progress: As oil prices remain well above both budgeted(USD52/bbl) and 1H17average (USD52.2/bbl), and tax collections are strong,fiscal breathing room has expanded and may be deployed ahead of GE14,reinforcing GDP momentum. On the flipside, CPI averaging 4% YTD (vs. 3-4% target) and rising offshore rates had BNM signalling shift to tightening bias