The Malaysian economy is likely to experience increased activities especially in the oil and gas and construction sectors as well as the capital market.
HwangDBS research head Wong Ming Tek expects the acceleration of oil and gas contract awards in 2011, namely, in brownfield services, marginal fields, downstream EPCC (engineering, procurement, construction and commissioning) and deepwater exploration.
“The year 2010 has been lacking in contract awards but the groundwork has been laid for a more robust 2011. The market has seen strong momentum in newsflow and development over the last few months,” said Wong.
Wong feels that 2011 will also see more execution on the Economic Transformation Programme (ETP). “The ETP will take centre stage this year. The challenge is in the execution. If implemented successfully, the ETP will be significant for our economy and equity market,” said Wong.
Areca Capital chief executive officer Danny Wong is also placing hope on the ETP as he feels that the implementation of the ETP projects will lead to some form of confidence building among foreigners.
“Malaysia has today somewhat transformed and I feel that the perception currently is better than it was two years ago. These ETP projects can sustain Malaysia's economic growth, but more importantly, their successful implementation can put Malaysia back on the radar screen (of investors),” he said.
Danny added that with the quantitative easing (QE) measures by the US Government, there was liquidity out there looking for a place to park and Malaysia could benefit from this.
QE refers to the Federal Reserve's efforts to jump-start the economy and stave off deflation by buying back US$600bil in Treasury bonds, hence putting more money into the system.
Danny also feels that the normalisation of interest rates will take place but it would not be as much as what most people predict because the economy was still on an unsteady footing. While many would be looking forward to continuing the year on a high note, there are risks for investors to watch out for.
Key risks include persistent concerns about sovereign debt in the eurozone, upside risk to inflation, credit-financed flows inflating asset prices and QE possibly restraining the effectiveness of monetary policy.
According to CIMB economist Lee Heng Guie, 2011 will be marked by four key trends with the US Federal Reserve's second wave of quantitative monetary easing setting the stage.
“First, a two-speed recovery of mature and emerging economies is becoming more entrenched. Asia's growth, though slower, should be buffered by internal engines as exports take a back seat,” he said.
The second trend is a resurgence in capital flows to emerging markets. With the US Fed embarking on a new round of easing, much of the fresh liquidity created will be heading to emerging markets on the hunt for “carry trade” or higher returns.
The third trend is volatile currencies. “The persistent strength of capital inflows is bound to add upward pressure on exchange rates in Asia, forcing the central banks to limit currency appreciation through a myriad of measures, which include foreign exchange intervention and quasi-controls,” said Lee.
Fourthly, the interest rate normalisation is expected to continue. Lee believes Asia would remain ahead of the global monetary tightening cycle as interest rates normalisation would resume in the second and third quarter of 2011 when the recovery becomes more entrenched.