INVE$T | Market Sentiments
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.