A survey by Malaysian Rating Corp Bhd (MARC) shows that market participants are optimistic the economy will stay in recovery mode but they also agreed that inflationary risk has heightened.
The rating firm said the majority of respondents were also of the view that the operating environment would be challenging for companies this year.
“Surprisingly, the majority of respondents are somewhat pessimistic on the operating environment for domestic corporates despite agreeing that the economy will resume its recovery.
“A total of 69.6% of them are predicting that the operating environment will be difficult compared with only 13% who think that the operating environment should track the expected recovery in the economy,” MARC said.
Tourists walk out of a shopping mall during mega sale carnival in downtown Kuala Lumpur. A MARC poll shows respondents have unanimously agreed that inflationary risk is on the upside. — AFP
Most also believe that the ringgit would trade in the range of 3.00 to 3.10 against the greenback with unanimous expectations of monetary tightening this year.
MARC said in a report published on its website that 61.3% of the 33 fund managers, bank treasurers, market researchers, advisors and investment bankers were confident the economy would grow 5% to 6% this year, with 29% expected the economy would grow less than 5%.
“Respondents unanimously agreed that inflationary risk is on the upside, with 59.4% looking at headline inflation in the range of 2.5% to 3% this year, while the remaining 40.6% believe that inflation could even surpass 3%,” it said, adding that none of them anticipated the headline inflation to fall below 2.5%.
MARC said 78.1% predicted the central bank to hike the overnight policy rate (OPR) while 18.8% expected the pause mode to persist over the same period.
“Of the sub-sample that expects interest rate hikes in 2011, 75.9% think that the OPR will close the year in the range of 3% to 3.25% while the remainder believe that the quantum of rate hike should be in the range of 50 to 75 basis points.
“None of the participants are looking at a rate hike of more than 75 basis points this year,” it said.
The rating firm said 43.8% of respondents believe that the ringgit sovereign bond market would not rally this year while 40.6% were not sure of the expected performance of this market and the balance predicted it to rally.
“On the shape of the yield curve, 51.6% of respondents are looking at steepening bias compared with only 29% who think the curve will flatten. Factors that will contribute to a steepening curve include higher sovereign bond supply and rising inflationary pressure,” it said.
MARC said due to the steepening yield curve, 50% of the respondents were forecasting the 10-year yield to trade within the range of 4% to 4.25% this year while another 37.5% believed this part of the curve would trade above 4.25%. The remainder who think there would be a rally believe that the 10-year yield would fall below 4%.
MARC said views were mixed on the expected financing conditions for the corporate debt market, with 45.8% saying that compaies should not face any serious difficulties in raising funds via debt capital market, 41.7% expected tight financing conditions and 12.5% being uncertain.
“However, judging from their views on the credit spreads direction, the general consensus is that mainly issuers rated A+ and below' will face tight conditions, as the majority said credit spreads along this rating universe will remain elevated,” it said.