Sultan Nazrin calls on corporations to set up CSOD online platform

Inve$t | Market Sentiments | 25 November 2022

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Sultan of Perak Sultan Nazrin Shah called on Malaysian corporations to establish and maintain a corporate sustainability open data (CSOD) online platform that consists of relevant data on all sustainability-related issues, which is accessible to the public. Transparent provision of credible and comprehensive sustainability data should become an essential aspect of environmental, social, and governance (ESG) commitments by corporations. It should be undertaken voluntarily by companies, going beyond the mandatory sustainability reporting schemes that most corporations are already subject to. Sultan Nazrin was speaking in a royal address at the GO ESG Asean Summit 2022. His Royal Highness added that the CSODs should also provide information on the companies’ future sustainability goals, so that the public can keep track of their implementation and progress.  

A good example of a CSOD already in operation is ESGenome, which was launched by the Singapore Exchange. This portal facilitates the reporting of ESG data in a structured and efficient manner. The data made available on ESGenome can be freely accessed by investors and other stakeholders, thereby helping them to make informed decisions relating to their investments and corporate evaluations. The corporate sector is urged to make significant contributions to the achievement of the Sustainable Development Goals (SDGs) by acting more responsibly and harnessing its own resources, including human capital, technology, and innovation. Companies and government departments across Asean must be able to demonstrate convincingly to their populations that all policies being developed to address the climate crisis are fully justified by the data. They must also be able to show that they are following through these policies in practice, and meeting the targets that have been set. All of this is only possible through the use of credible, transparent, and longitudinal sources of data. His Royal Highness stressed the importance of data gathering and dissemination — a process sometimes termed “data curation” — noting that data modalities that have been used traditionally must be diversified to address the deficit of quality data on sustainability-related matters.  

Dissemination of such enhanced and expanded data sets would also help create greater awareness of the climate crisis and all its complexities, beyond the realm of sustainability and development specialists. This could displace the repetition of rhetorical pleas, and help to secure buy-in to the sustainability agenda from a broader range of stakeholders, including government agencies, corporates, non-governmental organisations, and the general public. The one-day GO ESG Asean Summit 2022 aims to highlight the key role of ESG data in accelerating the region’s sustainability agenda. The theme was Data Driven Sustainability: Accelerating ESG Impact for Asean.  

Executives, non-executives’ salaries expected to increase by 5.4pc in 2023 – MEF 

According to a survey by the Malaysian Employers Federation, salaries for executives and non-executives in Malaysia are expected to increase by 5.44 per cent and 5.43 per cent, respectively, in 2023. President Syed Hussain Husman, told reporters after officiating the 28th edition of the MEF Salary Surveys for Executives and Non-Executives on Wednesday (Nov 23). He said approximately 90 per cent of companies surveyed attributed employees’ performance as the main criteria for determining executive and non-executive salary increases. The business respondents seemed to be positive that Malaysia’s economy is generally going to be stable next year despite the expectation of a global recession. This was on the back of positive recovery of most businesses since the reopening of the economy after the (Covid-19) pandemic. He added the survey also indicated that 93 per cent of employers granted salary increases to executive and non-executive employees in 2022, which was a significant increase from 65.2 per cent and 66.4 per cent, respectively, in 2021. 

Syed Hussain said the survey showed that the average salary increases for executives and non-executives in 2022 was 5.26 per cent and 5.35 per cent, respectively, with more than 80 per cent of the responding companies granting bonuses. The forecast for bonuses in 2023 is 2.18 and 2.06 monthly salary for executives and non-executives, respectively, which was higher than the actual bonus in 2022 of 2.06 months and 1.77 months, respectively.  

The MEF president said the survey also covered the implementation of the Minimum Wages Order 2022, which increased the minimum wage to RM1,500 per month and impacted 70.3 per cent of the companies surveyed. He said those companies not affected by the new minimum wage cited that the main reason was that their employees’ salaries had already surpassed the minimum level. He added 53.4 per cent of the respondent companies also anticipated an increase in their overall salary or wage costs following the implementation of the new minimum wage. He said 59.7 per cent of the respondent companies planned to reduce their operating expenses to mitigate the impact of the new minimum wage while another 48.8 per cent cited an increase in the price of their products or services as their adopted measure. Another 43.8 per cent of respondent companies intend to implement cost-cutting measures in other areas of production while 36.8 per cent intend to shift from labour-intensive to technology-intensive production. 

Commenting on the current shortage of employees in the country, executive director Datuk Shamsuddin Bardan said the situation needed to be addressed quickly as Malaysia is now competing with other countries to get foreign workers. Employers cannot totally depend on the government to resolve this problem. They must also step up efforts to modernise their operations by adopting new technologies to attract local workers. 

The MEF Salary Survey for Executives saw 252 companies responding from the manufacturing and non-manufacturing sectors while 250 member companies participated in the Salary Survey for Non-Executives. Apart from the salary surveys, the MEF also launched the MEF Fringe Benefits Survey 2022 and the Analysis of Collective Agreements and Awards on Terms and Conditions of Employment 2021. 

Eye On The Markets 

This week, on Friday (25Nov), the Ringgit opened at 4.4780 against the USD from 4.5825 on Monday (21Nov). Meanwhile, the Ringgit was 3.2535 to the Sing Dollar on Friday (25Nov). On Monday (21Nov), the FBM KLCI opened at 1434.55. As at Friday (25Nov) 10:00am, the FBM KLCI is up 50.53 points for the week at 1485.08. Over in US, markets were closed for the Thanksgiving holiday. 

Bursa Malaysia inks MOU with the Companies Commission of Malaysia

Inve$t | Market Sentiments | 17 November 2022

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Bursa Malaysia Berhad and the Companies Commission of Malaysia (SSM) today signed a Memorandum of Understanding to undertake a 3-year collaboration with three core initiatives to benefit SME in the Malaysia economy. The framework of the MoU includes: 

  • to jointly explore commercial opportunities for both Bursa Malaysia and SSM that support corporate Malaysia’s digital economy growth aspiration, as guided by the Malaysia Digital Economy Blueprint;  
  • Data-sharing between Bursa Malaysia and SSM for in-depth analytics that provide greater strategic decision-making insights for businesses as encouraged by the National Data Sharing Policy; and  
  • Driving the Environmental, Social and Governance agenda for Malaysian business ecosystem with impactful programmes. 

The new collaboration will be to leverage the combined potential of Bursa Malaysia’s and SSM’s datasets to build a first-of-its-kind data ecosystem that supports Malaysia’s socio-economic development agenda. The platform, comprising datasets of corporate Malaysia from both small-medium enterprises and public listed companies, will facilitate the development of in-depth meaningful analytics and solutions for the fund-raising community in the capital market, as well as the business community at large. 

Driving the ESG agenda, Bursa Malaysia and SSM will work together to encourage corporate Malaysia to focus on improving disclosures and access to capital through ESG best practices in respective industries. Public listed companies, from financial institutions to manufacturing businesses, can act as catalysts of the Malaysia’s economy to improve data and transparency in their supply chain. 

According to Datuk Muhamad Umar Swift, Chief Executive Officer of Bursa Malaysia, the MoU between Bursa Malaysia and SSM today provides the Exchange a trusted partner both in terms of improving our combined data capacity, as well as the opportunity in empowering the local business community through data and information sharing. In addition to building a centralised data system that connects businesses with the funding agencies, this collaboration will allow smaller businesses to learn from best practises from larger corporations. 

Meanwhile Datuk Nor Azimah Abdul Aziz, SSM Chief Executive Officer, said that SSM has a comprehensive data bank consisting of details on information relating to company and other business entities’ profiles, share capital, directors, officers, shareholders, charges and financial information. Through this MoU, information derived from this meaningful collaboration would be further analysed to create a holistic, inclusive, and conducive data ecosystem that supports the overall Malaysia’s socio-economic development agenda, especially the SMEs that comprised 99% of the corporate and business entities in SSM’s registries.  

Malaysia IPO market still strong – Deloitte 

According to Deloitte, Malaysia’s initial public offering (IPO) market has emerged from the Covid-19 pandemic with a 102% increase in the proceeds raised at US$681mil (RM3.12bil) compared to 2021, driven by investor demand for good business fundamental companies. The global provider of audit and assurance, consulting, financial advisory, risk advisory, tax and legal company also said that the number of ACE Market listings had doubled from 11 in 2021 to 22 this year. It said the interest rate hike would potentially encourage more companies with good business fundamentals to seek a listing, as they can leverage the equity market for a diversified and cheaper funding base.  

According to Deloitte Malaysia disruptive events advisory leader Wong Kar Choon, at the Deloitte virtual press conference titled 2022 SEA IPO Market Performance and Outlook, there remained a steady pipeline of companies looking to tap the capital markets. He added, the strong performance in 2022, against a backdrop of global inflation, rising interest rates and the threat of a recession, is proof of the resilience of the Malaysian capital market.  

Meanwhile Deloitte South-East Asia and Singapore disruptive events advisory leader Tay Hwee Ling said that prior to the Covid-19 pandemic, the IPO activity moved in tandem with the economy and gross domestic product growth, but the inverse had happened in the last two years. The reopening of the world economies and borders have fuelled a rise in global inflation from 4.7% in 2021 to 8.8% in 2022, and consequently an increase in the Federal Reserve interest rate of almost 4% over the course of the year in a bid to tame the surging inflation. In the face of these macroeconomic factors, the South-East Asia IPO market has held up considerably well, while we continue to see the growth potential in our economies. 

Eye On The Markets 

This week, on Thursday (17Nov), the Ringgit opened at 4.5470 against the USD from 4.6195 on Monday (14Nov). Meanwhile, the Ringgit was 3.3181 to the Sing Dollar on Thursday (17Nov). On Monday (14Nov), the FBM KLCI opened at 1447.40. As at Thursday (17Nov) 10:00am, the FBM KLCI is down 21.59 points for the week at 1468.99. Over in US, the overnight Dow Jones Industrial Average closed down 39.09 points (-0.12%) to 33,553.83 whilst the NASDAQ shed 174.75 points (-1.54%) to 11,183.66. 

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Malaysia will avert technical recession – RHB IB

Inve$t | Market Sentiments | 11 November 2022

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According to RHB Investment Bank Bhd (RHB IB) group chief economist and head of market research Dr Sailesh K Jha and associate research analyst Wong Xian Yong, their third quarter of 2022 (3Q2022) GDP estimate is 10-12% year-on-year (y-o-y). In a note on Wednesday (Nov9), the two economists revised their 2022 GDP growth estimate to 7% y-o-y from 6% on the back of stronger-than-anticipated consumer spending in 3Q2022 and resiliency of the consumer in 4Q2022. The balance of risks is tilted towards Bank Negara Malaysia hiking the overnight policy rate (OPR) at every MPC (Monetary Policy Committee) meeting in 1H2023 to 3.5%. 

Jha and Wong said despite all the “doom and gloom” prevalent in global financial market sentiment as it pertains to the outlook for US and global growth, with fears of a deep and prolonged recession in place, they are firmly in the camp that Malaysia’s business cycle is headed for a cyclical slowdown from 4Q2022 to 2Q2023 to trend or slightly below trend, on average. They don’t anticipate a technical recession on the horizon. They estimate for Malaysia’s trend GDP (gross domestic product) growth at around 5% y-o-y. In 2H2023, they expect a recovery in Malaysia’s GDP growth led by the consumer.  

The economists said Malaysia’s business cycle peaked in 3Q2022. The leading indicator for GDP (LEI) suggests that the 3Q2022 print could be in the 10-12% y-o-y range and 4Q2022 could print around 2.30-5.83% versus the 1H2022 print of 7%. These forecasts have taken into consideration that the LEI has underestimated GDP growth by 1-2 percentage points, on average, historically. Hence, these are the forecasts generated from a top down perspective. From a bottoms up perspective, for 3Q2022 GDP we obtain an estimate of around 11% and for 4Q2022 GDP it’s around 4%. 

Jha and Wong also said they forecast that a technical recession is unlikely in 2023. The Malaysian stock market is in a sustained bear market on an annualised basis for more than two quarters. Consumer sentiment as measured by the Malaysian Institute of Economic Research Consumer Sentiment Index (MIER CSI) drops well below the 80-85 range. Quarterly real exports of electrical and electronic products exhibit contractions on a year-on-year basis. 

Bursa Malaysia completes retail CX analytics PoC 

Bursa Malaysia Berhad, in a statement (8Nov) announced the successful completion of its Retail Customer Experience (CX) Analytics Proof-of-Concept (PoC), a data-driven analytics project piloted on the exchange’s cloud and artificial intelligence (AI) platform. Bursa Malaysia said the PoC was undertaken in collaboration with four participating organisations (POs), namely Hong Leong Investment Bank Bhd, CGS-CIMB Securities Sdn Bhd, Malacca Securities Sdn Bhd and RHB Investment Bank Bhd, with the aim of advancing the development of the capital market’s investor base. 

It said leveraging its in-depth industry-wide datasets, the Exchange developed a machine learning model built on its AI and cloud platform while also tapping into participating POs’ deeper understanding of their retail customer segments and distinct behaviours. A hyper-personalisation approach was applied to aid in the design of customised initiatives to cater to distinct retailers’ needs with the aim of bridging information gaps and improving retailers’ financial literacy. It added, this cloud-enabled model facilitates multi-party collaboration in an efficient and cost effective manner while driving a ‘single-source-of-truth’ perspective in the metrics used to identify trends and insights. 

Chief executive officer Datuk Muhamad Umar Swift said the exchange would invest in accelerating its digital transformation journey in new technology and data analytics for successful customer outcomes in an effort to better understand the increasingly complex and changing investor behaviour. This collaboration served as a platform for Bursa Malaysia and participating POs to explore and co-create more solutions on areas that are impactful to the industry, capitalising on data-driven and digital capabilities. He said, the exchange is committed to investing in advanced technology that will improve the data solutions and CX experience we provide to our stakeholders. 

Meanwhile, head of bursa data business Wong Chiun Chiek said in addition to the PoC, Bursa Malaysia has established a Minimum Viable Product (MVP) that included a decision-making framework. This is in line with Bursa Malaysia’s strategic intent to offer new and innovative services to the industry using data and digital technologies. The Exchange added that with the completion of the PoC, it is moving closer to turning the MVP into a market-ready product and Bursa Malaysia would work closely with participating POs in order to continuously improve and refine the solution.  

HEINEKEN Malaysia Reports 3QFY22 Results 

Heineken Malaysia Berhad announced its financial results for the third quarter and nine months ended 30 September 2022, once again reporting an improved performance against pre-pandemic levels. The results demonstrated the brewer’s continued efforts in driving sustainable growth amidst the improving external environment post-pandemic. Compared to the same period in 2019, HEINEKEN Malaysia’s revenue and net profit increased by 26% and 39% respectively in the first nine months of 2022. 

Compared to the same quarter in 2021, Group revenue in Q3 grew by 85% to RM720.5 million, mainly due to strong post-COVID recovery following the reopening of international borders, increased on-trade consumption as well as positive mix impact from the Group’s premium portfolio growth. Net profit in Q3 grew significantly by 113% to RM108.7 million. The growth was driven by revenue growth as highlighted above as well as driving efficiency through cost and value initiatives whilst the Group continued to invest behind its brands and capabilities in line with its EverGreen strategy. 

For the nine-month period, Group revenue and net profit increased by 60% and 106% respectively versus the nine months ended 30 September 2021, mainly driven by low volume last year as the brewery was closed due to the Movement Control Order. In addition, the Group’s performance was enhanced by a strong Chinese New Year festive period, steady recovery for the on-trade business, better revenue and cost management. 

Commenting on the results, Roland Bala, Managing Director of HEINEKEN Malaysia, said, “Our performance for Q3 2022 was commendable as the economy continues to open up, on-trade business and tourism sectors continue to recover compared to a weaker Q3 2021 due to widespread MCO. We are truly grateful for the strong support of our consumers, customers and trade partners for our brands. We thank our team at HEINEKEN Malaysia for their passions and courage in transforming our operations and quickly adapt to the new business challenges. We will continue to focus on executing our EverGreen Strategy to drive sustainable growth.” 

Eye On The Markets 

This week, on Friday (11Nov), the Ringgit opened at 4.6375 against the USD from 4.7450 on Monday (7Nov). Meanwhile, the Ringgit was 3.3527 to the Sing Dollar on Friday (11Nov). On Monday (7Nov), the FBM KLCI opened at 1441.18. As at Friday (11Nov) 10:00am, the FBM KLCI is up 19.21 points for the week at 1460.39. Over in US, the overnight Dow Jones Industrial Average closed up 1201.43 points (+3.70%) to 33,715.37 whilst the NASDAQ gained 760.97 points (+7.35%) to 11,114.15. 

Bank Negara hikes OPR by 25bps to 2.75%

Inve$t | Market Sentiments | 4 November 2022

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The Monetary Policy Committee (MPC) of Bank Negara Malaysia decided to increase the Overnight Policy Rate (OPR) by 25 basis points to 2.75 percent. The ceiling and floor rates of the corridor of the OPR are correspondingly increased to 3.00 percent and 2.50 percent, respectively. For the Malaysian economy, latest indicators show that economic activity strengthened further in the third quarter, driven primarily by robust domestic demand. Going forward, despite the challenging global environment, domestic demand will remain the key driver of growth.  

Household spending will continue to be underpinned by improvements in labour market conditions and income prospects. Tourist arrivals have increased following the reopening of international borders and will further lift tourism-related sectors. Investment activity and prospects will be supported by the realisation of multi-year projects. Nevertheless, external demand is expected to moderate following softening global growth. Despite bouts of heightened volatility in the global financial and foreign exchange markets, these developments are not expected to derail Malaysia’s growth. Domestic liquidity remains sufficient, with continued orderly functioning of the financial and foreign exchange markets. Financial institutions also continue to operate with strong capital and liquidity buffers. These will ensure financial intermediation remains supportive of the economy. Downside risks to the domestic economy continue to stem from a weaker-than-expected global growth, higher risk aversion in global financial markets amid more aggressive monetary policy tightening in major economies, further escalation of geopolitical conflicts, and worsening supply chain disruptions. 

In line with earlier assessments, headline inflation is likely to have peaked in 3Q 2022 and is expected to moderate thereafter, albeit remaining elevated. Underlying inflation, as measured by core inflation, is projected to average closer to the upper end of the 2.0% – 3.0% forecast range in 2022, having averaged 2.7% year-to-date, given some demand-driven price pressures amid the high-cost environment.  

Moving into 2023, headline and core inflation are expected to remain elevated amid both demand and cost pressures, as well as any changes to domestic policy measures. The extent of upward pressures to inflation will remain partly contained by existing price controls, subsidies, and the remaining spare capacity in the economy. The balance of risk to the inflation outlook in 2023 is tilted to the upside and continues to be subject to domestic policy measures on subsidies, as well as global commodity price developments arising mainly from the ongoing military conflict in Ukraine and prolonged supply-related disruptions. 

Against the backdrop of continued positive growth prospects for the Malaysian economy, the MPC decided to further adjust the degree of monetary accommodation. The adjustment would also pre-emptively manage the risk of excessive demand on price pressures consistent with the recalibration of monetary policy settings that balances the risks to domestic inflation and sustainable growth. At the current OPR level, the stance of monetary policy remains accommodative and supportive of economic growth. The MPC is not on any pre-set course, which means that monetary policy decisions will continue to depend on evolving conditions and their implications on the overall outlook to domestic inflation and growth. Any adjustments to the monetary policy settings going forward would continue to be done in a measured and gradual manner, ensuring that monetary policy remains accommodative to support sustainable economic growth in an environment of price stability. 

The MPC also noted that the global economy continues to be weighed down by rising cost pressures, tighter global financial conditions, and strict containment measures in China. These factors more than offset the support from positive labour market conditions, and the full reopening of most economies and international borders. Inflationary pressures were more persistent than expected due to strong demand, tight labour markets, and elevated commodity prices, despite improvements in global supply chain conditions.  

Consequently, many central banks are expected to continue raising interest rates to manage inflationary pressures. In particular, continued aggressive adjustments in US interest rates and expectations of a higher terminal rate in the US, have contributed to a persistently strong US dollar environment. This has resulted in higher volatility in financial markets, affecting other major and emerging market currencies, including the ringgit. Going forward, the global growth outlook will continue to face headwinds from tighter financial conditions amid elevated inflation in major economies and the domestic challenges in China. The growth outlook remains subject to downside risks, including escalation of geopolitical tensions, worsening of domestic headwinds in China and potential energy rationing in Europe. 

The meeting also approved the schedule of MPC meetings for 2023. In accordance with the Central Bank of Malaysia Act 2009, the MPC will convene six times during the year. The Monetary Policy Statement will be released at 3 p.m. on the final day of each MPC meeting. 

Malaysian economy holding up but headwinds persist: Tan Sri Azman Hashim 

Chief executives, industry experts and business leaders discussed major trends impacting the Malaysian economy as well as issues of common concern such as inflation and labour shortages at the 2022 Perdana Leadership Foundation CEO forum. 

According to Perdana Leadership Foundation board of trustee chairman Tan Sri Azman Hashim, Malaysia’s economic fundamentals have held up throughout the Covid-19 pandemic thanks to central bank oversight, public sector assistance and efforts of the private sector, but headwinds from external and internal sources continue to plague the country. It is thus timely to have this forum where business leaders and industry experts are gathered to discuss economic trends, and the environment, as well as identify sectors that are growing in importance such as technology and logistics. The business community plays a huge role in strengthening, fortifying, and reviving the Malaysian economy, and this forum is a platform to surface the concerns of business leaders to policymakers. 

The Russia-Ukraine war is ongoing with no end in sight, so the food and fuel shortages experienced in Europe will continue for the foreseeable time. This means inflation – which is already at unprecedented levels in many countries – will not abate, and the cost-of-living crisis will continue for many people around the world. China is still pursuing its zero-Covid policy and parts of the country may be subjected to lockdowns. For many companies, including Malaysian ones, this signals potential manufacturing and supply disruptions. 

Malaysia is also dealing with the effects of climate change, with floods, typhoons, hurricanes and droughts becoming more unpredictable and severe globally. It is not surprising that the World Bank and the International Monetary Fund are forecasting weak global economic growth of less than 3% in 2023, with the ominous note that the worst is yet to come, and for many people it will feel like a recession. While Malaysia’s growth is forecast to be better than the world average, at 4.5%, it will be lower than in pre-pandemic years, mostly due to lower demand for our exports. 

Bursa Malaysia announces RM177.6 million profit after tax and zakat for the nine months ended 30 September 2022 

Bursa Malaysia Berhad recorded a Profit After Tax and Zakat of RM177.6 million for the nine-month financial period ended 30 September 2022, a 38.8% decrease from RM290.3 million reported in the previous corresponding period ended 30 September 2021. The decrease in PAT is due to lower operating revenue by 24.6% to RM445.2 million from RM590.0 million in 9M2021, primarily caused by a decline in securities trading revenue. Meanwhile, total operating expenses saw a 0.7% marginal increase to RM214.7 million in 9M2022, compared to RM213.2 million in 9M2021. 

According to Chief Executive Officer of Bursa Malaysia Datuk Muhamad Umar Swift, global volatility and the higher interest rate environment continue to challenge our securities market business but improvements in the performance of the derivatives market as well as market data businesses have helped contribute to our profit numbers during this financial period. The Exchange will continue to ensure that it innovates and remains agile to generate increased volumes thus contributing to higher revenue streams in all segments of the business in this investment climate.  

For the period under review, the Securities Market registered a trading revenue of RM203.0 million, a decrease by 43.6% compared to RM359.9 million in 9M2021. This is due to lower Average Daily Trading Value for Securities Market’s On-Market Trades and Direct Business Trades in 9M2022 of RM2.2 billion against RM4.0 billion in 9M2021. Trading velocity in 9M2022 was lower by 24 percentage points to 30% compared to 54% in 9M2021. On new listings, funds raised through Initial Public Offerings in 9M2022 totalled RM2.8 billion, higher than the RM2.3 billion raised in 9M2021. 

Total derivatives trading revenue increased by 11.5% to RM73.4 million in 9M2022 from RM65.8 million in 9M2021, contributed by higher collateral management income as well as higher number of Crude Palm Oil Futures and FTSE Bursa Malaysia KLCI Futures. Average Daily Contacts in 9M2022 rose 2.2% with 78,540 contracts, compared to 76,836 contracts in 9M2021. 

As for the Islamic Markets, higher trading activity in Bursa Suq Al-Sila’ resulted in an increase of trading revenue by 17.3% to RM11.8 million in 9M2022, from RM10.1 million in 9M2021. Meanwhile, the market data business closed 9M2022 with a total revenue of RM45.8 million, a 15.9% increase compared to RM39.5 million in 9M2021, driven by higher number of subscribers. 

Based on Bank Negara Malaysia’s report that the Malaysian economy grew by 8.9% in 2Q2022, factors such as improving labour conditions, reopening of international borders, recovery in tourism-related sectors, and increase in investment activities will continue to support this growth trajectory. Trading volume is facing strong global headwinds, but the Exchange continues to actively engage with existing and potential market participants to highlight the market’s value and appeal. To enhance the attractiveness of existing listed companies, the Exchange has launched initiatives such as the Public Listed Companies Transformation Programme, the Bursa Research Incentive Scheme, Investor Relations & Public Relations Incentive Programme and the Bursa Digital Research. To entice domestic and foreign derivatives participants, other initiatives include further extension of the after-hours (T+1) derivatives night trading session.  

Ensuring a robust Islamic Capital Market remains one of the Exchange’s main agendas, which is in line with its Sustainable and Responsible Investment and Environmental Social Governance agenda. The Exchange continues to develop new Shariah-compliant products, such as the upcoming Shariah-compliant Voluntary Carbon Market and the Bursa Gold Dinar. The financial results for the period ending 9M2022 are available on Bursa Malaysia’s website at www.bursamalaysia.com.

Note From Publisher: In this issue of Inve$t, we are happy to introduce Good Life, a regular lifestyle section that will present to you opportunities to enjoy the good life. And by good life we mean products, services, places and people who give priority to the environment and sustainability. Also from this issue onwards we bring to you a regular column called Indulge in which we selectively showcase new products or services launched in the marketplace as a means for you to consider buying just to pamper yourself. Afterall, when you have generated profits from your investments, it’s a good time to treat yourself for your success. Enjoy. Oh and do share this issue of Inve$t with your loved ones.      

Eye On The Markets 

This week, on Friday (4Nov), the Ringgit opened at 4.7445 against the USD from 4.7285 on Monday (31Oct). Meanwhile, the Ringgit was 3.3378 to the Sing Dollar on Friday (4Nov). On Monday (31Oct), the FBM KLCI opened at 1450.94. As at Friday (4Nov) 10:00am, the FBM KLCI is down 24.22 points for the week at 1426.72. Over in US, the overnight Dow Jones Industrial Average closed down 46.51 points (-0.46%) to 32,001.25 whilst the NASDAQ shed 181.86 points (-1.73%) to 10,342.94. 

Ringgit expected to strengthen against US dollar starting Q2 2023 – AmBank Research

Inve$t | Market Sentiments | 28 October 2022


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Ringgit expected to strengthen against US dollar starting Q2 2023 – AmBank Research

According to AmBank Research, the ringgit should start to strengthen against the US dollar from the second quarter (Q2) of next year onwards and settle at the 4.40 level in the fourth quarter (Q4) of 2023, as the greenback is expected to enter a period of cyclical decline. The local currency has seen its weakest valuation against the US dollar on March 31, 1998, at 4.88. 

The research house recently reported that upside pressure on the currency remains which will be coming from both external headwinds and domestic noises. The ringgit is expected to weaken further in the first quarter of 2023 to 4.80 against the dollar. It forecast the interest rate differential between Malaysia and the United States would narrow in the second half (H2) of 2023. With a sharp slowdown or recession risk in the US, there are potential rate pullbacks by the Federal Reserve (Fed) in H2 2023. With an estimated reduction of 100 basis points (bps) in H2 2023, this would mean the interest rate differential would drop from a peak of 1.25-1.50 per cent to 0.25-0.50 per cent.  

The domestic economy would be much more settled post-15th General Election. This would mean the positive impacts of the 12th Malaysia Plan, foreign direct investment, domestic direct investment, domestic activities, exports and better management of inflation and Budget 2023 should provide the necessary comfort for the economy to expand around 4.5 per cent in 2023. 

Recapping the ringgit’s performance this year, the Fed’s aggressive rate hikes in 2022 with the aim to cool inflation led to a strong upwards bias on the ringgit. The currency fell by 13.5 per cent as of Oct 25, 2022, despite Bank Negara Malaysia (BNM) raising its policy rates by a cumulative 75 bps to reach 2.50 per cent until October 2022. Expectations are for BNM to raise another 25 bps in November 2022 and another 25 bps in January 2023, adding that this will bring the policy rate back to the pre-COVID-19 level of 3.00 per cent. The ringgit has remained weak despite the efforts to stabilising the currency by utilising around US$9.5 billion of BNM’s reserves. 

The Gross Domestic Product (GDP) recorded a strong growth of 8.9 per cent year-on-year in Q2 2022, adding that third-quarter 2022 GDP is expected to perform better, projected to hover around nine per cent to 10 per cent with the support of strong exports and domestic activities. However, it added the GDP is projected to grow at a slower pace in Q4 2022 to about 5.0 per cent. Despite a strong full-year GDP forecast of around 7.5 per cent to 8.0 per cent, the ringgit is poised to stay weak due to the “dollar play”. External headwinds plus domestic noises remain major drawbacks to the ringgit. Also, the interest rate differentials remain wide, favouring the dollar. The research house projected the ringgit in Q4 2022 would be at 4.70 against the dollar. 

Robust outlook for tech sector, say analysts – Despite favourable sentiment, there’s word of caution 

According to Hong Leong Investment Bank (HLIB) Research in their report released on Wednesday (27Oct), the Malaysian technology sector is set to experience multi-year earnings growth, supported by exponential demand and government incentives. It is favouring front-end players, as many countries are rushing to develop their semiconductor capabilities. This is especially the case for leading edge front-end fabrication looking to become more self-sufficient on the back of national strategic and security interests. Their top picks are Frontken Corp Bhd and UWC Bhd, which have exposure to front-end opportunities.  

HLIB Research is reiterating a “buy” call on Frontken with a target price of RM3.20. Frontken has a multi-year growth forecast, on the back of a sustainable global semiconductor market outlook, robust fab investment, leading edge technology, and a strong balance sheet to support its Taiwan expansion. The research house is also reiterating a “buy” call on UWC, with an unchanged target price of RM4.38. The ongoing trade intensity may eventually benefit UWC, which provides a one-stop solution as more companies shift production out of China to avoid import tariffs. 

Due to the Covid-19 pandemic, there is an increasing demand for digitalisation. This, has driven sales on a global scale and has also resulted in a worldwide chip shortage that has impacted supply chains across various sectors. After an amazing 26% growth in 2021, Malaysia is expecting a gain of 8% to 10% in 2022, followed by a weaker 2023. This is mainly due to the weaknesses in the consumer-centric end market, namely PCs and smartphones. However, the automotive segment remains resilient with strong bill-to-book ratios. 

On a separate note, HLIB Research said a total of RM52bil in semiconductor investments have been announced in the past 12 months that will potentially create 11,000 new jobs. Malaysia remains a key player in the global supply chain, as 7% of total global semiconductor trade flows through the country. Malaysia commands a 13% share of the global chip testing and packaging market. The electrical and electronics industries remain the largest contributors to Malaysia’s exports. 

In view of the impending implementation of the Global Minimum Tax (15%), the Malaysia Semiconductor Industries Association is working with the government to improve non-monetary incentives, such as automation, talent, supply chain, and research and development connectivity, to attract foreign direct investments. 

However the research house cautioned that despite the robust outlook for Malaysia’s tech sector, the industry is not without its challenges. These include economic headwinds – inflation, global recession risk and Taiwan-United States-China tensions – as well as consumer product demand corrections. Add to that supply disruptions – fire incidents in Japan, weather disruptions in the US, power outages in Germany, power allocation in China, Ukraine conflict, major drought in Taiwan and China’s zero-Covid policy – and a shortage of workers and talents will also present challenges to the sector. 

Indicators show M’sia still on expansion phase – Rising demand, robust external trade to support growth – MIDF 

According to MIDF Research, the domestic economy is expected to retain its momentum in the near term, judging from the latest reading of one of its major indicators – Malaysia’s Leading Index (LI). The LI is a predictive tool used to anticipate economic upturns and downturns an average of four to six months ahead. Most economists have pegged the domestic economy to grow at 4% to 5% versus 6.5% to 7% this year. 

Based on official estimates, the economy is expected to grow by 4% to 5% in 2023 versus a growth rate of between 6.5% and 7% this year. The economy advanced 8.9% year-on-year (y-o-y) in the second quarter (2Q22), accelerating sharply from a 5% y-o-y growth in 1Q22 and beating the consensus forecast of a 6.7% rise. Malaysia’s LI rose by 4% y-o-y in August this year compared with 4.1% y-o-y in July, signalling growth outlook in the near term. The sustained rise in LI was contributed by higher real imports of semiconductors, increased number of housing units approved and growth in real money supply (M1). Relative to July, LI rose by 1.6% month-on-month (m-o-m), indicating more positive developments in August compared to the previous month. 

Malaysia’s economic growth for this year is expected to be better than last year, driven by increasing domestic demand and robust external trade. Given the sustained macroeconomic growth and rising underlying price pressures, it is maintaining its projection that Bank Negara will continue to adjust the overnight policy rate higher to a more normal level at the monetary policy meeting next week. Nevertheless, several risks could affect Malaysia’s growth outlook such as a potential global slowdown, prolonged supply-side challenges, high inflation and rising borrowing costs. Meanwhile, the Coincident Index (CI) also saw sustained increase albeit at a relatively slower pace of 9.8% y-o-y in August compared with July’s 12.5% y-o-y. 

While the moderate growth was due to the higher base in August, continued growth in CI reflects mainly higher industrial production activities and better real salaries and wages in the manufacturing sector. Activities in August expanded due to growing business activities and better income growth for the employees. On a m-o-m basis, the CI rebounded by 0.8% after falling by 1.6% m-o-m in July. The CI is used to identify the current state of the economy. In general, increasing CI index shows that the economy is in an expansion phase, and a decreasing index reflects the economy is in a contraction phase. 

Eye On The Markets 

This week, on Friday (28Oct), the Ringgit opened at 4.7355 against the USD from 4.7115 on Tuesday (25Oct). Meanwhile, the Ringgit was 3.3226 to the Sing Dollar on Friday (28Oct). On Tuesday (25Oct), the FBM KLCI opened at 1383.50. As at Friday (28Oct) 10:00am, the FBM KLCI is up 55.61 points for the week at 1439.11. Over in US, the overnight Dow Jones Industrial Average closed down 90.22 points (-0.30%) to 30,333.59 whilst the NASDAQ shed 65.66 points (-0.61%) to 10,614.84. 

Stick to fundamentally sound and liquid plays ahead of GE15 – UOB Kay Hian

Inve$t | Market Sentiments | 21 October 2022

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According to UOB Kay Hian’s head of Malaysia research Vincent Khoo, in his strategy report released on Wednesday (Oct19), sees some trading opportunities tied to speculation surrounding the upcoming 15th general election (GE15). However, the research firm advises investors to stick to fundamentally sound and liquid stocks. Its assessment assumes a base case for an Umno-led coalition winning a bigger majority in Parliament during GE15, taking cue from the results of several by-elections and three state elections since GE14. While this positively implies stability in politics/business policies, the market still lacks past elections’ (before GE14) mojo of coinciding with major government contract awards.  

Instead, investment sentiment will continue to be swayed by global issues — stubbornly high inflation and the US’ monetary policy contraction throughout 2022, the ongoing Russia-Ukraine war, and China’s zero-Covid policy. UOB Kay Hian’s top picks are large-cap stocks such as government-linked banks CIMB Group Holdings Bhd, Malayan Banking Bhd and RHB Bank Bhd. He also likes Gamuda Bhd and MY EG Services Bhd (MYEG) as he expects the newly installed federal government to award the Mass Rapid Transit 3 Circle Line contracts by the first quarter of 2023 — for which Gamuda is a leading bidder for the tunnelling section — and to give the green light for MYEG to roll out the automated testing module for car driver licence. He added that Citaglobal Bhd (formerly known as WZ Satu Bhd) could also appeal as a concept-driven trading play.  

Acknowledging that some investors would remain wary of GE15’s dampening investment sentiment, the research firm is also recommending a list of defensive high yielders, which are not operating in politically sensitive sectors. These high yielders are also predicted to deliver market-outperforming absolute returns. They include Bermaz Auto Bhd, Hap Seng Plantations Holdings Bhd, Kim Loong Resources Bhd, Malakoff Corp Bhd, Matrix Concepts Holdings Bhd and Sunway Real Estate Investment Trust. Some of these companies are cash-rich and are likely to reward shareholders with special dividends, such as Bermaz. As Hap Seng’s dividends are back-loaded, we expect chunky dividends to be announced [along with its results for the fourth quarter of financial year 2022].  

He also projects that the benchmark FBM KLCI will continue to trend up towards the year end as US core inflation indicators would have peaked by then. However, there is downside risk to our end-2022 FBM KLCI target of 1,585 points should our base assumptions/hopes not all materialise — peak US inflation, the Russia-Ukraine war not worsening, and a not overly harsh winter season in the eurozone. 

Retail investor capital presents US$35b growth opportunity for sustainable investing in Malaysia – StanChart 

According to Standard Chartered’s Sustainable Banking Report 2022 released on Tuesday (Oct18), Malaysia could mobilise US$35 billion (RM165 billion) in sustainable retail investments by 2030, particularly the financing of climate transition. This capital could also play a critical part in bridging funding gaps in Malaysia’s other environmental, social and governance (ESG) priorities such as pollution and waste management. The report said Malaysia has high potential for growth in sustainable investing, largely due to its significant population and rising domestic wealth. Across Malaysia, 36% of investors want to put their money towards addressing climate issues. Greater access and transparency in the sustainable investment ecosystem could mobilise Malaysia’s retail capital potential in reaching its carbon neutrality targets, aside from other ESG issues of concern to retail investors, such as pollution, waste management and energy security. Investors in Malaysia identified perceived low returns/higher risk (53%), accessibility (51%) and comparability (45%) as their top barriers to increasing their sustainable investments.  

The report further highlights the need for investor and market-specific barriers that need to be overcome to translate this investor interest into actual impact. According to Standard Chartered Malaysia managing director and head of consumer, private and business banking Sammeer Sharma, research showed that 72% and 86% of affluent and high net worth investors respectively in Malaysia have a high level of interest in sustainable investments, motivated by their desire to help restore the environment and hedge against ESG risks. The synergies between syariah-compliant investing and sustainable investments also present an opportunity to channel private capital towards sustainable investments. He added that a rapidly growing number of clients want their investments to make a positive impact on the environment and in society, and there is significant appetite to take ESG investment from a niche play to a mainstream investment strategy. 

SC inks regional supervisory cooperation deal 

The Securities Commission (SC) has inked the IOSCO Asia-Pacific Regional Committee’s (APRC) multilateral memorandum of understanding for supervisory cooperation (supervisory MMoU) at the International Organisation of Securities Commissions (IOSCO) annual meetings 2022 in Morocco recently. According to a statement by SC, given the increasing cross-border activities in capital markets within the region, this supervisory MMoU establishes, for the first time, a formal framework for regional supervisory cooperation among capital market regulators. With the signing of the supervisory MMoU, the SC now has a cooperative arrangement on supervisory matters with its regional regulatory counterparts including in Australia, Hong Kong, Japan, Singapore and Thailand. SC chairman Datuk Seri Dr Awang Adek Hussin said cross-border supervisory cooperation is a key element to enhance investor protection. He added, information-sharing with regional regulators through this platform will strengthen the SC’s overall supervisory capabilities.  

APRC chair Takashi Nagaoka congratulated the SC for being among the first signatories of the IOSCO APRC supervisory MMoU. He said, this is an important milestone that will enhance regulators’ cooperation and coordination across borders. The SC has also been re-elected as a member of the board of IOSCO, the governing and standard- setting body responsible for leading the direction and standard-setting process on policy issues affecting global capital markets, for the 2022-2024 term. The SC has been a member of the IOSCO board since 2012. During the IOSCO annual meetings, global securities regulators discussed the impact of current international developments in the financial sector, including the risks and challenges to the capital market. Delegates also shared their views on a wide range of topics, including crypto and digital assets, sustainable finance, emerging risks and retail market conduct. The IOSCO is the leading international policy forum for securities regulators, where the organisation’s members regulate more than 95% of the world’s securities markets in 130 jurisdictions. 

Eye On The Markets 

This week, on Friday (21Oct), the Ringgit opened at 4.7355 against the USD from 4.7115 on Monday (17Oct). Meanwhile, the Ringgit was 3.3226 to the Sing Dollar on Friday (21Oct). On Monday (17Oct), the FBM KLCI opened at 1383.50. As at Friday (21Oct) 10:00am, the FBM KLCI is up 55.61 points for the week at 1439.11. Over in US, the overnight Dow Jones Industrial Average closed down 90.22 points (-0.30%) to 30,333.59 whilst the NASDAQ shed 65.66 points (-0.61%) to 10,614.84. 

 

FBM KLCI seen hitting 1,580 points by year-end – Rakuten 

Inve$t | Market Sentiments | 14 October 2022

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According to Rakuten Trade head of research Kenny Yee Shen Pin, the FBM KLCI is expected to hit 1,580 points by year-end. The possibility of the US Federal Reserve lowering interest rate hikes will provide some stability for the regional and local bourses. He anticipates FBM KLCI to possibly touch 1,580 points by the end of 2022, premised on a very reasonable 13 times calendar year 2022 (CY22) price-to-earnings (PE) ratio. The banking and telecommunication sectors would support the momentum. This is also premised on the much improved earnings growth for CY23, at 6.8%. This is in view of better corporate performance, especially from the banking sector. 

Speaking at a briefing titled “A ‘wow’ Budget”, he said the construction sector will also likely play a significant role to improve the economy from the present slowdown. At the moment, corporate earnings are on a downtrend, with growth revised from 4.3% to about 1%. This was attributed to the cut in profit estimates for the manufacturing and utilities sectors. The manufacturing sector, particularly glove, saw an almost 90% slash in earnings. The banking sector is expected to have a 15% to 16% growth next year, in view of the current high interest-rate environment. 

The FBM KLCI is now trading at a PE of 11.5 times, below its five-year historical average of 18.4 times or a 40% discount. Regional valuations are also trading below their respective historical average. Although Budget 2023 holds no legality now given the Parliament’s dissolution on Monday, until the new government tables a new one, the budget covered the whole spectrum of the country’s population. 

In the last two or three budgets, there has been a lack of an injection of funds into the country’s main engine, which is the construction sector. This is crucial as the construction sector has the highest multiplier effect in terms of economic growth. Although its contribution to gross domestic product is not high, the construction sector has more than 100 linkages into other segments of the economy, from the upstream to downstream players. Therefore, it acts as a wealth creator for many industries. 

Market volatilities, primarily from the United States, remain a persistent headwind for Bursa’s performance. Commodities like crude palm oil (CPO) and crude oil have experienced wild gyrations. The price of CPO fell by about 47% to RM3,800 from a high of RM7,200, while Brent crude oil declined by more than 20% to US$96 (RM448.5) per barrel from US$130 (RM607.3) per barrel.  

Although foreign shareholding of shares is low, it is on an improving trend, backed by foreign net inflows which are currently at RM6.5bil. Foreign shareholding in the equity market as of September 2022 was at 12.4%. Following consecutive declines in 2020 and 2021, foreign shareholding actually touched the lowest at the end of 2021, at 11.35%. However, the situation has improved, underpinned by foreign net inflows so far this year. The Fed is expected to be less aggressive with interest rate hikes next year. This will likely strengthen the ringgit against the US dollar in the second half of 2023. He is of the belief that Bank Negara will implement another 25-basis-point hike in interest rates in order to stop the ringgit from weakening further. While regional market volatility remains high, Malaysia’s volatility is below its peers as the local bourse is a captive market. A large portion of the shares are held domestically and foreign shareholding is still at a low level. Hence volatility in the country is on a low side compared with regional peers. 

IMF ups Malaysia’s 2022 growth forecast to 5.4%, cuts 2023 projection to 4.4%, warns of global recession 

According to the International Monetary Fund (IMF) in its World Economic Outlook Report October 2022 released on Wednesday (Oct 12), it has raised its gross domestic product (GDP) growth forecast for Malaysia in 2022 to 5.4% from 5.1%. At the same time, the fund cautioned that for the global economy in 2023, worse is to come. It also projected that Malaysia would grow at 4.4% next year, lower than its initial forecast of 4.7% in July. The revision upwards for 2022 comes less than three months after the IMF in July cut its projected 2022 growth for Malaysia to 5.1% from 5.6%. The IMF’s projection is lower than Malaysia’s official forecast growth of 6.5%-7.0%. 

The IMF also downgraded 2023 global economic growth to 2.7% from 2.9%  in its July forecast, with a 25% probability that world GDP would fall below 2%. It cautioned that more than a third of the global economy would contract this year, and in 2023, the three largest economies — the US, EU and China — would continue to stall. In short, the worst is yet to come, and for many people, 2023 will feel like a recession. The global economy continues to face steep challenges, due to lingering effects from the Russian-Ukraine war, persistent and broadening inflation pressures and economic slowdown in China. 

IMF foresees that global inflation may escalate to 8.8% this year, from 4.7% in 2021, before tapering to 6.5% in 2023 and 4.1% by 2024. Upside inflation surprises have been most widespread among advanced economies, with greater variability in emerging markets. As storm clouds gather, policymakers need to keep a steady hand. The fund also highlighted that the sharp appreciation of the US dollar adds price pressure to emerging markets, which are already facing a very challenging external environment as capital flows have not recovered and many low-income economies remain in debt distress. The 2022 shocks will re-open economic wounds that were only partially healed following the pandemic. 

Eye On The Markets 

This week, on Friday (14Oct), the Ringgit opened at 4.6945 against the USD from 4.6660 on Tuesday (11Oct). Meanwhile, the Ringgit was 3.2982 to the Sing Dollar on Friday (14Oct). On Tuesday (11Oct), the FBM KLCI opened at 1400.58. As at Friday (14Oct) 10:00am, the FBM KLCI is down 17.33 points for the week at 1383.25. Over in US, the overnight Dow Jones Industrial Average closed up 827.87 points (+2.83%) to 30,038.72 whilst the NASDAQ gained 232.05 points (+2.23%) to 10,649.15. 

Market condition remains orderly amid high volatility — BNM

Inve$t | Market Sentiments | 7 October 2022

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According to Bank Negara Malaysia in its Financial Stability Review Report for 1H2022, businesses continued to show improvement in their financial performance in the first half of 2022 (1H2022) in line with the full resumption of economic activities and reopening of international borders. However recovery remains uneven and slower in certain economic sub-sectors. But overall business loan impairments remain low at 1.1% of total banking system loans. The share of business loans with higher credit risk has continued to decline to 14.4% of total business loans, in line with the gradual improvement in business conditions. 

The share of SME (small and medium enterprise) loans under repayment assistance has halved to 13.1% of total SME loans (or 2.3% of total loans from the banking system and development financial institutions). SMEs that have exited repayment assistance programmes have largely been able to resume their loan repayments. Businesses are expected to face continued headwinds, including tightening global financial conditions and exchange rate developments. However, additional business defaults under simulated severe stress scenarios are expected to remain manageable. 

1: Market remains orderly amid stronger US dollar:  

The combination of aggressive policy rate hikes in the US, the military conflict in Ukraine and more moderate global growth outlook had affected most major and emerging market currencies, including the ringgit. Year-to-date, the ringgit has depreciated by 8.6% against the US dollar. Against other major trade partners, the ringgit has remained broadly stable as reflected in the marginal appreciation of 0.2% in the Nominal Effective Exchange Rate. Notwithstanding the depreciation in the ringgit against the US dollar, adjustments in the onshore foreign exchange (FX) market have remained orderly, with the one-month USD/MYR implied volatility averaging at 4.2%, below recent historical averages (2021: 4.3%; 2015-2019 average: 6.5%). Trading volumes in the domestic FX market have also remained healthy, with the onshore trading volume averaging US$13.3 billion daily (2021: US$11.2 billion). These conditions are expected to ensure that the domestic FX markets will continue to support businesses and market participants in managing their FX exposures. 

2: Household debt-to-GDP at pre-pandemic level:  

Malaysia’s ratio of household debt-to-GDP has reverted closer to pre-pandemic levels at 84.5% as banks continue to maintain prudent lending standards amid a sustained recovery in household lending. The share of household debt under repayment assistance has declined significantly from 18.8% in December 2021 to 2.4% as of June 2022, with a lower share of household debt reported by banks to be of higher credit risk. Household impairment and delinquency ratios increased marginally but continue to remain low and within expectations at 1.2% and 0.6%, respectively. The share of household loans classified by banks as exhibiting higher credit risk (Stage 2 loans) has continued to decline to 7.9% (December 2021: 8.5%). It is expected to decline further over the course of the year as more borrowers that have exited repayment assistance programmes complete a minimum ‘observation’ period of loan servicing. Banks have also set aside sufficient provisioning buffers against these risks. 

3: Financial system well-positioned to withstand shocks:  

The domestic financial system remains well-positioned to withstand shocks and support economic recovery. The strong buffers of banks, insurers and takaful operators will continue to preserve the resilience of financial institutions against potential unexpected losses. Assuming additional severe shocks applied on top of banks’ stress test, post-shock aggregate capital ratios as at end-2023 remain comfortably above regulatory minimum levels at 15.4% for banks and 209% for insurers and takaful operators. This will enable them to continue supporting households’ and businesses’ financing and protection needs as economic activities resume. The funding position of the banking system remained strong in 1H2022, with a healthy aggregate liquidity coverage ratio (LCR) of 148.3% and net stable funding ratio (NSFR) of 118.5%, which supported lending activities. Banking system deposits recorded steady growth (6.6%; 2015-2019 average: 4.4%), mainly driven by business deposits in line with the recovery in economic activities. 

While the overall profitability of insurance and takaful funds declined in 1H2022, driven by weaker investment performance of life insurance and family takaful funds, for life insurance and family takaful funds, excess income over outgo was negative in 1H2022. The decline was driven by net unrealised losses from bond and equity investments, amid higher bond yields and weaker performance of global and domestic equities during the period. In contrast, income from underwriting activity improved on the back of the medical and health segment which has been a major contributor to new business growth. 

4: Strong cyber defence of financial institutions remains a priority:  

Financial institutions are directing significant resources to maintain strong cyber defences and technology risk controls. Financial institutions are also required to implement additional countermeasures against online banking fraud. In parallel, BNM is coordinating efforts with the industry, Royal Malaysian Police (RMP), and the Malaysian Communications and Multimedia Commission (MCMC) to further improve fraud incident response and recovery efforts and educate the public on using digital financial services safely. 

State of economy goes beyond ringgit’s showing, US dollar over-reliance needs rethink – Finance Minister 

According to Finance Minister Tengku Datuk Seri Zafrul Abdul Aziz, it may be time to think of solutions out of an over-reliance on the US dollar as the main global reserve currency of countries. While clarifying he did not mean abandoning the greenback for another currency, he explained the reliance on the US dollar has caused countries, namely Asian economies, to be at the mercy of decisions and market fluctuations occurring continents away. Malaysia remains committed to the global financial architecture as it exists, but sooner or later, these are questions smaller trading nations must consider, uncomfortable as they may be. He was speaking in his closing speech at the Khazanah Megatrends Forum 2022.  

With its 4.7 billion population, Asia is arguably the dynamo of global economic growth, now and in the future. Much of the commodities needed to make the leap to the so-called ‘digital’ and ‘green’ economies are to be found on our turf. The unique position of the US dollar as the reserve currency of the world means that the greenback often appreciates in uncertain times. Thus, a currency’s (non-dollar) position versus the greenback – especially in the short term – is hardly a yardstick of the state of the economy. A world where key countries can adversely affect the growth trajectories of others, including Malaysia, is unsustainable. Certain policies may benefit one superpower domestically, but they must not end up hurting others and potentially jeopardising global prosperity.  

He suggested the creation of a viable International Monetary Cooperation Mechanism to ensure financial systems are not only effective and fair, but also consider the unique needs of small, emerging and developing countries equitably. This has been done before since the 80s with the Plaza Accords to stabilise the US dollar against the Japanese yen and the German mark. More recently this was done during the Global Financial Crisis in 2008. Here, central banks in developed countries had coordinated to prevent financial contagion from spreading to the rest of the world. And at the onset of the Covid-19 pandemic, the Global Financial Safety Net provided ample financing to quickly stabilise the global financial markets and contain the economic crisis. Existing institutions such as the Bank of International Settlements and International Organisation of Securities Commissions also had an important role in aiding developing countries and emerging economies. Meanwhile, despite the alarming fall in the ringgit at the moment, the local currency may return to being based on its economic fundamentals. This is given the strong demand for its goods and services. The ringgit has contracted against the dollar, but this has been more manageable relative to our regional peers and key trading partners.  

Meanwhile it was important for Malaysia to ensure its food and energy security needs are secure amid the likely “perfect storm” for the global economy ahead. We must insulate our food and energy security from rising production and price volatility amid geopolitical conflicts, supply chain disruptions, deglobalisation movements and climate change. Given the heightened global geopolitical tensions, we must seriously consider investing in building a strong Asean-wide supply chain. This is especially for food and energy security. This could also be done by capitalising on the Asean trading bloc to invest in building strong Asean supply chains in critical industries. If Asean policymakers can coordinate and work closely together, we can identify critical industries where we can scale up and enhance to be a critical part of the global supply chain. This will benefit not just our individual economies, but also serve as a mitigating strategy against calamities such as the pandemic, and geopolitical tensions happening in other parts of the world. 

Touching on Budget 2023 to be announced on October 7, he said that it will be forward-looking and people inclusive. It will be pro-investment, development, environment, empowerment; and most importantly, pro-rakyat. 

Global woes cast shadow over ASEAN+3 growth – AMRO 

According to the ASEAN+3 Macroeconomic Research Office (AMRO) Chief Economist Hoe Ee Khor, AMRO has revised downwards its short-term growth forecast for the ASEAN+3 region. The continuing strict dynamic zero-COVID policy and real estate sector weakness in China and potential recessions in the United States and the euro area are weighing on the region’s outlook. In its October Update, AMRO forecasts the ASEAN+3 region to grow by 3.7 percent this year—down from the 4.3 percent growth projected in July reflecting mainly weaker growth in Plus-3 economies. The ASEAN region is expected to grow strongly by 5.3 percent.  The region’s inflation rate for 2022 is now projected to be 6.2 percent—a full percentage point higher than previously forecast. Growth is expected to increase to 4.6 percent in 2023 as China’s economy picks up, with inflation moderating to about 3.4 percent.  

The prolonged war in Ukraine is deepening Europe’s energy crisis, pushing it closer to recession. In the United States, aggressive monetary tightening to fight persistently high inflation is intensifying fears of a hard landing. A simultaneous economic slowdown in the United States and euro area, in conjunction with tightening global financial conditions, would have negative spillover effects for the region through trade and financial channels.  

In ASEAN+3, inflation is accelerating. Food and fuel prices remain elevated despite recent easing in key global commodity benchmarks. Subsidy cuts in some economies and depreciating currencies have also pushed prices higher. Central banks in the region are raising policy interest rates to safeguard price stability and support their currencies. However, the pace of monetary tightening has generally been more measured and gradual than in the United States and the euro area. AMRO’s assessment are found in the latest quarterly update of its flagship report, the ASEAN+3 Regional Economic Outlook (AREO). The next update will be published in January 2023.  

Eye On The Markets 

This week, on Friday (07Oct), the Ringgit opened at 4.6480 against the USD from 4.644 on Monday (03Oct). Meanwhile, the Ringgit was 3.2521 to the Sing Dollar on Friday (07Oct). On Monday (03Oct), the FBM KLCI opened at 1393.70. As at Friday (07Oct) 10:00am, the FBM KLCI is up 18.58 points for the week at 1412.28. Over in US, the overnight Dow Jones Industrial Average closed down 346.93 points (-1.15%) to 29,926.94 whilst the NASDAQ shed 75.33 points (-0.68%) to 11,073.31. 

Bursa Malaysia enhances reporting framework

Market Sentiments | 20 Sept 2022

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According to Bursa Malaysia chief executive officer Datuk Muhamad Umar Swift, Bursa Malaysia has enhanced sustainability reporting in the Main Market Listing Requirements (Main LR) and the ACE Market Listing Requirements (ACE LR) in efforts to drive sustainability practices and disclosures of listed issuers. The exchange has enhanced the sustainability reporting requirements in the LR to ensure continued relevance and to propel listed issuers to adopt international best practices on issues like climate change. The enhancements are a clear and unequivocal signal of the bourse’s ambition to be the leading exchange for environmental, social and governance (ESG) in the region.  

The high bar set for all the listed issuers is underpinned by a multi-year, phased implementation approach to ensure a successful rollout. By embracing these enhancements, listed issuers would boost their overall resilience, competitiveness and, in turn, appeal as attractive investments.  

Main Market listed issuers would now be required to include the following disclosures in their sustainability statements: 

(i) a common set of prescribed sustainability matters and indicators that are deemed material for all listed issuers, 

(ii) climate change-related disclosures that are aligned with Task Force on climate-related financial disclosures (TCFD) recommendations, 

(iii) at least three financial years’ data for each reported indicator, corresponding targets (if any) as well as a summary of such data and corresponding performance target(s) in a prescribed format, and 

(iv) a statement on whether the Sustainability Statement has been reviewed internally by internal auditors or independently assured. 

The requirements for ACE Market listed corporations have also been strengthened to align with those of the Main Market. In addition, ACE Market listed corporations are now required to disclose a basic plan to transition towards a low carbon economy, with regards to climate change reporting. This not only facilitates ACE Market listed corporations in considering climate change-related risks and opportunities but also takes into account their maturity in this space. 

The enhanced sustainability reporting requirements for Main Market listed issuers will be implemented in a phased manner, beginning with the disclosure of the common sustainability matters for the financial year ending (FYE) on or after Dec 31, 2023, and culminating with the TCFD-aligned disclosures for FYE on or after Dec 31, 2025. Similarly, ACE Market listed corporations will adopt the enhanced sustainability disclosures on a staggered basis, with disclosures of the prescribed sustainability information taking effect for FYE on or after Dec 31, 2024, and concluding with disclosures of the basic transition plan for FYE on or after Dec 31, 2026. 

Bursa Malaysia had launched a sustainability reporting framework in 2015 where listed issuers are required to disclose a narrative statement of the management of material economic, environmental and social risks and opportunities in their annual reports. 

Foreign investors post largest weekly net sale value of Malaysian stocks YTD – CGS-CIMB 

According to CGS-CIMB analyst Ivy Ng Lee Fang, foreign investors had last week posted their highest weekly net sale value of Bursa Malaysia-listed stocks year-to-date (YTD) at RM565 million, possibly due to the weak ringgit and global recession concerns at a time when world central banks are pursuing aggressive interest rate hikes to fight inflation. Last week (ended Sept 23, 2022), they were net sellers in the healthcare and financial services sectors, with Malayan Banking Bhd (Maybank), Top Glove Corp Bhd and Press Metal Aluminium Holdings Bhd as their top three net sell stocks. 

Foreign investors were the only net sellers of Malaysian equities last week when market sentiment was dented by Top Glove’s Sept 20, 2022 announcement of its first quarterly loss since listing. The best-performing Bursa indices last week were the transport, construction and REIT sectors. The KLCI fell 2.9% w-o-w (week-on-week) due to concerns over more aggressive rate hikes. Local institutional investors recorded their highest weekly net buy YTD of RM336 mil. Local retail investors turned second-largest net buyers last week. They net bought RM218 mil of equities, which represent a 12% w-o-w rise in their net buy. 

Among individual stocks, Maybank was the largest net buy stock for local institutional investors and largest net sell stock for foreign institutional investors. Top Glove was the largest net buy stock for retail and nominee investors but the second-largest net sell stock for foreign institutional investors. CIMB Group Holdings Bhd was the largest net buy stock for foreign institutional investors, but the largest net sell stock for local institutional investors. Top Glove, Hartalega and Maybank were the top three regulated short-selling targets last week. The top three short-sell sectors in terms of value were healthcare, technology, and financial services sectors. 

World Bank lowers 2023 growth target for M’sia but upgrades growth for this year to 6.4% 

According to World Bank lead economist for Malaysia Apurva Sanghi, the World Bank has lowered its 2023 growth target for Malaysia to 4.2% from 4.5% earlier and warned that significant headwinds will continue to persist. As an open economy, Malaysia faces the brunt of global supply disruptions. But upon zooming out, the disruptions are not as bad as compared to, for example, the West. He was speaking at an online briefing session held in conjunction with the release of the World Bank’s East Asia and Pacific Economic update report. 

The Asian region in general has suffered from fewer disruptions and Malaysia’s status as a commodity, semiconductor as well as electrical and electronic products producer and exporter, has held it in good stead. Having said that, there will be significant headwinds and downsides in 2023 and beyond. On the global front, overall stagflation and recessionary pressures as well as the ongoing Russia-Ukraine tensions will have an adverse effect on Malaysia’s demand for exports. On the regional front, the slowdown in China due to its continuing zero-Covid policy, which is hampering its growth, will also impact Malaysia. China is Malaysia’s largest direct trading partner, so anything that happens in China will affect the economy here. 

On the domestic front, there are the issues of rising inflation, particularly food inflation, and a sluggish labour market where there is a shortage of workers. One thing he hasn’t spoken of about the domestic front is the shrinking fiscal space, the persistently declining revenues for almost 10 years – these are issues that need to be tackled on the domestic front. 

The World Bank also announced it had upgraded its forecast for Malaysia’s economic growth for this year to 6.4% from an earlier 5.5%. The higher figure is premised largely on the fact that the local economy had performed above expectations in the first half of this year, driven by a high second-quarter growth. Positive momentum is expected to spill over into the second half of this year with growth for the remaining of the year boosted by a low-base effect. 

On the ringgit, the bulk of Malaysia’s trade is denominated in US dollars. While 83% of Malaysia’s exports and 80% of its imports are invoiced in US dollars, a “measly” 5.4% (exports) and 4.5% (imports) are denominated in ringgit. It does speak of the power of the US dollar, so a depreciating ringgit against the US dollar is a concern. What can be done? Bank Negara is doing what it can but basically the strength of the currency will depend on how well the economy will perform and how well Malaysia can keep its focus on its fundamentals and structural reforms. There’s no quick and easy fix. 

Notably, the ringgit and other regional currencies have been seeing huge falls against the greenback as the US Federal Reserve continues to aggressively raise interest rates, causing investors looking for higher returns to shift their monies from this part of the world to the United States. The ringgit has fallen to its lowest in more than 20 years against the US dollar, trading at around RM4.60 against US$1.  

Consumer stocks likely to remain steady – Kenanga Research 

According to Kenanga Research, the top line of listed consumer stocks is expected to remain resilient for the remainder of 2022, underpinned by the recovery of the labour market, year-end festive sales and a gradual pick-up in tourism. Earnings of consumer-based firms are anticipated to remain steady despite inflationary pressures. The research house is of the opinion that the M40 group will continue to maintain spending on the back of a healthy household balance sheet. The Bottom 40 group, however, will struggle due to depleted pandemic handouts and fund withdrawals. 

It expects retail players to be able to defend their margins on a combination of better product mix and operational efficiency, coupled with the absence of major supply disruptions, especially from China. However, the same cannot be said for food and beverage (F&B) producers, who have not raised product prices sufficiently to offset higher input costs. Some F&B players are reluctant to jack-up prices for fear of demand destruction, which would result in consumers down-trading or switching to cheaper alternatives. This could also lead to a market share loss for the F&B players. 

F&B producers face renewed economic challenges, such as elevated input and logistics costs arising from inflationary pressures. Ongoing geo-political tensions are stoking further inflationary pressures as energy prices surge amid volatile supply. Despite the gradual softening of commodity prices in the last few months, global trends are starting to indicate otherwise. Global indicators show a reversed trend well into 2023, posing risks to earnings and indicating that pre-pandemic level margins are still a long way off, especially for F&B producers. 

On the local front, the research house notes that consumer consumption has been softening. Citing the Malaysian Institute of Economic Research, it said the country’s consumer sentiment index fell 23 points to the 86-mark during the second quarter of 2022. This was below the consumer optimism threshold. Rising prices and subdued expectations for employment and finances, sentiment appears to be softening. Year-to-date growth of total distributive trade sales as of July is hovering around the 20% mark. 

Based on its in-house forecast of 15% for the full year, growth is expected to taper off going forward as interest rate hikes and inflationary pressure squeeze consumption. It is projecting consumption to soften from August onwards due to tighter financial conditions following Bank Negara’s back-to-back rate hikes. On top of that, the rising cost of living and impending global recessionary pressures due to China’s persistent zero-Covid policy and Europe’s worsening energy crisis may also lead to a decline in consumer spending. It expects growth in private consumption as the economy reopens, but overall growth is expected to normalise significantly. It cited Retail Group Malaysia (RGM), which is upbeat about the outlook of the local retail sector. Owing to the firm recovery of the Malaysian retail industry since the beginning of this year, RGM has revised its growth target for the retail industry to 32% year-on-year from 13% previously. 

Note From Publisher: There were no stocks that met our Criteria & Conditions under the Non-Shariah Hot Stocks.  

Eye On The Markets 

This week, on Friday (30Sept), the Ringgit opened at 4.6375 against the USD from 4.5890 on Monday (26Sept). Meanwhile, the Ringgit was 3.2378to the Sing Dollar on Friday (30Sept). On Monday (26Sept), the FBM KLCI opened at 1423.83. As at Friday (30Sept) 10:00am, the FBM KLCI is down 28.02points for the week at 1395.81. Over in US, the overnight Dow Jones Industrial Average closed down 458.13 points (-1.54%) to 29,225.61 whilst the NASDAQ shed 314.13 points (-2.84%) to 10,737.51. 

Robust GDP seen to sustain in 3Q – Growth of between 8% and 9% estimated – SERC

Inve$t | Market Sentiments | 23 Sept 2022

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According to Socio-Economic Research Centre (SERC) executive director Lee Heng Guie, Malaysia is estimated to experience a robust gross domestic product (GDP) growth of between 8% and 9% in the third quarter of this year (3Q22), partly owing to the low base of 3Q21 where GDP contracted by 4.5% year-on-year (y-o-y). This would be similar to the GDP growth recorded in the previous quarter (2Q22). Speaking at a media briefing on Malaysia’s quarterly economy tracker, he said that for 3Q22, buying sentiment is quite positive up till now.  

In 2Q22, Malaysia recorded an extraordinary GDP growth of 8.9% y-o-y, beating market expectations and bringing GDP growth in the first half of the year (1H22) to 6.9% y-o-y. However GDP growth is expected to ease to the range of 4% to 5% y-o-y going into 4Q22 on account of slowing global growth prospects. With that, SERC has revised its full-year GDP growth projection for Malaysia to 6.5% from an initial 5.2%. 

For 2023, the GDP is forecast to grow at a more moderate pace of 4.1% owing to weakening global growth, the normalisation of domestic demand and also the high-base effect. Domestic demand will be impacted by higher inflation and cost of living, as well as interest rates, while private investment remains cautious due to increased costs, shortage of workers, external uncertainties and domestic political uncertainty. 

On the global economic outlook, he foresees an increasing risk of a slowdown next year pointing out that the International Monetary Fund had said a global recession in 2023 cannot be ruled out and the World Bank said global rate hikes could trigger a recession in 2023. In the United States, over two-thirds of economists believe a recession is likely to hit in 2023. 

Commenting on inflation, it is too early to say if price pressures have peaked owing to the mixed inflation data by major advanced economies. While headline inflation in the United States indicated a reversal of the surge, core inflation accelerated. In Europe, inflation surged higher. However he agrees with Bank Negara’s projection of inflation peaking in 3Q22. 

Interest rates are expected to remain at 2.5% this year, following a cumulative 75-basis-point (bps) hike throughout the year so far. But the central bank is expected to raise the interest rate by another 50 bps in 1H23 to 3%. However he believes that Bank Negara will take into consideration the impact of its gradual and measured pace of interest rate hiking trajectory due to growth risks while anchoring inflation under its radar. 

The pressure on the Ringgit would remain in the near term as there was no sign of US interest rates peaking. Once interest rate in the United States stabilises, pressure on emerging markets’ currencies will reduce, including the Ringgit. Commenting on Budget 2023, he hopes it will contain more development and structural reforms rather than be election-centric. As the economy has moved out of contraction, it no longer requires extraordinary massive deficit fiscal spending packages as during the Covid-19 pandemic. SERC estimates a deficit budget of between 4.5% and 5.5% of GDP in 2023 compared to an estimated average deficit of 6.2% in 2020 to 2022. He also recommended the reintroduction of the goods and services tax (GST) starting with a 4% rate. 

Maybank IB issues structured warrants over Hong Kong stocks – First ever structured warrants over NetEase Inc on Bursa Malaysia 

According to Azzahir Azhar, Head of Investment Management at Maybank Investment Bank, Maybank IB has begun issuing structured warrants over companies listed on the Hong Kong Stock Exchange (HKEX). The maiden launch of 16 structured warrants comprises an even combination of call warrants and put warrants over 8 different HKEX-listed stocks. This includes the first ever structured warrants on Bursa Malaysia over NetEase Inc, China’s second largest online game company by revenue. Other global brands in the maiden launch today are from the automotive and e-commerce sectors, such as Alibaba Group Holding Ltd, JD.com Inc, Geely Automobile Holdings Ltd, Tencent Holdings Ltd, Ganfeng Lithium Co Ltd, Meituan and BYD Company Ltd. 

As these warrants are listed on Bursa Malaysia and settled in Ringgit, investors will be able to gain exposure to Hong Kong-listed companies without the need for a foreign trading account or currency conversion. The warrants enable investors to exercise their investment strategies on the underlying stocks with a much lower capital outlay while taking advantage of the leverage effect. 

As a leading equity-linked structured products issuer in Malaysia, Maybank Investment Bank continues to innovate to satisfy market demand for more sophisticated products to aid in portfolio diversification. This launch of warrants over HKEX-listed stocks caters to investors seeking diversified investment instruments and geographical exposure while having the convenience of settling their trades in the local currency. Call warrants enable investors to profit from price appreciation of the underlying shares. Put warrants are the opposite whereby they are used to hedge against negative price performance of the underlying shares. The advantage of this call-put issuance is that investors will be able to express their views in either direction. 

Investors who are new to structured warrants are advised to understand and evaluate the risks involved and seek professional advice in order to make informed investment decisions. In conjunction with this launch, Maybank IB will be conducting a webinar on structured warrants investing on Wednesday, 21 September 2022 at 8:00pm. To learn more, visit www.warrants.maybank2u.com.my and join Maybank IB’s Telegram channel, “Trade With Maybank”. 

Eye On The Markets 

This week, on Friday (23Sept), the Ringgit opened at 4.5690 against the USD from 4.5380 on Monday (19Sept). Meanwhile, the Ringgit was 3.2223 to the Sing Dollar on Friday (23Sept). On Monday (19Sept), the FBM KLCI opened at 1459.51. As at Friday (23Sept) 10:00am, the FBM KLCI is down 29.81 points for the week at 1443.11. Over in US, the overnight Dow Jones Industrial Average closed down 107.10 points (-0.35%) to 30,076.68 whilst the NASDAQ shed 153.39 points (-1.37%) to 11,066.80.