(MCIS Zurich Insurance Berhad)
Equity Strategy
Despite the negative return from equities over the financial year, the Malaysian market was
far from being the worst performing Asian market over the period. Looking forward, Malaysian equities are expected to extend recent negative price momentum on the back of a decline in fundamentals and the ongoing political uncertainty. In terms of market fundamentals, the poor earnings reported by most companies for the most recent quarter served to further weaken sentiment, and resulted in expectations for the next reporting season to be subsequently
downgraded. In an environment of weaker growth, earnings will no doubt come under pressure.
Despite these headwinds, in a valuation context (price to earnings valuations), equities are
trading close to lows not seen since 1997/1998. Similarly, on price to book valuation, the market is also attractively priced.
Fixed Income Strategy
A wider trade defi cit expected for 2008 will not be positive for the bond market given the potential supply of bonds to be issued to fund the deficit. The spread to corporate debt has widened on the back of the global sell-off in credit, and fears of an increase in the level of credit defaults. As spreads have widened, this has meant the capital value of the corporate debt securities has fallen. As confidence returns to markets, the spreads should compress to some extent. However, liquidity constraints are expected to persist until such time as sentiment rebounds. Whilst the current monetary policy setting is accommodative (as rates were not increased in 2008), the market is mixed in its assessment of the prospects for a rate cut in 2009 given the risk of slowing economic growth.
Despite the negative return from equities over the financial year, the Malaysian market was
far from being the worst performing Asian market over the period. Looking forward, Malaysian equities are expected to extend recent negative price momentum on the back of a decline in fundamentals and the ongoing political uncertainty. In terms of market fundamentals, the poor earnings reported by most companies for the most recent quarter served to further weaken sentiment, and resulted in expectations for the next reporting season to be subsequently
downgraded. In an environment of weaker growth, earnings will no doubt come under pressure.
Despite these headwinds, in a valuation context (price to earnings valuations), equities are
trading close to lows not seen since 1997/1998. Similarly, on price to book valuation, the market is also attractively priced.
Fixed Income Strategy
A wider trade defi cit expected for 2008 will not be positive for the bond market given the potential supply of bonds to be issued to fund the deficit. The spread to corporate debt has widened on the back of the global sell-off in credit, and fears of an increase in the level of credit defaults. As spreads have widened, this has meant the capital value of the corporate debt securities has fallen. As confidence returns to markets, the spreads should compress to some extent. However, liquidity constraints are expected to persist until such time as sentiment rebounds. Whilst the current monetary policy setting is accommodative (as rates were not increased in 2008), the market is mixed in its assessment of the prospects for a rate cut in 2009 given the risk of slowing economic growth.
