Launch of cross-border QR payment linkage between Malaysia and Indonesia 

INVE$T | Market Sentiments

Download INVE$T #93

Bank Negara Malaysia (BNM) and Bank Indonesia (BI) launched a cross-border QR payment linkage that will enable instant, secure, and efficient cross-border payments between Malaysia and Indonesia. Through this linkage, consumers in both countries will be able to make retail payments by scanning the DuitNow or QRIS (Quick Response Code Indonesian Standard) QR codes displayed by offline and online merchants. This marks the beginning of a pilot phase that will pave the way for a full commercial launch in the third quarter of 2022. This linkage will be expanded in the future to support cross-border remittance where users in both countries can make real-time fund transfers with convenience. According to BNM deputy governor Jessica Chew Cheng Lian, the cross-border QR payment linkage between Malaysia and Indonesia marks a key milestone in the long history of collaboration between both countries. Phase 2 of the QR payment linkage between Malaysia and Thailand has also gone live this week. Such developments will bring us closer towards realising the vision of creating an Asean network of fast and efficient retail payment systems. This in turn, will further accelerate digital transformation and financial integration for the benefit of individuals and businesses. According to Bank Indonesia deputy governor Doni P Joewono, this initiative links cross-border payments through the interconnection of national QR codes of the two countries and also represents another milestone of the Indonesian Payment System Blueprint 2025. Bank Indonesia recognises the significance of cross-border payment system linkages and has continuously pursued such initiatives. This will give more options for users in the cross-border payment space and serve as a key to improve transaction efficiency, support the digitalisation of trade and investment, and maintain macroeconomic stability by promoting a more extensive use of Local Currency Settlement (LCS) Framework. Through the use of direct quotation of local currency exchange rates provided by Appointed Cross Currency Dealer banks under the LCS Framework, it will improve the efficiency of transactions thus lowering the transaction cost. The payment connectivity will further strengthen the close economic ties between Malaysia and Indonesia, and support post-pandemic economic recovery. As international travel resumes, tourism will be a key sector that will greatly benefit from this service. The sizeable traveller flows between the two countries recorded an average of 5.6 million arrivals yearly before the pandemic. Both countries are also key remittance corridors for their nationals working abroad who will benefit from faster, cheaper, and more transparent cross-border remittances. This initiative is also aligned with the G20 Roadmap for Enhancing Cross-border Payments developed by the Financial Stability Board and other international bodies. This project is made possible with the collaboration of various stakeholders from both countries under the joint stewardship of BNM and BI. These include Payments Network Malaysia Sdn Bhd (PayNet), the Indonesian Payment System Association (ASPI) and RAJA (Rintis, Artajasa, Jalin, and Alto) as payment system operators. The settlement banks are CIMB Bank Bhd, Bank Mandiri and Bank Negara Indonesia. Other participants include various banks and non-bank payment service providers from both countries. 

Malaysia’s 2021 PPI records largest annual rise in a decade after Dec’s 10% gain – DOSM 

According to Department of Statistics Malaysia (DOSM) chief statistician Datuk Seri Dr Mohd Uzir Mahidin, Malaysia’s Producer Price Index (PPI) for local production increased by 10% year-on-year (y-o-y) in December 2021 as opposed to a decrease of 2.1% recorded in the corresponding month of the preceding year, mainly due to slower pace in primary commodities’ prices but inflationary pressures continued. For 2021, the country’s PPI increased 9.5% from a year earlier, the largest on-year annual rise in a decade. The increase in December 2021 was attributed to the mining index that rose 45.1% from a slump of 40% recorded in December 2020, driven by higher prices for crude oil (46.8%) and natural gas (37%). Agriculture, forestry and fishing also increased at a moderate rate of 10.9% compared to 23.5% in December 2020, largely due to the incline in the indices of fishing (12.4%), animal production (11.6%) and growing of perennial crops (11.2%). The manufacturing index increased 7.6% in December 2021, contributed by the indices for subsectors of manufacture of refined petroleum products (22.3%), manufacture of vegetable and animal oils and fats (18.1%) and manufacture of basic chemicals, fertilisers and nitrogen compounds, plastics and synthetic rubber in primary forms (15.6%). The indices for the subsectors of manufacture of plastics products, manufacture of rubber products and manufacture of basic iron and steel also moved higher, while the utilities index recorded a marginal increase of 0.9% and 0.7% for water supply and electricity and gas supply indices respectively. On a month-on-month comparison, the PPI local production recorded a decline for the first time after a consistent increase for 14 consecutive months — dropped 0.6% in December 2021, with the decline mainly contributed by mining index that registered a negative 4.2%. The index of agriculture, forestry and fishing also recorded a decline of 2.9%, driven mainly by the price of oil palm fresh fruit bunches which fell 4.9% from November 2021. Chicken price also showed a 0.8% decline. Meanwhile, the manufacturing index increased marginally 0.1%, supported by a modest increase of 0.7% for manufacture of refined petroleum products subsector besides rising prices for construction-related products. However, the marginal increase in manufacturing index was also offset by a drop of 0.8% for manufacture of electronic components and boards. Similarly, the indices of water supply and electricity and gas supply rose 0.5% and 0.1% respectively. For 2021, the PPI local production recorded the highest increase in a decade to 9.5%. It was the first time increase after registering a decline for three consecutive years. In 2021, world economies experienced insufficient supply problems which cannot meet rebounding demand after movement restrictions in most countries were being lifted, which had caused disruptions to the supply chain and exerted pressure on the prices of commodity and raw materials. In addition, the unusual prolonged cold weather conditions in certain countries also led to the surge of primary commodities prices, especially natural gas. For 2022, the world is facing the threat of Omicron variant spread, which also made a significant impact on the prices of primary commodities especially crude oil. 

Financial Sector Blueprint 2022-2026 to support Malaysia’s next stage of development — BNM governor  

According to Bank Negara Malaysia (BNM) Governor Tan Sri Nor Shamsiah Mohd Yunus, the central bank envisions that the newly-launched Financial Sector Blueprint 2022-2026 will drive the financial sector to be agile and resilient to support the country’s transition to its next stage of development. BNM had identified five priorities that would anchor its efforts to promote a financial system that would secure long-term growth, planetary health and shared prosperity. The priorities are funding Malaysia’s economic transformation, elevating the financial well-being of households and businesses, advancing digitalisation of the financial sector, positioning the financial system to facilitate and an orderly transition to a greener economy, and advancing value-based finance through thought leadership in Islamic finance. While producing the blueprint has been a lot of hard work, the greater task is to turn its vision into reality. This requires work and outside-the-box thinking as the nation enters a new stage of development. Speaking at the virtual MyFintech Week 2022, she said that it is our desire and belief that the financial sector will continue to serve Malaysia well in the years ahead, doing its part to improve the well-being of the people now and for the generations to come. The financial industry is well positioned to play a stronger role in leading transformation and changes at the industry level, thanks to its strong foundation following two decades of development. BNM is committed to fostering conditions for greater market dynamism to respond to changing needs of the economy and society, which call for more and diverse actors in the financial system, operating within well-defined parameters that encourage healthy competition and innovation, alongside prudent and responsible conduct. BNM’s approach behind the blueprint would be that financial services must help the people and businesses grow their wealth, engage in trade and commerce, and build resilience. It must help customers manage financial risks and adverse events, including climate and environment related risks to secure lasting prosperity. To this end, the blueprint seeks to align the financial sector with the national aspiration to not only become a high-value-added and high-income economy, but also lay a solid foundation for a more dynamic, inclusive and sustainable development path. The blueprint was launched by Finance Minister Tengku Datuk Seri Zafrul Tengku Abdul Aziz. 

Eye On The Markets 

This week, on Friday (28Jan), the Ringgit opened at 4.1995 against the USD from 4.1865 on Monday (24Jan). Meanwhile, the Ringgit was 3.1037 to the Sing Dollar on Friday (28Jan). On Monday (24Jan), the FBM KLCI opened at 1521.720. As at Friday (28Jan) 10:00am, the FBM KLCI is down 0.27 points for the week at 1521.45. Over in US, the overnight Dow Jones Industrial Average closed down 7.31 points (-0.02%) to 34,160.78 whilst the NASDAQ shed 189.3 points (-1.40%) to 13,352.8.  

Bank Negara likely to raise rates this year – HSBC

INVE$T | Market Sentiments

Download INVE$T #92

According to HSBC Group Asian economics research co-head Frederic Neumann, Bank Negara (BNM) is likely to raise interest rates this year following in the footsteps of the United States Federal Reserve, which plans to raise rates by three to four times in 2022 to fight inflation. BNM could raise its overnight policy rate (OPR) by 50 basis points (bps) this year on the back of stronger domestic demand and strong export numbers, as the world economy recovers from the impact of the Covid-19 pandemic. Within the Asia region, Malaysia is likely expected to experience one of the strongest domestic demand recoveries. On the investment side, particularly foreign investment, Malaysia will be the key beneficiary under the current trends, and the country’s exports are likely to remain supported. There is a desire by BNM to start to normalise its interest rates again, relatively swiftly. This is where the 50bps hike comes through. He was speaking at the HSBC Asian outlook 2022 media briefing. BNM has kept its OPR at 1.75% since July 2020, when it cut the rate from 2% to support economic growth that was affected by the Covid-19 pandemic and movement control order to curb the infection rate. The OPR at 1.75% is the lowest on record since 2004. As Malaysia’s labour market strengthens, the country’s core inflation may gradually trend higher to 2% by end-2022, thus, allowing Bank Negara to initiate a gradual monetary tightening process in the second half of 2022. HSBC expects a total of 100bps of rate hikes over 2022 and 2023. The Malaysian economy has one of the brighter outlooks in the region. The Malaysian economy is expected to grow 3.6% in 2021 and accelerate to 5.6% this year. Malaysia had one of the highest vaccination rates in Asia, allowing a high degree of resilience. While restrictions may be re-imposed, the government will likely opt for highly targeted measures as opposed to lockdowns. Malaysia is currently attracting the highest share of foreign direct investment (FDI) commitments in Asean, overtaking Vietnam which bodes well for the future of manufacturing. Malaysia’s manufacturing outlook remains impressively strong. Despite the positive outlook on the economy, the interest rate hike could pose the risk of downward pressure on the local stock market. According to HSBC chief Asia equity strategist Herald van der Linde, funds are anticipated to reduce their exposure to Malaysian equities due to potential rising interest rates. In contrast to a few of the other Asean markets, the situation in Malaysia is that domestic interest rates are rising which is not positive for the market. Most funds are already pretty overweight on Malaysia. So, they can’t really buy that much more if they wanted to. Some of the funds would probably reduce their exposure to Malaysian equities and move to other Asean markets such as the Philippines and Indonesia. Growth in all markets is coming down because last year was a large bounce in earnings growth. While there were still a lot of uncertainties, HSBC also believes that the ringgit is undervalued and the local currency could see recovery this year as the Malaysian economy emerges from a “double-dip” recession. The Ringgit is expected to be supported by the higher FDI inflows and the interest rate hike by the central bank should help the Ringgit to maintain a “yield advantage against the US dollar” and keep real rates positive. Greater confidence in the domestic economy and in local assets would help curb residents’ foreign asset accumulation. However, HSBC warned that its positive views on the ringgit were dependent on the Covid-19 developments and that political uncertainty may weigh on sentiment and affect capital flows.

Bursa unveils enhanced requirements

Bursa Malaysia has announced enhanced requirements for Main and ACE Market listings to further strengthen board independence, quality and diversity. The enhanced listing requirements now limits the tenure of an independent director to not more than a cumulative 12 years in a listed issuer and its group of corporations. All long serving independent directors impacted by this enhancement must resign or be redesignated as non-independent directors by June 1, 2023. Another key enhancement is the requirement for listed issuers (PLCs) with a market cap of RM2bil as at Dec 31, 2021 to appoint at least one woman director on their boards by Sept 1, 2022, as announced by the finance minister in Budget 2022. For the remaining PLCs, the requirement must be complied with by June 1, 2023. Additionally, Bursa also introduced a new rule which requires PLCs to have in place a fit and proper policy that addresses board quality and integrity for the appointment and re-election of directors across the PLC group, which must be published on the PLCs’ websites, starting from July 1, 2022. PLCs are also required to disclose the application of the PLCs’ fit and proper policy in the nomination and election of their directors in their annual reports. This seeks to improve the overall quality of directors and promote greater transparency on the criteria for board appointments.

Confidence in small-cap stocks remains – RHB Research

RHB Research notes in their report that despite the unfavourable short-term outlook, there are still pockets of opportunity for investors who are interested in small-cap stocks. Optimism in the market remains with the high vaccination rate and as the economy continues on its recovery path, which would enable investors to benefit from a sector rotational play and a meticulous stock-picking strategy. The research house advocated several key investment themes including exporters, value stocks and election play. Against this backdrop, it recommended consumer discretionary, technology, logistics, oil and gas (O&G), commodity play, and politically-linked thematic play as sectors to look out for in the small-to-mid caps space. The accommodative fiscal and monetary policies should continue to lend support to private consumption, supporting the consumer discretionary sector. Meanwhile, the O&G sector is likely to draw interest, premised on the high crude oil price trend, higher capex allocation and oil demand recovery. The technology space will also remain in favour thanks to its structural growth and strong fundamentals. However, it is paramount that investors remain selective on technology companies with a strong track record and competitive edge to sustain the elevated valuations and weather through a potential valuation de-rating, on the back of persistent high inflation rates and the rising interest rate environment. As for the logistics sector, growth will continue on improving trade and volume following the reopening and resumption of economic activities. Additionally, secular e-commerce play, elevated freight rates, growing demand for third-party logistics, and favourable measures and tax incentives from policy makers bode well for the industry. The imminent general election could also see politically-linked stocks gain prominence, with improved sentiment and the resumption of contract flows. With the FBM 70 Index and FBM Small Cap Index’s current forward price-earnings ratios (P/E) having retraced to below their five-year mean levels, and the indices are now trading at two times to three times P/E discounts to that of the FBM KLCI – based on RHB’s coverage universe – the brokerage cautioned that it is still paramount for investors to exercise extra diligence in their stock-picking, despite a better risk-reward ratio in terms of the relative forward valuation. It also highlighted that valuation for the MSCI Malaysia Small Cap Index continued to be at the north of the MSCI benchmark index. This is mostly owing to the superb performance of many stocks in the small-cap space, especially the high-flying technology stocks that command premium valuations, even in the region. The prolonged pandemic, political instability, earnings disappointment, worsening economic conditions, liquidity issues and higher environmental, social and governance-related risks could curb potential gains in the small-cap space.

Note From Publisher – RinggitPlus has launched a 3-part once a month series on Financial Planning. Please turn to page 9 or 10 for the 1st part.

Eye On The Markets

This week, on Friday (21Jan), the Ringgit opened at 4.1925 against the USD from 4.1865 on Monday (17Jan). Meanwhile, the Ringgit was 3.1110 to the Sing Dollar on Friday (21Jan). On Monday (17Jan), the FBM KLCI opened at 1553.80. As at Friday (21Jan) 10:00am, the FBM KLCI is down 28.17 points for the week at 1525.63. Over in US, the overnight Dow Jones Industrial Average closed down 313.26 points (-0.89%) to 34,715.39 whilst the NASDAQ shed 186.20 points (-1.30%) to 14,154.00

EPF investment income for 9M21 up 7.7% y-o-y to RM48b

INVE$T | Market Sentiments

Download INVE$T #91

According to Employees Provident Fund (EPF) chief executive officer Datuk Seri Amir Hamzah Azizan, the total gross investment income for the EPF for the nine months ended Sept 30, 2021 (9M21) rose 7.7% year-on-year (y-o-y) to RM48.02 billion from RM44.6 billion the year before. Total gross investment income for the third quarter ended Sept 30, 2021 (3Q21), however, amounted to RM13.97 billion, lower than RM17.33 billion for 3Q20. He said that 3Q21 was volatile for equities in both the domestic and emerging markets, largely caused by concerns surrounding rising inflation and interest rates. On the other hand, continued recovery of equities in the developed economies amid the heightened volatility provided the EPF an opportunity to capitalise additional gains. Equities continued to be its main income contributor, accounting for 54% of total gross investment income at RM7.5 billion. As part of EPF’s internal policy and a prudent measure to ensure a healthy portfolio, RM110 million was written down for listed equities during the quarter, compared with RM130 million in the corresponding period of the previous year. After taking into account the cost write-down, RM13.86 billion of net investment income was recorded for 3Q21. Cumulatively, RM350 million was written down for listed equities, down from RM6.46 billion in the same period in 2020, on the back of continued recovery in the global equity market, resulting in net investment income of RM47.67 billion for 9M21, compared with RM38.14 billion for 9M20. Investments in fixed income instruments contributed RM5 billion, or 36% of 3Q21 gross investment income, which was lower than the RM8.18 billion generated in 3Q20 due to lower trading gains. This was in line with the higher market yield in 3Q21, compared to the same period of the previous year. The real estate and infrastructure, as well as money market instruments, contributed RM1.18 billion and RM290 million respectively. As at September 2021, the EPF’s investment assets stood at RM988.55 billion, of which 36% were invested in overseas investments. The fund’s diversification in different asset classes, markets and currencies continued to provide income stability and add value to its overall returns. In 3Q21, the EPF’s overseas investments generated RM8.1 billion in income, representing 58% of total gross investment income recorded. A total of RM1.4 billion out of the RM13.97 billion gross investment income was generated for Simpanan Shariah, and RM12.57 billion for Simpanan Konvensional. On the outlook for the rest of the year, the post-lockdown recovery would continue, although at a slower pace, despite continuing concerns over the monetary policy and inflation outlook. Risks to Malaysia’s economic growth outlook remain tilted to the downside on external and domestic factors amid lingering Covid-19 concerns. Continued inflationary pressure and aggressive shifts from central banks led yields to increase amid increased expectations of monetary policy tightening. The environment of increasing bond yields has not just impacted bond markets, but created unease in equities as well. Despite the challenging and unprecedented times, the EPF is hopeful of seeing market sentiments improving in the near future. As a long-term fund, it remains committed and guided by the Strategic Asset Allocation that helps to ride out volatility while taking advantage of declines in valuations of fundamentally strong assets. 

Foreign investors net buyers of bonds in December – Kenanga 

According to Kenanga Investment Bank Bhd, foreign investors turned net buyers of Malaysia’s debt securities in December last year, totalling RM6.1bil, after a month of net selling in November for RM3.6bil. Total foreign debt holdings increased to RM256.6bil compared to November’s RM250.4bil, while its share to total outstanding debt rose to 14.8%, a seven-month high. Demand was likely driven by the return of global risk-on sentiment as Omicron fears began to subside, following reports that it was less severe than other Covid-19 variants. Furthermore, domestic bonds retained high yield differentials against many developed market bonds, keeping them attractive despite monetary policy tightening by major central banks. December’s inflow was driven by a sizeable net increase in holdings of Malaysian Government Securities and Government Investment Issues, which outweighed a softer rise in holdings of Malaysian Treasury Bills. For the equity market, it noted that foreign investors turned net sellers for the first time in five months, selling a total of RM1.1bil worth of shares compared to the RM200mil net buy in November. Demand for equities may have been hindered by lingering uncertainty over the Omicron variant and the United States Federal Reserve’s increasingly hawkish tilt, as it quickened the pace of its tapering process. The capital market registered its largest inflow in four months amounting to RM5bil. However the debt market remains at risk of outflows in the near term as the Fed may tighten monetary policy. 

AmInvest Launches Global Small Caps Fund 
AmInvest unveiled its Global Smaller Companies Fund, offering investors to tap into the potential capital growth of small companies listed globally. The fund will feed into the target fund, Janus Henderson Horizon Fund – Global Smaller Companies Fund, which aims to identify good quality and potentially undervalued small-cap stocks. According to the fund management firm’s chief executive Goh Wee Peng, the fund benefits from structural drivers that will continue to support global small-cap growth and has partnered with investment manager Henderson Global Investors Ltd which has a team of regional specialists in the US, Europe, Singapore and Japan. Since its inception in August 2019 and until Nov 30, 2021, the target fund has delivered returns of 63.5% which is 17.1% higher compared to its benchmark. This has translated to returns of 23.6% per year by the target fund. AmInvest pointed out returns from global small-cap stocks have surpassed large-cap stocks over the long term as they have higher growth and more opportunities for future growth and have outperformed large caps by over 220% over the last 24 years. Smaller companies are targets for mergers and acquisitions. To complete a takeover, the acquirer normally has to offer a valuation over and above where the share price has been trading. This premium has averaged between 21% and 40% in recent years. The target fund utilises fundamental and value-biased screening tools by identifying a narrow investable universe of around 100 to 200 quality stocks with growth potential. While the fund’s risks are managed by diversifying exposures by geography and market sector. The Global Smaller Companies Fund’s base currency is US dollars and it is being offered to sophisticated investors in US dollar and RM as well as RM-hedged classes at an initial offer price of US$1 and RM1 per unit respectively during the initial offer period until Jan 30, 2022. 

Eye On The Markets 

This week, on Friday (14Jan), the Ringgit opened at 4.1815 against the USD from 4.1995 on Monday (10Jan). Meanwhile, the Ringgit was 3.1078 to the Sing Dollar on Friday (14Jan). On Monday (10Jan), the FBM KLCI opened at 1543.38. As at Friday (14Jan) 10:00am, the FBM KLCI is up 16.38 points for the week at 1559.76. Over in US, the overnight Dow Jones Industrial Average closed down 176.70 points (-0.49%) to 36,113.62 whilst the NASDAQ shed 381.60 points (-2.51%) to 14,806.80.  

Thumbs up for reinstating shares stamp duty cap – CGS-CIMB Research

INVE$T | Market Sentiments

Download INVE$T #90

According to CGS-CIMB Research, investors will enjoy lower transaction costs following the Finance Ministry’s decision to reinstate the cap on stamp duties for the trading of shares on Bursa Malaysia. This will make the Malaysian stock exchange more competitive regionally. On Dec 30, 2021, the Finance Ministry announced that a stamp duty of 0.15% would be imposed on share contract notes, up to a maximum of RM1,000. Stamp duty amounts exceeding RM1,000 would be remitted and that this remittance would apply to all contract notes from Jan 1, 2022 until Dec 31, 2026. The government had earlier proposed in Budget 2022 for the stamp duty rate to be raised to 0.15% from 0.1%. It also said the RM200 cap on the duty would be abolished, effective Jan 1, 2022. The brokerage estimated that the government’s latest decision will cut total transaction costs for Malaysia from 0.32% to 0.2% for US$1mil (RM4.2mil) trade value, assuming a brokerage rate of 0.15%. This is because the stamp duty costs will decline to RM1,000, as compared to an estimated RM6,300 if the stamp duty is removed. However, this is still higher than the total transaction costs in 2021 of 0.19%, based on its estimates when the stamp duty cap was RM200. Nevertheless, this is positive for stockbrokers and Bursa Malaysia as the higher cap on stamp duty for the next five years will improve Malaysia’s competitiveness against MIST (Malaysia, Indonesia, Singapore and Thailand) peers. They estimate total transaction costs for shares to be 0.16% to 0.26%. It pointed out that the FBM KLCI had reacted positively to the reinstatement of the stamp duty cap and window-dressing activities, gaining 23.92 points or 1.55% on the last trading day of 2021. However this positive is partly offset by concerns over Omicron, the return of intraday short selling effective Jan 1, 2022 and flooding risks in Malaysia. The market’s excitement seen in the last trading day of 2021, however, did not last long. The FBM KLCI began the new year on a weak footing as the benchmark index dropped by 18.48 points or 1.18% to 1,549.05 points on the first day of trading. Meanwhile, the brokerage was positive on the government’s decision to extend the tax exemption on foreign sourced dividends for corporates till Dec 31, 2026. 

Maybank Asset Management launches China Equity Fund 

According to Maybank Asset Management Group (MAMG) CEO Ahmad Najib Nazlan, MAMG has partnered with global investment firm T Rowe Price to offer its China-focused equity strategy to Malaysian investors via the MAMG China Evolution Equity Fund. The fund feeds into T Rowe Price’s China Evolution Equity Strategy, which looks beyond the Chinese mega-caps to seek to identify the future winners, focusing on opportunities outside China’s 100 largest companies. The fund favours companies it believes are best positioned to capitalise on China’s changes and growth, including those moving up the value chain through innovation, niche players, companies set to benefit from disruptions as well as those involved in energy transition and high performance computing space. It is also benchmarked against the MSCI China All Shares Index Net for performance comparison. The strategy is managed by Hong Kong-based portfolio manager Wenli Zheng who has over 13 years’ experience at the global asset manager and the Chinese market. By extending MAMG’s reach beyond the top 100 stocks into a universe of over 5,500 untapped stocks, this unique pivot provides an unconstrained All-China investment approach to pick the best and most valuable upcoming companies; coupled with its ESG fundamentals to ensure business sustainability. With T Rowe Price’s knowledge and experience of the China market, he is confident the partnership will reap positive benefits for investors.  

Meanwhile according to T Rowe Price’s head of distribution for Asia ex-Japan, Elsie Chan, China is a deep market with over 5,500 onshore and offshore-listed companies, offering a huge opportunity set to investors. It remains a fertile hunting ground for investors seeking sustainable businesses and potential excess return opportunities through bottom-up fundamental research. Chan is pleased to offer the investment strategy for investors in Malaysia to complement their investment portfolios and pursue the attractive but overlooked opportunities amidst China’s economy upgrade. 

5.2% growth in 2022 from private consumption woes – SERC 

According to The Socio-Economic Research Centre (SERC) executive director Lee Heng Guie, SERC has projected a gross domestic product (GDP) growth of 5.2% for 2022, slightly lower than the government’s forecast of 5.5-6.5% growth prediction, attributed to its more modest private consumption estimate. Looking at the private consumption, he expects it to recover but there are also some headwinds, mainly, inflation risk, high cost of living as well as an expectation for households to rebuild their savings and balance sheet. For this year, the private consumption is projected to grow at 5.9% of the GDP, while the official forecast had expected 7.3% of the GDP. Sector wise, some of the forecasts are lower than the official estimates, as the latter was made earlier in September last year during the formulation of Budget 2022. Since then there has been some development, especially with the unexpected pickup in inflation risks, which is something to watch out for as well as the worst ever flood experienced that could temper the activities early this year which would impact the overall GDP. In identifying a number of risks to the country, he noted one of which is a decline in China’s growth, one of Malaysia’s key trading partners. He calculated a 1% decline in China’s GDP could shave Malaysia’s GDP growth by 0.3-0.5% via trade channels. Similarly, the country also has to contend with price pressures similar to one faced across the globe. Domestically, labour shortage has to be addressed, effects of inflation to consumers and producers as well as a winding down of domestic relief measures and policy changes’ impact to local businesses and industries. The one-off prosperity tax this year could reduce dividend payments and corporate earnings, as well as a slew of other measures such as rental discounts, utilities rebates, multi-tier levies and higher minimum wage. Hopefully, the government will make sure some of the policy changes would be staggered out and there will be sufficient industry engagement particularly with the multi-tier levy implementation. On the bright side, the Regional Comprehensive Economic Partnership (RCEP) as a key catalyst to the country’s performance as the 14-member countries account for 58% of Malaysia’s trade. This translates to a wider market for Malaysian exporters and because of the agreement, at least 92% of the tariff line will be reduced over 20 years and some would enjoy an immediate zero tariff, facilitating the exports of goods and services to the international market. For SMEs, because of e-commerce and digitalisation, they can fully leverage this platform to find new markets rather than concentrating on the domestic market. He also cautioned that the free trade agreement could also bring challenge to Malaysian businesses, in terms of competition. It is important to focus on product quality, good delivery and competitive cost so they are able to compete with the international players in the RCEP market whilst at the same time there will be goods coming into Malaysia offering a wide choice at a competitive price. And the SME can source for raw material and inputs they need for their production and participate in the global or regional supply chain. On this matter, the electronic & electric sector is estimated to be the biggest beneficiary as it is an important hub for the sector in the global supply chain. With regard to the overnight policy rate, it is anticipated that Bank Negara Malaysia (BNM) to raise the interest rate in the second half of 2022, though the timing will depend on the growth trajectory and inflation risk. A removal of monetary accommodation is needed to rebuild buffer and hikes in baby steps so as not to hamper the recovery path. A prolonged period of low interest rates can induce financial imbalances by reducing risk aversion of banks and other investors. On the whole, SERC expects BNM to raise the policy rate by 25-50 basis points to 2%-2.25% in the second half of 2022. On a global note, it expects growth to normalise in 2022 amid headwinds, at a moderating pace of 4.5%. It also pointed out that the Omicron variant, ongoing supply disruptions, rising inflation pressures and more hawkish central banks are the headwinds as tighter financial conditions and capital flows volatility could weigh on global growth. The Omicron will dent confidence and sentiment given the still inequitable vaccinations across the countries in different regions. What comes in the near-term is to what extent the impact of Omicron variant on global growth. Three vaccine doses hold the key for protection against the new variant. The International Monetary Fund had estimated that a more transmissible Omicron could cost the global economy a further US$5.3 trillion, in addition to the current projected loss of US$12.5 trillion. 

Eye On The Markets 

This week, on Friday (07Jan), the Ringgit opened at 4.2145 against the USD from 4.1705 on Monday (03Jan). Meanwhile, the Ringgit was 3.0963 to the Sing Dollar on Friday (07Jan). On Monday (03Jan), the FBM KLCI opened at 1553.64. As at Friday (7Jan) 10:00am, the FBM KLCI is down 20.01 points for the week at 1533.63. Over in US, the overnight Dow Jones Industrial Average closed down 170.64 points (-0.47%) to 36,236.47 whilst the NASDAQ shed 19.30 points (-0.13%) to 15,080.90.