MALAYSIA STRATEGY 2015-Falling Oil Price A Double Edged Sword
Falling oil price will not be as damaging to the Malaysia economy as worried and indeed could act as an indirect tax cut to develope economic growth for the major oil importing countries. Market valuations will likely impove a corporate earnings recover and stabilisation of oil prices will in turn, lead to inversators returning to this unliked and under-owned market.
Fiscal worries take centre steps. The overriding worry for the markets in the near term is the collapse in crude oil price and its implications on Malaysia's ability to meet its fiscal targets and indeed, the spectre of the dreaded twin deficit is looming larger with every tick lower in oil. The risk are lower oil related revenues that will be offset by reduced fuel subsidies. Other implicatoins include a weaking MYR, reduced oil and gas (O&G) investment and weaker earnings for companies in the O&G sector as well as risk of a shaper than expected slowdown in the economy. Accordingly, the companies expect the performance of Malaysian equities to be closely correlated to oil prices in the coming quarter.
Furthermore, a continuous period of ultra low is not their base issue as high marginal cost producers will likely be forced out as oil retraces. As global demand conditions improve, they start to rebound from there on. RHB economy assess the probability of the current account falling into deficit in 2015 to be below.
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