RHB Research more optimistic for the later part of the year (ext: Edge)

With more corporate earnings to be announced this second half of May, investors should brace for more unpleasant surprises, like for instance IOI Corp's disappointing earnings.

Other companies which did not fare well during the January-March quarter included Media Prima, Unisem and recently MISC as the global economy underwent a contraction.

More disappointing results could be in store. Investors should also remember that the results are also being compared from a year ago when the KL Composite Index surged to a historic high of 1,500 before collapsing after the March 8 general elections last year.

As for the economy, RHB Research Institute said in a research note the Malaysian economy is estimated to have contracted by around 5.0% year-on-year in 1Q 2009 -- the first time in more than seven years and after slowing down abruptly to +0.1% in the 4Q last year.

The research house said this was due to a sharper drop in real exports, as global demand for the country's electrical & electronic (E&E) products, non-E&E products and commodities dropped.

Consequently, domestic demand is likely to have contracted, as businesses scaled back and delayed their investment, while consumers reduced spending, on the back of a rise in labour retrenchment, it said.

However, RHB Research is more optimistic for the later part of the year. The global economy is showing some tentative signs of improvement, particularly in the US and China, it said.

This, coupled with ample cheap liquidity and the massive stimulus packages implemented by governments globally, will set a stage for the global economy to gradually stabilise in the 2H of 2009 before recovering more meaningfully in 2010, according to its view.

"The upturn will likely lift Malaysia's exports in 2010 and the  economy will likely bounce back to +3.8% in 2010, from -3.5% in 2009.

"On a trend basis, the sharpest contraction is likely to be in late 1Q or early 2Q, with the economy gradually turning around to show positive year-on-year growth in 4Q 2009, albeit from a low base," it said.

There are also positive external factors as US economic data offered more evidence the recession's worst phase may be over, with April consumer prices unchanged and industrial output declining at a slower pace than in March.

Signs that the 17-month-old recession may be nearing an end helped push consumer confidence in May to its highest since the collapse of investment bank Lehman Brothers last September.