Smart Investor Malaysia


Where To Invest In 2023: Amidst The Recession And General Election


With many uncertainties coming our way such as the recession and general election, there are a lot of jittery investors out there. Throw in volatility, rising inflation, hikes in interest rates, and we have ourselves a storm in the coming year.

With that, Smart Investor organised and moderated the webinar ‘Where To Invest In 2023’ attracting hundreds of participants where they attended a fruitful session and discussion between three industry experts sharing their thoughts and views.

The panel was made up of three industry experts: Lim Chia Wei, a senior portfolio manager at Affin Hwang Asset Management; Julian Suresh, the executive director and chief investment officer at Redvest Wealth & Asset Management; and Jason Wong Jia Jun, CFA and research manager at FSMOne Malaysia.

Where To Invest In 2023

We started off with the question: “The dreaded R-word is popping up again and haunting investors. Do you think we are headed for a recession and how do you think Asia will weather through the crisis this time? Could we see a repeat of 1997 or something milder?”

Lim Chia Wei, Senior Portfolio Manager, Affin Hwang Asset Management

Chia Wei states that we might go into recession in the next six to twelve months down the road, but it would not be as bad as previous recessions. He also shares that most Asian countries are in a much better position in 2022 as compared to 1996, with better current account balances, as a result of a better performing Gross Domestic Product (GDP) in countries such as Singapore, Taiwan, Hong Kong, Malaysia, Korea, and Indonesia. The number of Forex reserves is also highlighted with Hong Kong, Singapore and Thailand showing the way.

Next, we ask the question: “What other key events are you keeping an eye for in 2023? Are there any black swans on the horizon?”

Chia Wei responded: “The stock market has declined a lot and is nearing the bottom, with the bear market already in the US and Asia. The stock market will always bottom out and rebound before the end of a recession.”

To spot the end of a recession, he advises us to look out for the potential easing of inflation and bond yields to go down from a very high level. We should also watch out for a weaker US Dollar (USD), that will see Asian stock markets recovering.

He also cautions us to be aware of the potential escalation of the Russia-Ukraine conflict or the potential of an embargo on oil exports which could cause a spike in oil prices. This will in turn cause the bond yield to rise and with the strengthening of USD, this will have a negative effect on most investment assets.

With such a backdrop of impending uncertainties, one must be asking what can we do next? How do you position your portfolios? Specifically, we ask: “What are some of your sector preferences and which ones do you think would be vulnerable in this environment?”

“We are currently underweight on certain sectors such as banking, semiconductors, and commodities; these industries tend to suffer more during a recession. We are overweight on defensive sectors, such as consumer and health care,” answered Chia Wei.

When the recession bottoms out in 2023, he suggests revisiting and taking a closer look at the aforementioned industries (banking, semiconductors, commodities). But he also warns that we might hit the bottom only in 2024, if things don’t do too well.

Chia Wei also shares a recent positive indicator being the Consumer Price Index (CPI) measuring the change in the price of goods and services from the perspective of the consumer. It is key to measure changes in purchasing trends and inflation. Even though the CPI is bullish, inflation is expected to remain high in the United States (US).

Malaysia is also expected to further hike up interest rates, but on a more gradual basis. This would give the Malaysian economy more time to digest, especially with higher monthly instalments such as housing loans that will increase gradually. But the slower hike in interest rates as compared to the US with its aggressive hikes, will make the USD stronger against the Malaysian Ringgit.

Read: Investment Risk Management With 6 Simple Ways

Which brings us to the question about the USD. “What is going on with the strong USD? What causes it to go up?”, we ask our next panellist Julian
Suresh to explain further.

Julian Suresh, Executive Director and Chief Investment Officer, Redvest Wealth & Asset Management

According to Suresh, there are a lot of factors causing the USD to rise against most major currencies around the world. Some of the factors include
the Russia-Ukraine conflict, high CPI numbers in the US leading to high inflation, and global growth concerns or the looming recession.

The USD is moving within expectation, and with the Federal Reserve expected to hike up interest rates, we shall see the USD continue to strengthen. And if each rise in interest rates is higher than expected, that would see the USD strengthen even further.

With the Ringgit also being positively correlated with KLCI, the bear market hitting our local stock market has also contributed to the poor Ringgit

But all is not gloom though, as the bond market is a good alternative to invest. With Malaysia and US bond yields moving closely together, it seems that it will only get higher in the near future. Perhaps everyone is seeking shelter from the current bear market that is hitting the world’s stock market.

But if interest rate hikes are getting more aggressive, it will cause the bond yields to fall. At this point we can look to our local stock market, which has a lot of upsides and liquidity.

Answering a question posed by one of the participants on where to invest in 2023 following the movement of the USD, Suresh answered, “We should first look at the expected US data, whether it will rise or fall. If the USD falls, then the stock market is a good choice to invest.”

But if you take a closer look at the stock market, the S&P 500 might have dropped a lot, but it is still chalking up decent gains over the past few years. As compared to our FBM KLCI which has been underperforming badly.

Even though the USD might be strengthening, our Ringgit has been performing stronger against other major currencies such as the Japanese Yen, Pound Sterling, and Euro.

“The Malaysian market should bounce back by next year, and we are actually doing pretty well,” Suresh optimistically replies when asked about his outlook on 2023.

Our GDP is growing and there’s also an increase in supply and demand in selected sectors.

“It is not about what the new government will be doing, but it is what state the new government will be facing,” said Suresh.

He advised us to be mindful of our risk profile and to diversify our portfolios since there would be a lot of potential once the market recovers. In terms of exports, Malaysia came in second best behind Indonesia, but we managed to beat other countries such as Taiwan, Korea, China, Thailand and even Singapore.

In terms of growth, Malaysia is leading the pack, beating the likes of Singapore, US, Europe and even China.

Read: Are Alternative Investments Right For Me?

We then welcomed our third and final panellist, Jason Wong Jia Jun, CFA and research manager at FSMOne Malaysia to share his thoughts on whether Malaysia is still a good market to invest in.

Jason Wong Jia Jun, CFA, Research Manager, FSMOne Malaysia

“From a portfolio perspective, Malaysia is a good market to invest in, due to its low correlation with the global market. Malaysian equities have a lower correlation coefficient with the global equities at 0.54 and the Asia ex-Japan market at 0.38,” he also optimistically answers, relying on good data.

Having Malaysian equities in your portfolio will help reduce volatility and boost risk-adjusted returns.

Even though FBM KLCI is trading sideways, certain sectors have shown good performances such as the financial and energy sector. Local fund managers have also been able to give good returns, as they tend to be able to pick the right stocks – especially in the Small & Medium Cap companies.

Jason also shares his thoughts about Malaysia’s market outlook for next year: “The Malaysian market has been disappointing this year, but we are still doing relatively good against other markets. Next year will be better as the Malaysian economy has been growing at a healthy pace, and next
year our economy will be even better as forecasted by the International Monetary Fund (IMF).”

Fundamentally our companies are expected to be doing better with the solid backdrop of our improving economy next year. Earnings are expected to recover next year with double digit growth as compared to this year.

The financial sector will benefit directly from an increase in Overnight Policy Rate (OPR), and the OPR is expected to rise further. The financial sector will enjoy more than 15% growth in 2023 due to the widening net interest margin and improved investment income, as well as higher bond yields.

Our Malaysian stock market is currently trading at a very attractive level, with the FBM KLCI targeted to hit 1,600 points by end of 2023.

“Yes, there are some turbulences caused by both external and internal factors, but the sentiment will turn favourably once some of the catalysts are in place. This includes a reduction in inflation, the eventual resolve of the Russia-Ukraine conflict, and the reopening of China’s international

With the good news ahead, the question on everyone’s minds is: “Should we keep on investing despite the gloomy prospect of recession next year? If yes, where to invest in 2023?”

Jason responded with a resounding, “Yes! We must be greedy when others are fearful.”

Now is a good time to be back in the market, after it has suffered such a big drop. There are a lot of buying opportunities for long-term investors. Apart from Malaysia, the Asia ex-Japan market is also another good opportunity to invest in. The tourism sector is starting to pick up, and we can now see many tourists traveling in and out of Asian countries.

Next up is China, where they are doing the exact opposite of what others are doing. They are currently cutting down on interest rates and coming out with stimulus. The recovery of China will have a positive impact for the Asian region, especially Malaysia as we have a strong link with China. The disappointment in earnings for Asia will be less severe, as the downward impact has been priced-in most major Asian equities. Plus, the valuation is much more attractive due to the massive retracement that had taken place.

Now You Know Where To Invest In 2023?

The panellists also highlighted that the market is nearing its bottom, and next year we should see the market recover. The dreaded recession might not be as bad as we expect it to be, so just hang in there for as little as a few more months or for longer which is at best, another year or two.

You might also want to hold onto your cash, stay liquid and wait it out, as ‘cash is king’. But ultimately, it all depends on your risk profile and the strategy that you use.

Read: Is It Relevant To Be Investing In Uncertain Times?

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