Malaysia is likely to be affected by the ongoing US-China trade war should the friction intensify towards the end of the year, said Standard Chartered Bank.
Its chief economist for Asean and South Asia, Edward Lee, said the impact could be cushioned by investors' confidence in Malaysia, with a stream of new investments committed by businesses who were seeking an alternative production base.
"Malaysia's growth will be affected directly and indirectly, but I am not sure whether this will be by the end of the year. Probably we will see a clearer picture in early 2019," he told reporters after a global research briefing for the second half of 2018 in Kuala Lumpur today.
Standard Chartered head for Asean and South-Asia FX Research, Divya Devesh, and head of Thematic Research, Madhur Jha, were also present.
"I think that (the trade war) has affected especially investment sentiment in Asia. This is quite clear on two things. One is it seems really to be targeted against China and second, and more worrying for me, is this may be more of a long-term issue. Trade is just one of the factors that we are looking at," said Lee.
The bank has lowered its forecast for Malaysia's gross domestic product in 2018 to 4.8 percent from its earlier estimate of 5.3 percent due to the US-China trade war and weaker-than-expected economic growth in the first half of the year.
"Investments still look a bit soft while exports face a very high base compared with last year. I think Bank Negara is still comfortable keeping its policy rate (at the current level)," said Lee.
The economic growth was expected to rise to five percent next year, he added.
Meanwhile, Standard Chartered expects the ringgit to trade at the 4.00-level against a stronger US dollar in 2018 and 4.10 next year, with more foreign investors holding Malaysian bonds.
"The ringgit is attractive from the valuation standpoint. Based on our in-house valuation of currencies, the ringgit is the second most undervalued currency across emerging markets after Turkey.
"The ringgit continues to be an outperformer and we think that will continue. If you look at year-to-date performance across emerging Asian market, the ringgit is the second best currency after the Thai baht," he added.