Streamlined SRT process aims to optimize capital management while ensuring resilience The European Central Bank (ECB) is set to accelerate the approval process for Significant Risk Transfers (SRTs) , a move designed to improve capital efficiency for banks while maintaining financial stability. The ECB’s pilot program, scheduled to begin in early 2025 , will simplify procedures and reduce approval timelines, aligning with the growing demand for efficient capital allocation across European lenders. What’s Changing? The ECB, in collaboration with the European Banking Federation , is introducing a pilot program to shorten the SRT approval process. The notification period for SRT transactions will be reduced from three months to two weeks before deal finalization. The information submission requirements will be streamlined to ease regulatory burdens for banks. These changes are expected to make SRT transactions more attractive , all...
Global and Domestic Economic Landscape
Global Macroeconomic Outlook:
- US GDP Growth: Projected at 2% for 2025.
- China GDP Growth: Anticipated at 4.8%, signaling robust recovery.
- Federal Reserve Policy: A cumulative 75 basis points cut in the Federal Funds Rate (FFR) is expected to:
- Ease the strength of the US dollar.
- Narrow interest rate differentials, potentially benefiting global equity markets.
- Challenges: Geopolitical tensions and inflation risks, particularly stemming from Donald Trump’s re-election, may create uncertainties.
Malaysia’s Domestic Growth:
- Steady Economic Expansion: Supported by both external trade and internal consumption.
- Key Catalyst: Formalisation of the Johor-Singapore Special Economic Zone poised to unlock new growth opportunities in the southern region.
- Favorable Environment: Stable political conditions and ongoing reforms contribute to enhanced investor confidence.
- Attractive Valuations: Forward P/E of 14.3 times, coupled with resilient corporate earnings, makes Malaysian equities an appealing investment.
Market Outlook and Investment Strategy
FBM KLCI Projections:
- End-2025 Target: Set at 1,820 points, with a target P/E of 16 times based on FY26F earnings.
- Support Level: Strong downside protection at 1,590 points, reflecting limited risk in the current environment.
Sectoral Overweights:
- Priority Sectors:
- Banks: Benefiting from robust domestic growth and stable interest rates.
- Property and Construction: Leveraging government reforms and infrastructure initiatives.
- Technology: Driven by global demand and domestic digital transformation.
- Healthcare: Continued resilience from demographic trends and pandemic-driven developments.
- Plantation, Oil & Gas: Supported by global commodity cycles.
- Utilities and Rubber Products: Stable cash flow and defensive characteristics.
Strategy for 2025:
- Accumulation During Weakness: Focus on large-cap quality stocks to capitalize on volatility.
- Liquidity-Driven Optimism: Robust liquidity and undemanding valuations create opportunities for long-term investors.
Risks to Watch
Geopolitical Tensions:
- Potential escalation in US-China trade tensions could impact Malaysia’s export-driven economy.
- Broader global uncertainties may weigh on investor sentiment.
Inflationary Pressures:
- Rising geopolitical risks under the new US administration could trigger inflationary pressures globally.
Conclusion
RHB Research’s outlook for Malaysia in 2025 underscores a positive trajectory fueled by steady domestic growth, strong liquidity, and favorable market valuations. With strategic sectoral focus and an emphasis on quality investments, the Malaysian equity market is well-positioned to deliver robust returns, provided geopolitical risks remain contained.
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