INVE$T | Market Sentiments
According to the Ministry of Finance (MOF), the government has agreed to exempt all types of foreign incomes of individuals from tax, and has also extended the exemption to dividend incomes earned by limited liability companies and partnerships. This would be subject to the eligibility criteria which will be detailed in the Inland Revenue Board’s guidelines. For individual taxpayers, the government provides exemption to all individuals except those who conduct business partnership in Malaysia, which will be subject to tax on foreign-sourced income (FSI) received. Non-resident categories (individuals, companies, etc) remain eligible for income tax exemption. At the same time, FSI received in the year of assessment 2022 is exempt from tax calculation for the purpose of Cukai Makmur. The exemption would be effective Jan 1, 2022 until Dec 31, 2026. During the tabling of Budget 2022, the government had proposed the withdrawal of the tax exemption on FSI received in Malaysia, which had caused a stir among companies and individuals, especially those with significant investments abroad. The exemption on FSI has been in place since 1998 for companies and since 2004 for individuals, in a bid to encourage remittance of such income. The withdrawal of the exemption is part of its revenue sustainability measures, adding that it is in line with international regulations.
Policy transition raises risk of volatility in 2022 – Kenanga Research
According to Kenanga Research in its investment strategy note, Malaysia’s policy transition from monetary accommodation and fiscal expansion to austerity and consolidation raises the risk of volatility in the stock market in 2022. However this is only likely to happen in the second half of the year and after the 15th general election (GE15). Until then, conditions are supportive for positive stock market returns as liquidity remains ample, while value has emerged following 2021’s steep market decline and regional underperformance. And for all the anxieties that the recent floods have caused, the implied Q4’21 earnings results already suggested that Q4’21’s earnings would be the lowest. This is despite commodity prices holding up and a surge in economic reopening activities (briefly disrupted by the floods notwithstanding), plus encouraging data of leading economic indicators released recently. However, catalysts were lacking and there would be the usual pre-election inertia that would drag the market’s advance, and so, returns would not be broad-based. While the severe floods in mid-December would likely impact Q4’21 earnings, the market had already projected very conservative earnings estimates around lockdown-related impacts, which may have been overly aggressive, given anecdotal evidence of a surge in economic reopening activities. Several signs suggested the likelihood of GE15 being called well before the July 2023 deadline, including the resounding win by the Barisan Nasional in the November Melaka state election, followed by the convincing win by its close ally, Gabungan Parti Sarawak, recently. Additionally, economic data released in Q4’21 suggested the current recovery was intact for now, and would likely hit the government’s targeted 3% to 4% growth. The Opposition is more fragmented after the Sheraton Move and it looks highly unlikely for Pakatan Harapan, Bersatu and Parti Pejuang to regroup. And finally, the pandemic looks to be subsiding. These events should likely embolden the ruling coalition to call an election possibly as early as Q2’22. Meanwhile liquidity remained ample and no tightening is expected in Q1’22. The tightening would only likely be a post-GE15 event. When Bank Negara finally tightens by raising the overnight policy rate and statutory reserve requirement, the research house expects heightened market volatility as liquidity reduces.
Eye On The Markets
This week, on Friday (31Dec), the Ringgit opened at 4.1740 against the USD from 4.1975 on Monday (27Dec). Meanwhile, the Ringgit was 3.0869 to the Sing Dollar on Friday (31Dec). On Monday (27Dec), the FBM KLCI opened at 1517.37. As at Friday (31Dec) 10:00am, the FBM KLCI is up 15.21 points for the week at 1532.58. Over in US, the overnight Dow Jones Industrial Average closed down 90.55 points (-0.25%) to 36,398.08 whilst the NASDAQ shed 24.70 points (-0.16%) to 15,741.60.
