PM announces RM35 billion Penjana to generate short-term recovery

Sub-Title: 
“Malaysia’s economy is expected to recover with a return of growth in 2021…The World Bank” 

By Stella Goh – As published in Inve$t Malaysia 12 June 2020 issue

Last Friday (5Jun), Prime Minister Muhyiddin Yassin unveiled a RM35 billion stimulus package which will cover 40 initiatives to help stimulate the economy recovery from the impact of Covid-19. The short-term Economic Recovery Plan (ERP) package called “Pelan Jana Semula Ekonomi Negara” or “Penjana” was launched with three major goals to empower the people, propel businesses and to stimulate the economy. 

The automotive, plantation and property sectors are some of the beneficiaries from the Economy Recovery Plans (Penjana). The PM announced that for the automobile sector there is a 100% sales tax exemption on locally assembled Completely Knocked Down (CKD) models while a 50% exemption on fully imported Completely Built-Up (CBU) models starting from June15 until Dec31. This move is expected to help overcome the lost sales and production during MCO.

In order to tackle the problem of unemployment, Prime Minister stated that the government will allocate RM9 billion to ensure job sustainability during the national recovery period post Covid-19. The allocation will be channelled through various initiatives which will benefit three million workers in the country. The initiatives will be set at RM600 per worker for up to 200 workers per company.

In addition the government will allocate RM50 million in matching grants for companies in the gig economy to make SOSCO and EPF contributions for their workers. There will be a special committee chaired by the ministers of Finance and Human Resources with members comprising leaders from the public as well as private sector to monitor initiatives related to the workers. In line with the government’s call to encourage SMEs to implement work-form-home practices, insurance coverage and tax incentives will be provided.

As businesses had been struggling with cashflow issues and reduced demand, the government assured that there would be help for all businesses regardless of size through various initiatives such as Shop Malaysia Online to encourage online shopping through the provision of promotion codes among others. There will be a RM700 million allocation to help SMEs digitalise their operations. Tax incentives would be extended for companies purchasing equipment such as Property, Plant and Equipment as well as thermal scanners. The government also will provide income tax rebates of up to RM20,000 for three years of assessment for SMEs set up between July1 and Dec31 in this year.

Furthermore, there will be a reintroduction of the Home Ownership Campaign (HOC) which will see various incentives such as stamp duty exemptions for the purchase of homes costing between RM300,000 and RM2.5 million from June1, 2020 to May31, 2021 subject to a developer’s discount of at least 10%. The ERP will also encourage foreign direct investments (FDI) where companies both foreign and local, which make capital investment of between RM300 million and RM500 million will be able to enjoy zero investment tax for 10 years. While for capital investment above RM500 million, companies will be given 15 years of tax holidays. For Malaysian companies which relocate their overseas facilities back to home, will be entitled to a 100% Investment tax allowance for five years, which the tax holidays are subject to location transfer.

On 7 June, PM also has announced that the Conditional Movement Control Order (CMCO) will be replaced by the Recovery MCO (RMCO) with more relaxed conditions from June10 to Aug31 which will allow interstate travel, meetings and workshops and this augurs well for the tourism industry and marks the beginning of the recovery of domestic tourism. 

According to The World Bank’s representative Firas Raad, Malaysia’s economy is expected to recover from the end of this year with a return to growth in 2021. With the pro-growth policies coupled with incentives, it would help to push the private sector which is the engine for growth from the current economic downturn. Firas Raad also added that Malaysia should continue its efforts on the reform agenda such as governance, regulatory environment and competition in economic sectors as well as education reformation in its bid to achieve a high-income nation status. The World Bank is also in the midst of reviewing the economic impact of Covid-19 before deciding whether to revise the country’s 2020 Gross Domestic Product (GDP) growth target this month. Business activities in Malaysia are resuming as the country gradually eases itself from the Covid-19 MCO measures.  

This week, on Thursday (11Jun), the Ringgit was 4.2495 against USD from 4.2753 on Tuesday (9Jun). Meanwhile, the Ringgit was 3.0493 to the Sing Dollar on Thursday (11Jun).  

On Monday (8Jun), the FBM KLCI gained 18.83 points or 1.21% to 1575.16 from previous Friday’s close of 1556.33. But as at Friday (12Jun) 10:00am, the FBM KLCI was at 1529.79 seeming to have followed the global markets which have all taken a breather from the bullish ride over the past 2 months.

FBM KLCI

PM to announce short-term Economy Recovery Plan today at 3pm

Sub-Title:
Bursa Malaysia sees continued surge in Trading Volume and Value

By Stella Goh – As published in Inve$t Malaysia 5 June 2020 issue

According to Finance Minister Tengku Datuk Seri Zafrul Abdul Aziz, in line with the reopening of the economy which saw nearly 70% of the workforce returning to work in various sectors, Malaysia has the capacity that is set to spur an economy recovery in 2021. The International Monetary Fund (IMF) had forecast a 3% contraction in the global economy for this year due to the Covid-19 pandemic. The IMF managing director Kristalina Georgieva also stated that the global contraction might be even worse than the 3% forecast it made last month. 

Prime Minister Tan Sri Muhyiddin Yassin is set to announce later today a slew of initiatives to kick start the economy. The short-term Economic Recovery Plan (ERP) will be focusing on three main goals ie (i) empowering the people (ii) propelling businesses and (iii) stimulating the economy.  

Last Friday (29May), the local stock exchange’s daily traded value hit a record high of RM9.03 billion which surpassed its previous highest of RM9 billion in May 2018 with a turnover of 9.308 billion of shares. On Monday (1Jun), the FBM KLCI has gapped up 16.89 points or 1.15% to 1490.14 from previous Friday’s close of 1473.25, while the trading volume across Bursa Malaysia topped 10 billion securities for the second time in less than a month driven mainly by the rubber glove manufacturers. 

On Tuesday (2June), both Maybank Investment Bank and RHB Bank Investment Bank Berhad tightened their share margin valuation on glove related counters following the recent rush for glove makers’ stocks which sent the stock prices to new heights. The margin financing caps will be imposed on the shares of Hartalega Holdings Berhad, Top Glove Corporation Berhad, Kossan Rubber Industries Berhad, Supermax Corporation Berhad, Rubberex Corporation Berhad and Comfort Gloves Berhad at a lower valuation compared to their current share prices. Share prices of those stocks took a temporary breather upon the announcement but appear to have recovered since. 

On Wednesday (3June), the oil and gas (O&G) stocks dominated the list of most active stocks on Bursa Malaysia after oil prices reached a three-month high. It is expected that the Organization of the Petroleum Exporting Countries (OPEC) and Russia may extend the production cuts of 9.7 million barrels per day (bpd), equivalent to 10% of global output in July or August. The cuts are currently due to run through May and June, scaling back to a reduction of 7.7 million bpd from July to December but Saudi Arabia has been pushing to keep the deeper cuts in place for longer.  

According to MIDF Research, Malaysia saw the third least foreign selling of RM13.3 billion for year to date (YTD) among seven Asian countries as foreign selling of Malaysian equities narrowed to RM663.8 million last week from RM714.7 million sold in the week before.  

According to the Statistics Department, Malaysia’s exports declined faster than imports to RM64.9 billion, lower by 23.8% resulting in a trade deficit of RM3.5 billion.  

This week, on Thursday (4Jun), the Ringgit strengthened to 4.2738 against USD from 4.3145 on Monday (1Jun). Meanwhile, the Ringgit was 3.0570 to the Sing Dollar on Thursday (4Jun). As at Friday (5Jun) 10:00am, the FBM KLCI was at 1550.65 

FBM KLCI

More businesses to reopen next week towards full productivity in coming weeks …Datuk Seri Mustapa Mohamed

Sub-Title:
“Foreign selling of Malaysian equities slowed down to RM714.7 million last week … MIDF Research”

By Stella Goh – As published in Inve$t Malaysia 29 May 2020 issue

Last Friday (22May), the FBM KLCI shed 15.35 points or 1.06% at 1436.76 as news of China’s plan to impose a new national security law on Hong Kong to tighten its grip on the riots & demonstrations ravaged island state. The news battered global equity markets and crude oil markets. The FBM KLCI resumed trade on Wednesday (27May) after the two days Hari Raya holiday on a strong note to gain 14.97 points or 1.04% to 1451.73 from the previous Friday’s close of 1436.76 led by a rally of index-linked glove manufacturers.

Minister in the Prime Minister’s Department (Economy) Datuk Seri Mustapa Mohamed says the government is anticipating more businesses to reopen next week after the Hari Raya Aidilfitri celebrations and resume their full productivity level in coming weeks which is to ensure that jobs are kept intact and businesses can run as usual to stabilise the economy. The government is dealing with the challenges and is focusing on problem solving through their regular interaction with various stakeholders, while ensuring that the foreign direct investment (FDI) and domestic investments continue to grow, as well as to boost consumer’s confidence. The long-term plan for the country will be expected to be announced in the next three to four months as government agencies are currently working on implementing measures to address challenges faced by various economic sectors. 

According to MIDF Research’s Adam M Rahim, the foreign selling of Malaysian equities on Bursa Malaysia slowed down to RM714.7 million last week, from RM843.2 million in the preceding week. In comparison to its other six Asian peers, Malaysia remains as the nation with the third smallest foreign net outflow on a year-to-date basis after Indonesia and Philippines. The foreign investors have so far taken out RM12.6 billion net of local equities from Malaysia. The foreign net selling surged to RM320.2 million, the highest during the week as investors anticipated an escalation of US-China tension after Beijing effectively proposed that China security laws be applied inside Hong Kong. MIDF also stated that the risk-off sentiment has prevailed as the US Senate passed a bill that could bar Chinese companies from listing on American exchanges.

According to Fitch Ratings, Malaysian Islamic fund’s asset under management (AUM) has decreased by around 15% due to the Covid-19 pandemic but it is expected to experience incremental growth in the longer term boosted by tax and policy initiatives. The rating agency also stated that Malaysia’s Islamic fund mix is more balanced and therefore aggregate fund AUM are less sensitive to future declines in the Islamic Fund AUM and in the event of a sustained market recovery leading to outflows from the money market funds (MMFs).

On Thursday (28May), the oil prices fell in early trade after the U.S. crude, gasoline and heating oil inventories all rose more than expected, dousing hopes of a smooth recovery in demand from the coronavirus lockdowns. The decline extended loses from Wednesday (27May) on uncertainty about Russia’s commitment to deeper oil production cuts in the lead-up to a June 9 meeting of the Organization of the Petroleum Exporting Countries (OPEC) and its allies. According to Bursa Derivatives Berhad (BMD), the FTSE Bursa Malaysia KLCI Futures (FKLI) contract registered an all-time high on May 27 in a daily trading volume of 65,000 contracts. Chairman Datuk Muhamad Umar Swift said the new FKLI contract   all-time high recorded surpassed the previous record of 61,429 contracts registered on Oct 29, 2019. He added “As we continue to build upon the strong momentum achieved last quarter, I am encouraged to see growing interest of foreign institutions which accounted for 80% of total trading volume. This is an indication of consistent growth in confidence in BMD’s products by local and international market participants to manage their price risk exposure amid the global uncertainties”.

This week, on Thursday (28May) the Ringgit was 4.3516 against USD from 4.3542 on Wednesday (27May). Meanwhile, the Ringgit was 3.0693 to the Sing Dollar on Thursday (28May). As at Friday (29May) 10:00am, the FBM KLCI was up at 1454.21

FBM KLCI

Malaysia’s Consumer Price Index (CPI) dropped 2.9% in April

Sub-Title: 
Next monetary policy committee meeting to be held on 7 July 2020

By Stella Goh – As published in Inve$t Malaysia 22 May 2020 issue

On Monday (18May), the FBM KLCI gained 6.72 points or 0.48% to 1410.16 from previous Friday’s close of 1403.44 as trade volume across Bursa Malaysia rose to another record high at 11.21 billion securities worth RM4.41 billion. The surge in trade volume was attributed to heavy trading of shares in Bursa Malaysia-listed oil and gas (O&G) related companies as a result of the rising price of crude oil. 

Bank Negara Malaysia (BNM) has cut interest rates three times this year by a total of 100 basis points (bps), with the most recent cut of 50 bps on May 5. It had earlier cut OPR by 25bps in January and by another 25 bps in March. The current OPR rate stands at 2%. The next monetary policy committee meeting will be held on July 7, 2020. 

Malaysia’s consumer price index (CPI) for April fell at a sharper rate of -2.9% from a year ago compared with Bloomberg’s survey of a -1.6% decline due to the drop in prices of transport, housing, water, electricity and fuel. Not only is this the second consecutive month of decline in CPI after the 0.2% drop in March 2020 but it is also the sharpest contraction in more than five decades. The hugely lower average price of RON95 fuel in April 2020 at RM1.27 per litre compared to RM2.08 in April 2019 contributed to the decrease in the transport component and the overall index. Nevertheless, food and non-alcoholic beverages continued to increase in April 2020 by 1.2% to 133.9 as compared to 132.3 in April 2019. Food and non-alcoholic beverages contributed 29.5% of CPI weight. Similarly, miscellaneous goods and services also rose by 2.3% followed by communication (1.6%), health (1.2%) and education (1.2%).

On Wednesday (20May), short-term interbank rates ended stable on Bank Negara Malaysia’s (BNM) operations to absorb surplus liquidity from the financial system. The surplus in the conventional system declined to RM39.71 billion from RM48.72 billion while the Islamic system fell to RM20.90 billion from RM22.78 billion. BNM has also revised the Murabahah overnight tender from RM18.9 billion to RM20.9 billion. The average Islamic overnight interest rate stood at 1.97 percent, while the one-, two- and three-week rates stood at 2.04 percent, 2.09 percent and 2.13 percent, respectively.

According to RAM Rating Services Berhad, foreign holdings of Malaysian bonds contracted RM2 billion in April 2020 compared with the RM12.3 billion drop in the preceding month as global and domestic liquidity-boosting measures were seen stabilising market sentiment. 

RAM also stated that the lowering of statutory reserve requirement (SRR) while allowing principal dealers to recognise up to RM1 billion of MGS (Malaysian Government Securities) and MGII (Malaysian Government Investment Issues) as part of their SRR compliance may also have supported domestic demand for fixed-income securities which in turn lowered yields. The yield of the benchmark 10-year MGS fell 51.3bps to 2.9% as at end of April, reversing the 56.9bps surge in March. Looking ahead, RAM said the bond yields still face downside pressure as the recent measures of broadening the usage of MGS and MGII to meet SRR should support demand for government bonds. 

This week, on Thursday (21May) the Ringgit was 4.3462 against USD from 4.3550 on Monday (18May). Meanwhile, the Ringgit was 3.0659 to the Sing Dollar on Thursday (21May). As at Friday (22May) 10:00 am, the FBM KLCI was at 1445.76 

All of us at ShareInvestor Malaysia wish all our Muslim readers Selamat Hari Raya Aidilfitri.

FBM KLCI

Malaysia’s GDP Grow 0.7% in 1Q20 – Lowest in 10 years

Sub-Title: 
“Foreign Selling of Malaysian equity at a total of RM11.08 billion …. MIDF Research”

By Stella Goh – As published in Inve$t Malaysia 15 May 2020 issue

On Sunday (10May), PM Tan Sri Muhyiddin Yassin announced the fourth extension of the movement control order (MCO) with further loosened restrictions under the conditional MCO (CMCO) for another four weeks from May 13 until June 9. Since the period will cover several major Malaysian celebrations, namely Hari Raya Aidilfitri, Kaamatan Festival and Hari Gawai, when it usually involves in heavy movement of people, such movement will not be allowed.  

On Tuesday (12May), the FBM KLCI shed 2.38 points or 0.17% to 1379.93 from previous Friday’s close of 1382.31. The FBM KLCI has reversed the trend and inched up to 1397.25 on Thursday (14May). Based on feedback from Bursa Malaysia, the MCO has had a positive impact on its trading activity. 

For YTD April 2020, Millennials were responsible for 49% of total new individual accounts opened. For the same period, Retail investors continued to post a net buy position of RM4,011mil. And the Retail Net Buy Position YTD Apr 2020 is currently higher than FY2019. 

Malaysia’s Industrial Production Index (IPI) dropped 4.9% in March 2020 from a year earlier due to the decrease in all three components (manufacturing, electricity and mining) of the index. According to the Statistics Department, the IPI’s manufacturing component fell 4.2% in March 2020 after recording an increase of 6.2% in February 2020. The major sub-sectors contributing to the decrease in the manufacturing sector in March 2020 were electrical and electronic products (-5%), non-metallic mineral products, basic metal and fabricated metal product (-9.8%), food & beverage and tobacco (-9.9%). While the electricity index and mining index recorded a reduction of 0.4% and 1.8% respectively.

According to MIDF Research, the foreign selling of Malaysian equity swelled almost nine times to RM774.1 million last week from RM87.6 the prior week. Based on the weekly fund flow report on Tuesday (12May), the foreign investors have so far taken out RM11.08 billion net of equities from Malaysia. In comparison to the other six Asian peers, Malaysia remains as the nation with third smallest foreign net outflow on a year-to-date basis after Indonesia and the Philippines.

Bank Negara Malaysia (BNM) stated that Malaysia’s average headline inflation in 2020 is likely to turn negative due to mainly projections of substantially lower global crude oil prices and other commodity prices including food as well as evolving demand conditions. Malaysia’s economic growth in gross domestic product (GDP) terms has dipped sharply to 0.7% in 1Q20 (4Q19: 3.6%) which is the lowest since third quarter of 2009 due to the impact of measures taken both globally and domestically to contain the spread of Covid-19 pandemic. 

According to BNM, during the first quarter (1Q20), headline inflation remained modest at 0.9% mainly reflecting the lapse in the remaining impact from Sales and Services Tax (SST) implementation and lower price-volatile inflation. The core inflation moderated slightly to 1.3%. BNM also stated that the sizeable fiscal, monetary, and financial measures and progress in transport-related public infrastructure projects will provide further support to growth in 2H20. In line with projected improvement in global growth, the Malaysian economy is expected to register a positive recovery in 2021. 

According to the Senior Minister of International Trade and Industry Datuk Seri Mohamed Azmin Ali, the government will announce a six months short-term recovery plan by the end of May to revive the economy. Following the recovery plan, government also plans to table a medium-term revitalization plan under the 2021 Budget in November, followed by a long-term reform plan which will be under the 12th Malaysia Plan that is scheduled to be revealed in January 2021. 

This week, on Thursday (14May) the Ringgit was 4.3405 against USD from 4.3336 on Monday (11May). Meanwhile the Sing Dollar to Ringgit was 3.0513 on Thursday (14May). As at Friday (15May) 10:00 am, the FBM KLCI was at 1402.52

Bank Negara Malaysia cuts another 50 basis points and lowers overnight policy rate to 2%

Sub-Title: 
Malaysia’s economy in 2020 could shrink more than initially forecast …. Finance Minister

By Stella Goh – As published in Inve$t Malaysia 8 May 2020 issue

Last Friday (1May), PM Tan Sri Muhyiddin Yassin announced that on Monday (4May) Malaysia will move to Conditional MCO and will reopen nearly all businesses but under strict health standard operating procedures (SOP). This is to help steer the economy recover after having lost almost RM63 billion due to the Covid-19 pandemic. However not all sectors are open so as to better manage the movement of people within a short time. During the MCO, Muhyiddin said Malaysia had absorbed losses of RM2.4 billion each day.

On Monday (4May), the FBM KLCI shed 31.19 points or 2.22% to 1376.59 points from previous Thursday’s close of 1407.78 as investors weighed the prospect of a renewed US-Sino trade tension and the on-going spat over the origin of the Covid-19 virus. The FBM KLCI continued to shed 12.62 points from 1389.55 on Tuesday (5May) to 1376.93 on Wednesday (6May). Meanwhile the headline HIS Markit Malaysia Manufacturing Purchasing Manager’s Index (PMI) has slumped to 31.3 in April from 48.4 in March. 

On Tuesday (5May), Bank Negara Malaysia cut its Overnight Policy Rate (OPR) by 50 basis points (the third reduction) with a total of 100 basis points cut to 2% since starting the year to ease the pain of the Covid-19 impact. According to Bloomberg, it is the lowest level since 2.5% in 2010 according to 14 of 20 economists surveyed.

According to Moody’s Investors Services, banks will be facing a sharp deterioration in asset quality and reduction in profitability from already low levels, while central banks are providing remarkable amounts of liquidity as the government’s strong incentives to support banking systems. The banking institutions may use Malaysian Government Securities (MGS) and Malaysian Government Investment Issues (MGII) to meet statutory reserve requirement (SRR) effective from May 16 until May 31, 2021. BNM will effectively release RM16 billion worth of liquidity into the banking system. The SRR ratio remains unchanged at 2%.

According to Bank Negara Malaysia, the domestic financial markets saw non-resident portfolio outflow totalling RM17.7 billion (US$4.1 billion) in March as risk sentiments intensified amid heightened uncertainties on the severity of COVID-19 pandemic impact on the economy. The global risk aversion remained elevated despite the large-scale monetary and fiscal stimulus measures introduced worldwide as funds sought safety in more liquid assets such as cash and US Treasury securities. 

According to Finance Minister Tengku Datuk Seri Zafrul Tengku Abdul Aziz, Malaysia’s economy in 2020 could shrink more than initially forecast due to extended curbs on movement imposed to stem an outbreak of Covid-19. Malaysia’s central bank had forecast in April for growth in gross domestic product (GDP) of between -2% and 0.5% this year. 

According to the Department of Statistics Malaysia, Malaysia’s exports fell 4.7% Y-o-Y in March to RM80.1 billion, mainly driven by a decline in exports of electrical and electronics products. Similarly imports also fell 2.7% Y-o-Y to RM67.8 billion in March. Total trade in March was at RM147.9 billion, a 3.8% Y-O-Y decline whereas the trade surplus, compared to a year ago, shrank by 14.2% to RM12.3 billion.

This week, on Thursday (7May) the Ringgit was 4.3241 against USD from 4.3161 on Monday (4May). As at Friday (8May) 10:00 am, the FBM KLCI was at 1384.53

MCO restrictions to be relaxed further under Phase 4

Sub-Title:  
Short selling temporary ban extended another two months by SC & Bursa 

By Stella Goh – As published in Inve$t Malaysia 30 April 2020 issue

On Tuesday (28Apr), the FBM KLCI edged up higher by 2.04 points to 1372.20 from Monday’s close of 1370.16 after the International Trade and Industry (MITI) Minister Datuk Seri Mohamed Azmin announced that all the economic sectors allowed to operate at half capacity during phases 1, 2 & 3 of MCO are allowed to conduct business at full capacity with effect from Wednesday (29Apr). And Chairman of special Cabinet Committee Datuk Seri Ismail Sabri has said that under Phase 4, MCO restrictions will be relaxed to allow people to go out in pairs beyond 10km but person accompanying must be a family member and must still have good reason to go out together. 

The Securities Commission Malaysia (SC) and Bursa Malaysia announced that the temporary suspension of short selling on Bursa, which initially was targeted to end on April 30, has been extended to June 30. Both SC and Bursa will continue to monitor the developments affecting the securities market while evaluating the adequacy of existing measures to support an orderly market and mitigate any potential risks.

According to Reuters, the Brent crude fell below $20 a barrel and U.S crude plunged 25% on Monday (27Apr), driven lower by skittish investor fleeing the U.S. benchmark due to lack of available storage to deal with a coronavirus-induced collapse in demand. The economic concerns continue to plague the oil market as the global economic output is expected to contract by 2% this year which will be worse than the financial crisis while global demand is expected to collapse by 30% due to the Covid-19 pandemic. 

According to MIDF Research, foreign selling of local equity on Bursa Malaysia surged to RM1.13 billion last week from RM638.6 million the week before. Bursa started the week seeing foreign investors pull out RM215.4 million net of local equities despite news that China slashed its benchmark lending rate for the second time this year to boost the nation’s economy. And amid reports that Gilead Sciences Inc’s potential antiviral drug for the Covid-19 had failed in its first randomised clinical trial, the foreign net outflow grew to RM240.6 million on Friday (24Apr).

According to the Moody’s Analytics, Malaysia is currently facing several challenges in continuing its growth trajectory, despite having made commendable progress over the past four decades. The challenges include income inequality, which is a growing issue among Malaysia’s states, particularly between the richer manufacturing hubs and states that rely on agriculture and other natural resources like palm oil and mining. However Malaysia is moving towards diversifying its economy through services such as tourism and Islamic banking. Malaysia needs to adapt to broader trends as being a net exporter of petroleum and palm oil, it is heavily dependent on volatile commodity prices and vagaries in global demand.

This week, the Ringgit was USD to 4.3437 on Wednesday (29Apr) from 4.3580 on Monday (27Apr). Also this is a short week with Friday (1May) being a Labour Day holiday, the KLCI on Thursday (April 30) at 10am was up 13.2% at 1395.24.


FBM KLCI

MCO extended to May 12 but with certain relaxations

Sub-Title:  
Bank Negara Malaysia expected to cut Overnight Policy Rate by another 75 basis points 

By Stella Goh – As published in Inve$t Malaysia 24 April 2020 issue

On Thursday (23Apr) the PM announced the further extension of MCO to May 12 but with two groups of people being allowed to travel. The first group are students who have been in their campuses being allowed to return home but only after taking the Covid-19 test. The other group are those who had been in their relative kampungs since March 18, when the MCO was first implemented, will be allowed to return to their own homes.  
 

On Monday (20Apr), the FBM KLCI surged 5.78 points or 0.41% from previous Friday’s close of 1407.34 to 1413.12 but has reversed the trend and fell to 1381.89 on Wednesday (22Apr) as a confluence of weak crude oil prices and pandemic fears continued to pummel the global equity market. As at Friday (24Apr) 10:00 am, the FBM KLCI was at 1372.08. 

FBM KLCI

Malaysia’s inflation rate fell only 0.2% YOY to 120.9 points in March with much credit going to the lower fuel costs. However the drop was countered by the rise in housing, utilities, food and non-alcoholic beverages. The full year headline inflation forecast is expected to be at zero % based on weak oil prices, discounts on household electricity and overall weak demand.    

Bank Negara Malaysia (BNM) is expected to reduce the Overnight Policy Rate (OPR) by 50bps in May, followed by a further 25bps cut in the second half of 2020 in anticipation of a contraction in the country’s economy and subdued inflation in 2020. The reduction in the Overnight Policy Rate (OPR) is intended to provide more accommodative monetary environment to support the projected improvement in economic growth amid the price stability. The Monetary Policy Committee (MPC) will continue to monitor and assess the balance of risks surrounding the outlook for domestic growth and inflation. In anticipation of the interest rate cuts and slower loans growth due to the challenging business environment, banks’ earnings outlook are expected to be slashed.    

On Monday the US crude oil futures plunged by almost 300 percent to its historical lowest. For the May delivery of US benchmark crude, the West Texas Intermediate (WTI) sank to a new low of minus $37.63 a barrel, a staggering level which essentially means the producers would be paying buyers to take oil off their hands. This resulted in the oil and gas (O&G) stocks on Bursa Malaysia to take a beating after the US crude oil price collapse. 

This week, with the weak crude oil prices hogging the news, the Ringgit against the USD was 4.3600 on Thursday (23Apr) from 4.3745 on Monday (20Apr).  

Malaysia’s Real GDP projected to grow at a rate of 9% in 2021

Subtitle:
IMF projects Malaysia’s unemployment rate to spike to 4.9% in 2020 before easing to 3.4% in 2021

By Stella Goh – As published in Inve$t Malaysia 17 April 2020 issue

On Monday (13Apr), the FBM KLCI shed 1.47 points or 0.11% from previous Friday’s close of 1357.50 but reversed the trend to continue to surge up to 1386.53 on Thursday (16Apr). As at Friday (17Apr) 10:00 am, the FBM KLCI continued its strong upward trend to 1407.93. 

Malaysia has the highest household debt to Gross Domestic Product (GDP) in Asia and has exceeded several high-income nations including United States (66%) and Japan (59.3%). According to Ambank Group’s Chief Economist Anthony Dass, the GDP outlook for 2020 will be much slower balancing between technical and full-fledged recession that will cause an increase in household debts. Ambank’s sensitivity analysis shows household debts against GDP could range between 82.3% and 88.6% this year and GDP to range between 0.4% to -2%. The relief measures unveiled by the government and central bank are expected to provide some short-term relief to the households. 

According to the International Monetary Fund (IMF), it has projected Malaysia’s real gross domestic product (GDP) to grow at a rate of 9% in 2021, the fastest among the Asean-5 countries which are expected to see a combined GDP growth of 7.8%. Besides Malaysia, the Asean-5 countries include Indonesia, Thailand, Philippines, and Vietnam which are set to expand by 8.2%, 6.1%, 7.6% and 7% respectively. IMF also forecasts Malaysia’s economy to contract 1.7% as the Asean-5 countries’ GDP shrinks 0.6% in 2020. The global growth is expected to rebound to 5.8% in 2021, reflecting the normalization of economic activity from a very low level. However some aspects that underpin the rebound may not materialize and the outcomes could be far worse depending on the course and extent of the Covid-19 pandemic. 

Malaysia’s Industrial Production Index (IPI) climbed 5.8% in February to a two-and-a-half-year high but it is unlikely to be sustained due to the Covid-19 pandemic. It results from an expected weak global demand coupled with supply chain disruption and factories closing temporarily during the Movement Control Order (MCO) periods. According to Malaysian Industrial Development Finance (MIDF), the outlook for the first half of year will be cloudy with major and emerging economies’ IPI remaining sluggish. Movement Control Orders and lockdowns in major economies such as US, Europe and Asia will impede global demand and exports. The plunge in global crude oil prices would also add pressure on the oil-exporting economies such as Malaysia, Australia, and Saudi Arabia. As a result of the gloomy outlook, MIDF is expecting the country’s IPI to contract in 1Q and 2Q of 2020. It has reviewed its IPI forecast from 1.5% to -2.8% y-o-y for 2020. 

The International Monetary Fund (IMF) in its recent World Economic Outlook April 2020 that was launched on Tuesday (14Apr), projects that Malaysia’s unemployment rate to spike to 4.9% in 2020 before easing to 3.4% in 2021. The labour force will be affected in 2Q2020 because many companies and particularly SMEs have been buffeted by both external headwinds and the internal MCO and its extensions. However MIDF maintains its confidence that the jobless rate will be remain below 4% for the whole year of 2020 as some of the stimulus measures announced by government may moderate the pressure. 

This week, the Ringgit has weakened against USD to 4.3668 on Thursday (16Apr) from 4.3283 on Monday (13Apr).  

KLCI past 1 year

Malaysia’s GDP may shrink to a low of -2% in 2020 amid Covid-19 pandemic

Subtitle:
World Trade set to plunge as COVID-19 pandemic upends global economy

By Stella Goh – As published in Inve$t Malaysia 10 April 2020 issue

On Monday (6Apr), the FBM KLCI gained 11.04 points or 0.83% from previous Friday’s close of 1330.65, while trading volume across Bursa Malaysia neared six billion shares as Asian equities ended higher. Investors seemed to favor the possibility that the increase in new Covid-19 cases had slowed down and anticipated a truce in the Saudi Arabia-Russia crude oil price war as announced by POTUS. But the impasse so far has increased supply of the commodity and sent prices lower.  

Bank Negara Malaysia (BNM) warned that recession seems imminent if Malaysia’s GDP shrinks to a low of -2% in 2020 due to the economic impact of Covid-19 pandemic while Malaysia’s Movement Control Order (MCO) will pose a dampener on domestic economic activity. According to BNM governor Datuk Nor Shamsiah Mohd Yunus, the projected GDP for 2020 is expected to be between 0.5% and -2%. Spillovers from the global slowdown and the pandemic containment measures will result in large output losses in the first half of this year (1H20). As for oil, according to BNM assistant governor Marzunisham Omar, prices are expected to range between US$25 and US$35 per barrel this year. During MCO period, the domestic economy will be operating at around 45% of capacity. The labour market is expected to be considerably weaker as well.  

The Malaysian government announced an additional fourth stimulus package worth RM10 billion (US$2.3 billion) to help struggling small-and-medium-size enterprises (SMEs) affected by the Covid-19. The benefits include expanded employees’ subsidies, a special grant for micro SMEs, waiver of interest rates for the Micro Credit Scheme and a levy cut on foreign workers. The government also announced there is a rental exemption or discounts for SMEs operating on premises owned by government-linked companies and tax breaks for landlords that give rental discounts or exemptions. 

According to the World Trade Organization (WTO) Director General Roberto Azevedo, this crisis is first and foremost a health crisis which has forced governments to take unprecedented measures to protect people’s lives. The unavoidable declines in trade and output will have painful consequences for households and businesses, on top of the human suffering caused by the disease itself. The immediate goal is to bring the pandemic under control and mitigate the economic damage to people, companies and countries. But policymakers must start planning for the aftermath of the pandemic. These numbers are ugly and there is no getting around that. But a rapid, vigorous rebound is possible. Decisions taken now will determine the future shape of the recovery and global growth prospects. He urged Governments to lay the foundations for a strong, sustained and socially inclusive recovery. He presented two scenarios. In the optimistic scenario, the global merchandise trade could fall 13% in 2020 and rebound 21% in 2021 compared with a 0.1% contraction in 2019. While the gross domestic product (GDP) could contract by 2.5% in 2020 and grow by 7.4% in 2021. In a pessimistic scenario, the volume of global goods trade could drop by as much as 32% this year with the possibility of 24% increase next year. In this situation, world GDP could shrink by as much as 8.8% in 2020 and expand by 5.9% in 2021. If the optimistic scenario is achieved, the WTO projection will rival the modern peacetime record, which was set in 2009, when world merchandise trade volume declined about 12% and global GDP contracted 2%. If the pessimistic scenario is realized, it could be the most severe drop in global commerce since the Great Depression. 

As at Thursday (9Apr) the Ringgit had strengthened to RM4.3189 against the US dollar from RM4.3638 on Monday (6Apr). As at Friday (10Apr) 10:00 am, the FBM KLCI was at 1355.98. 

Site last updated July 6, 2020 @ 3:54 am