Savers in Malaysia have been on the lookout for other alternatives to secure higher income as the drop in deposit rate exceeded that of the lending rate.
Notably, any drop in deposit rates – whether in large or small quanta – will affect the income of savers, particularly those who put a majority of their savings in banks.
With this, Affin Islamic Bank CEO Nazlee Khalifah advises savers who still prefer to keep deposits in banks to opt for longer-term deposits as they yield higher returns.
They can also lock into high-yield plays like real estate investment trusts (REITs) for relatively secure income, said Vincent Khoo, head of research at UOB Kay Hian.
Inter-Pacific Securities head of research Pong Teng Siew said they could also invest in non-financial assets like gold, art and property.
“Those holding financial assets can make money from capital gains and this is when junk bonds and equities become overheated,” said Pong. “Currencies are a financial asset also in play while at some point, commodities will likely make a grand comeback.”
“Everything from housing to industrial metals to agricultural commodities will, at some point, spike in price although that may not happen at once.”
Pong noted that prices of oil and gas stocks may increase later this year while plantation stocks may move up next year.
Alternatively, they could also invest in capital guaranteed products such as those offered by insurance and asset management firms as well as unit trusts, said Nazlee.
According to Lee Heng Guie, executive director at Socio-economic Research Centre, Bank Negara could also consider releasing a national savings bond for savers to invest and obtain decent annual returns.
“Savers should look for the best rates deal offered. Cautious savers should manage their money with extra care and they may be wise to take some risks to enhance returns,” said Lee.
This is especially true since times may be a bit rough for Malaysian savers.
“I think a cut in the statutory reserve requirement (an interest-free balance that commercial banks maintain with the central bank for liquidity management) may be on the way, so there may be less need for banks to compete for deposits,” commented Etiqa Insurance & Takaful head of research Chris Eng.
Notably, the low-interest rates are aimed at encouraging people to spend more.
“Borrow and spend. Something that more of the wealthy Malaysians can do domestically instead of buying that plane ticket to major cities in the world and spending overseas,” said Eng.
On the ‘unbroken spell’ of monetary easing by central banks worldwide, Pong cautioned that “we will probably face very high inflation at some point” given that money can be “printed ad infinitum at the press of an electronic button”.
Moreover, the low lending rates may not benefit all developers as overpriced housing may be beyond the reach of too many people, while sales volume would likely shrink.
With August considered as a traditionally bad month for stock markets, Pong expects the second half of 2016 to be flat until year end when it will likely get more interesting.
“Generally, I’m inclined to think that snap elections looming ahead in the first half of next year will likely set the tone and backdrop for the stockmarket in 2017; it will perhaps begin to stir by end 2016,” said Pong.
As such, it would be wise to invest in politically linked stocks.
“Export-oriented stocks may pick up again as the ringgit is likely to succumb to the strongly trending pattern of gradually but clearly weakening current account balances,” explained Pong.
But while August is not expected to be ‘that bad’, Eng advises investors to be cautious.
“If it (bad sentiment) comes, I will look at some dividend stocks such as LBS, Padini, Maybank, Scicom, KLCC and REITS,” shared Areca Capital CEO Danny Wong.
Mangalesri Chandrasekaran, Editor at PropertyGuru, edited this story. To contact her about this or other stories email mangales@propertyguru.com.my
