Bursa Malaysia Derivatives completes first physical delivery of East Malaysia Crude Palm Oil Futures in Sabah

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According to Bursa Malaysia Derivatives chief executive officer Samuel Ho Hock Guan, Bursa Malaysia Derivatives Bhd has completed the first physical delivery of its East Malaysia Crude Palm Oil Futures Contract (Fepo) in Sabah on February 17, 2022. The delivery saw a total of eight contracts, representing 200 tonnes of crude palm oil (CPO) transacted between the seller, Green Edible Oil Sdn Bhd, and the buyer, Kunak Refinery Sdn Bhd at one of the approved Port Tank Installations in East Malaysia, namely in Sandakan, Sabah. The Port Tank Installation is operated by Sawit Bulkers Sdn Bhd, a wholly-owned subsidiary of Sawit Kinabalu Group, which is the premier investment arm of the Sabah state government in the oil palm industry. The successful and orderly completion of the first physical delivery for Fepo contracts demonstrates the demand from Sabah producers to sell their CPO through an alternative platform with greater price transparency. The Fepo contract benefits Sabah refiners and buyers by allowing them to source CPO at competitive pricing. It also enables them to manage price risk and hedge against unfavourable price movement in the physical market, especially during the low-supply season. Meanwhile, Sawit Kinabalu group managing director Datuk Bacho Jansie said the availability of Bursa Malaysia Derivatives’ Fepo contract provides East Malaysia market participants with an additional trading opportunity as well as an improved price discovery mechanism and more physical delivery options in Sabah and Sarawak. He added that as one of the designated delivery ports in Sabah, he hopes to attract more market participants to lease out their available tanks and further increase the visibility of the East Malaysia palm oil market. The Fepo contract, which went live on October 4, 2021, provides East Malaysia CPO market participants with a new avenue to engage in physical deliveries and hedge their positions in the physical CPO market. It also strengthens Bursa Malaysia Derivatives’ Palm Complex offerings and provides price transparency in the East Malaysia CPO market, further cementing Malaysia’s position as the global centre for palm oil price discovery. From its launch date to February 8, 2022, Bursa Malaysia Derivatives recorded a total trading volume of 3,250 contracts which is equivalent to 81,250 tonnes of CPO. Its highest daily trading volume was recorded on January 5, 2022, at 122 contracts representing 3,050 tonnes of CPO. 

Growth momentum expected to be hampered – Moody’s  

According to Moody’s Investors Service in the latest update to its Global Macro Outlook for 2022-23 report, declining fiscal support, tighter monetary policy and waning pent-up demand will weigh on growth momentum in most countries. Although it expects the rapid rise in inflation in recent months to subside, the steep and broad-based increase in prices is eroding household purchasing power and could weaken the recovery. The global economy is transitioning from a tentative recovery toward more stable growth, bolstered by improvement in the Covid-19 health situation. The current economic cycle is remarkable in the swiftness with which activity has been restored in most major economies. The Group of 20 (G20) economies is expected to collectively expand 4.3 per cent in 2022, down from 5.9 per cent in 2021 yet still above long-term trend growth. Global growth will further slow to 3.2 per cent in 2023 as pandemic-fuelled output losses have been largely recouped and labour markets in advanced economies approach a full recovery. The agency also predicted a challenging first half of 2022, with elevated commodity prices, demand-supply imbalances, inflation pressures, volatile financial markets and geopolitical tensions. However, demand-supply distortions is expected to resolve over 2022, with supply bottlenecks easing in the second half of the year. 

AmInvest launches Asia ex Japan Equity Fund 

According to AmBank group CEO Datuk Sulaiman Mohd Tahir, AmInvest has launched its Asia ex Japan Equity Fund, which offers investors potential long-term capital growth by investing in a diversified portfolio of stocks in the Asia region (excluding Japan). The fund will feed into the Baillie Gifford Worldwide Asia ex Japan Fund, which aims to provide above average returns over the long term by investing in the fastest growing stocks in the Asia region excluding Japan. The target fund invests in companies that are financially sustainable in the long run, and takes into consideration factors such as high quality growth businesses that enjoy competitive advantages in their marketplace, environmental, social and governance matters. According to AmInvest chief executive Goh Wee Peng, the fund is a beneficiary of structural drivers that will continue to support strong growth prospects in China and the broader Asia Pacific region. This is the second fund partnership with Baillie Gifford, the target fund’s investment manager, who also manages the target fund for the Sustainable Series – Positive Change Fund. Baillie Gifford have over 30 years of experience managing Asian region equities. Since its inception in February 2020 until to date, the target fund has returned 36.2% and beaten its benchmark by 23.4%. There should be material growth for the fund, as there are more than 3 billion consumers across Asia with a notably large consumer market within the rising Asian middle class. Pre-pandemic data from International Monetary Fund predicts that the per capital spending power of Chinese consumers will nearly double in US dollar terms over a five-year period from 2019 to 2024. Digital penetration and technological change continue to be the key themes for long-term growth opportunities in Asia. Rapid development of technology is creating a fundamental change in market behaviours, with digitalisation driving changes in economic and political systems, businesses, consumer habits and behaviours. The target fund actively seeks companies that may have underappreciated growth and those constantly reinvesting for the long-term, either in research or development of capital projects. The fund’s base currency is US dollar. It is being offered for subscription to sophisticated investors in US dollar, ringgit and in ringgit-hedged classes at the initial offer prices of US$1 and RM1 per unit respectively during the initial offer period until March 23, 2022. AmInvest is the brand name for the fund management business of AmFunds Management Bhd and AmIslamic Funds Management Sdn Bhd. 

Local institutions placed emphasis on importance of ESG-compliant investments — Bursa 

According to Bursa Malaysia, local institutions placed emphasis on the importance of environmental, social and corporate governance (ESG)-compliant investments. Malaysia’s key institutional investment managers and asset owners — such as the Employers Provident Fund (EPF), Khazanah Nasional Bhd and Retirement Fund (Incorporated) (KWAP) — had participated in and signed the United Nations Principles for Responsible Investment in 2019. These institutions have incorporated the ESG mandate into their funds. The EPF is also expected to announce a sector sustainability policy framework as guidance for its future investments that will comply with ESG practices. Citing IHS Markit’s filings up to Feb 7, 2022, the regulator said the local ESG-mandated funds had a total holding value of US$118 billion (about RM494.01 billion) in stocks with good ESG ratings. The filings also showed that the fund houses ranked the highest in terms of the total holding value of stocks with good ESG ratings and accounted for 92% of the total holding value of the stocks. With the change in investment fundamentals within the industry, large-scale investment banks are also pivoting their strategies in tandem with the rise of sustainability consciousness. For instance, in December last year, Maybank Investment Banking Group announced that it would prioritise ESG and help its clients to identify green opportunities. ESG investing is one of the fastest-growing trends in the investment community over the past few years. ESG is slowly becoming a key consideration for investors. Asset owners such as pension funds are increasingly demanding sustainable investing strategies from their asset managers. Bursa, in quoting IHS Markit’s fillings up to Feb 7, said there were 235 ESG-mandated funds globally that had invested in Bursa as an exchange with a total holding value of US$143.5 billion (about RM600.76 billion). 44% of the funds (excluding Malaysia) were from North America, followed by Europe at 27%, Asia at 26% and the Middle East at 3%. 

Eye On The Markets 

This week, on Friday (25Feb), the Ringgit opened at 4.1985 against the USD from 4.1880 on Monday (21Feb). Meanwhile, the Ringgit was 3.1004 to the Sing Dollar on Friday (25Feb). On Monday (21Feb), the FBM KLCI opened at 1601.66 As at Friday (25Feb) 10:00am, the FBM KLCI is down 11.62 points for the week at 1590.04. Over in US, the overnight Dow Jones Industrial Average closed up 92.07 points (+0.28%) to 33,223.83 whilst the NASDAQ added 436.10 points (+3.34%) to 13,473.58.  

Malaysia’s current account surplus to GDP ratio upgraded to 3.5% – MIDF Research 

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According to MIDF Research, the relative size of the current account balance is expected to increase 3.5% of GDP this year (2021: 3.5% of GDP) from their initial expectation of 3.1%. This is in view of the Dept of Statistics Malaysia (DOSM) stating that Malaysia’s current account balance recorded a surplus of RM15.2bil in the final quarter of 2021 despite prolonged nationwide restrictive measures. And a further reopening of economic activities and the continued expansion in export of goods will help drive a wider surplus of Malaysia’s current account balance. This is driven by the exceptionally high net exports of goods with a double-digit growth in prices of commodities. The research house maintains that the sustained surplus will be supported by continued expansion in exports of goods driven by manufactured goods and commodity-related products. As more domestic economic activities reopen, import growth is expected to record higher than export growth this year, at 5.1% versus 4.5%. On the services account, it foresees a smaller deficit in the trade of services for 2022, thanks to the proposed reopening of international borders. Meanwhile, demand for foreign services from the trade-oriented and construction sectors is likely to expand modestly. In the fourth quarter of 2021, the services account recorded a higher deficit of RM15.5bil compared to a deficit of RM15.2bil in the third quarter, dragged down mainly by the travel segment. Traditionally, the travel segment will record higher inflows than outflows. However, the pandemic has flipped the table. With the reopening of domestic economic activities and more leeway given to the fully vaccinated, outflows of travel segment increased to RM4bil in Q4 ‘21, the highest since Q2 ‘20, possibly due to Malaysians travelling to other countries. The travel segment is expected to record a smaller deficit in 2022, particularly with the gradual reopening of international borders. As for other services components, no significant changes is expected throughout the pandemic years. Notably, the National Recovery Council has recommended that the government fully reopen international borders on March 1. However, the borders would not be fully reopened in the first half of the year given that the Health Ministry has forecast daily infection cases to peak at 22,000 by end of March. Additionally, vaccine rollout for children aged five to 11 was only started in February and may take at least 1.5 months for the age group to be fully-vaccinated. Hence, June 1 is expected to be the earliest date for Malaysia to reopen its international borders amid the flattening curve of daily infection rate and higher two-dose vaccination rate as well as booster recipients. For 2022, MIDF Research forecasts services account deficit to GDP ratio to improve from minus 4% in 2021 to minus 3.6%. The travel segment should record a smaller deficit size of minus 0.8% this year (2021: minus 0.9%). 

Inflationary pressures, price hikes temporary – IDEAS 

According to the Institute for Democracy and Economic Affairs (IDEAS), the inflationary pressures and price hikes that Malaysia is facing is temporary and can be effectively controlled through proper monetary and fiscal policies. Even though the inflationary trend is disconcerting, inflation can be controlled efficiently in the short to medium term through the timely deployment of monetary policies. This is in relation to the Statistics Department finding that the country’s inflation rate (as measured by the Consumer Price Index) increased 3.2% year-on-year in December 2021, mainly due to the rise in food and fuel prices and the low base effect. IDEAS noted that the US Federal Reserve has signalled that it would increase its Overnight Policy Rate (OPR) multiple times this year to tame inflation. Malaysia will likely follow suit by increasing its OPR gradually in 2022 and 2023, whereby Bank Negara is expected to increase the OPR by about 50 basis points in the latter half of this year. Meanwhile, according to IDEAS director of economics and business unit and acting director of research Dr Juita Mohamad, the current rise in inflation is a global issue, stemming from stronger demand and higher energy prices, after two years of battling the pandemic through lockdowns. The pandemic and the lockdowns led to both demand and supply shocks at a global scale. As a small and open economy, Malaysia was not immune to the devastating aftermath posed by the pandemic. Inflationary pressure is further compounded by the recent flooding in the country, which puts a strain on the supply of selected essential goods produced locally. 

Malaysia set for a gradual recovery – impressive vaccine rollout, swift measures lauded – IMF 

According to the International Monetary Fund (IMF), Malaysia’s economy is set for a gradual recovery from the Covid-19 downturn, with real gross domestic product (GDP) growth at 3.1% in 2021 and projected to accelerate to 5.75% in 2022. This is in line with the preliminary findings of an IMF team led by its economist Lamin Leigh which says that growth will be supported by the authorities’ impressive vaccine rollout and swift implementation of economic policy support measures. A more severe downturn in 2021 was averted, thanks to the swift, substantial, and multi-pronged pandemic policy response targeted to support affected households and businesses. Growth in 2022 is projected at about 5.75%, driven by pent-up domestic demand and continued strong external demand. The pandemic is set to leave implications that could linger over the medium to long run and the recovery would likely be uneven. The team recommends additional near-term targeted fiscal support to the vulnerable and hard-hit segments of the economy. In the near term, fiscal policy should continue to be nimble and increasingly targeted, with a focus on further buttressing the recovery, minimising economic scarring, protecting the vulnerable segments of the population, and scaling-up productive investments, in line with the authorities’ spending priorities. A credible, specific, growth-friendly, and clearly communicated consolidation strategy should be implemented once the recovery is entrenched to rebuild fiscal buffers, preserve fiscal sustainability, and reduce fiscal risks, supported by robust fiscal governance practices. The findings also recommended accommodative monetary policy stance and the continuation of financial sector support measures. 

Foreign investors jump into M’sian equities – MIDF Research 

According to MIDF Research, foreign inflow into the Malaysian stock market rose to its highest in the year so far at RM749.34mil in the previous week amid optimism over the country’s recent release of its economic data. The research house, which tracks the Indonesia, Thailand, Philippines and Malaysia bourses in South-East Asia, noted that all these markets recorded foreign inflow for the week on positive sentiment over their stability. Foreign interest in Malaysian equities was spurred by positive developments in the country’s economy, including the December industrial production index growth of 5.8%, the December distributive trade sales growth of 3.5% and the fourth-quarter gross domestic product growth of 3.6%. The largest foreign inflow was recorded on Wednesday at RM279.64mil and the smallest inflow was on Monday at only RM21.82mil. International funds had been net buyers on the local stock exchange for four out of the past six weeks. In addition, foreign investors were net buyers for every day of the past week, which last occurred in the week ending January 14. Meanwhile, local institutions were active sellers with a sum of RM649.18mil net of local equities sold over the week. Retailers were net sellers on every day of the week except on Monday. By last Friday’s close, retailers had net sold RM100.17mil in Bursa Malaysia stock. Year-to-date, foreign investors have been net buyers of RM1.052bil in local equities. Net buying by retailers stands at a marginal RM980,000 while local institutions are net sellers of RM1.053bil of Malaysian stock. 

Apac’s investor demand good for sustainable bonds – Moody’s 

According to Moody’s Investors Service assistant vice-president and analyst Nishad Majmudar, Asia-Pacific’s (Apac) large financing needs post-pandemic, and the region’s focus on carbon transition and other environmental, social and governance (ESG) risks will propel issuance of sustainable bonds. There was also rising investor demand for instruments that catered to the sustainable market. Conditions were ripe for a rise in the issuance of sovereign sustainable bonds, which is expected to come initially from established issuers. Although the development of regulatory standards and taxonomies across the region is still at an early stage, it will gradually facilitate markets. Apac governments with track records of conventional issuance or have strong market access, such as Hong Kong (Aa3 stable), Indonesia (Baa2 stable), South Korea (Aa2 stable) and Malaysia (A3 stable), were driving sustainable bonds. The issuer base is likely to expand through multilateral support and as investors’ appetite for sustainable bonds catches up with vanilla bonds. The post-pandemic focus on investment to meet United Nations Sustainable Development Goals will drive issuance, particularly as major governments including China (A1 stable), Japan (A1 stable) and South Korea pursue net-zero emissions by 2050. 

Eye On The Markets 

This week, on Friday (18Feb), the Ringgit opened at 4.1863 against the USD from 4.1915 on Monday (14Feb). Meanwhile, the Ringgit was 3.1165 to the Sing Dollar on Friday (18Feb). On Monday (14Feb), the FBM KLCI opened at 1576.99. As at Friday (18Feb) 10:00am, the FBM KLCI is up 28.59 points for the week at 1605.58 Over in US, the overnight Dow Jones Industrial Average closed down 622.24 points (-1.78%) to 34,312.03 whilst the NASDAQ shed 407.38 points (-2.88%) to 13,716.72.  

Bursa inks MoU with HSBC Amanah to improve PLCs’ ESG adoption practices 

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According to Bursa Malaysia chief executive officer Datuk Muhamad Umar Swift, the exchange and HSBC Amanah Malaysia Bhd has entered into a memorandum of understanding (MoU) to collaborate on an initiative aimed at improving Malaysian PLCs’ environmental, social and governance (ESG) adoption practices. Under this MoU, both parties would collaborate in developing sustainability-linked Islamic financial products as well as ESG solutions aligned to the FTSE4Good ratings model and datasets for eligible PLCs. PLCs in the FTSE Bursa Malaysia EMAS index, which made up the FTSE4Good ESG assessment universe, would have the opportunity to tap into HSBC Amanah’s Shariah-compliant ESG offerings while enabling them to accelerate their ESG adoption. This would help improve their ESG ratings for inclusion into the FTSE4Good Bursa Malaysia Index, the Malaysian capital market’s leading ESG index. Additionally, it would be an opportunity for Shariah-compliant PLCs to be included into the FTSE4Good Bursa Malaysia Shariah Index, which was introduced in July 2021. Having PLCs that are able to successfully manage their ESG risks and opportunities via Shariah-compliant ESG solutions will certainly reinforce Malaysia’s role as a leader in Islamic finance. Meanwhile, according to HSBC Amanah CEO Raja Amir Raja Azwa, HSBC Amanah is pleased to join Bursa Malaysia in developing this important initiative towards enabling PLCs on their sustainability journey through the provision of advisory and Shariah-compliant financial solutions as a practitioner of value-based intermediation. This is very much aligned to the bank’s own journey in transforming HSBC Amanah into a leading sustainable bank in line with the triple-bottom line approach of prosperity for people and planet and in support of the Malaysian Government’s National Determined Contribution to the Paris Agreement. PLCs interested in learning more about the initiative or improving their general ESG practices may contact the exchange’s index and sustainable business unit via email at isb@bursamalaysia.com. 

Retail & Wholesale trade up 1.4% in Q4, 2.1% higher in 2021 – DOSM 

According to Department of Statistics Malaysia (DoSM) chief statistician Datuk Seri Dr Mohd Uzir Mahidin, Malaysia’s wholesale & retail trade rebounded 1.4% in the fourth quarter (Q4) of 2021 which translates to a 2.1% increase in the volume index for the full year. The increase for the year was attributed to the motor vehicles sub-sector which rose 3.7%, followed by retail trade with 2%. However, the figures indicated wholesale trade inched down marginally at 0.03% in the same period. For quarter-on-quarter (q-o-q) comparison, the volume index jumped 16.3%, supported by motor vehicles which surged 136.9%. Compared to the fourth quarter of 2019 which was before the Covid-19 pandemic, index volume of this sector expanded to record 2.1%. Looking at the performance across sub-sectors, the volume index of motor vehicles which expanded 3.7% year-on-year (y-o-y) was mainly contributed by sales of motor vehicle and sales, maintenance & repair of motorcycles which posted positive growth of 8.9% and 1.7%, respectively. Maintenance & repair of motor vehicles and sales of motor vehicle parts & accessories decreased -2.3%, and -1.5%, respectively. For the quarterly performance, the volume index of motor vehicles surged 136.9% as compared to the preceding quarter, spearheaded by sales, maintenance & repair of motorcycles with 258.2%. On the other hand, retail trade’s volume 2% gain was attributed to retail sale not in stores, stalls or market with 23.9%. This was followed by retail sale of food, beverages & tobacco 6.5%, retail sale in non-specialised stores 6.2%, retail sale via stalls & market 5.9%, retail sale of automotive fuels 4.6%, retail sale of cultural & recreation goods 0.3%, and retail sale of information & communication equipment 0.1%. Meanwhile, the volume index of retail trade climbed 10.8% compared to the previous quarter. Volume index of wholesale trade sub-sector edged down marginally 0.03% in Q4’21 from Q4’20 and the contraction was attributed to wholesale on a fee or contract basis which eased 7.5%. This was followed by other specialised wholesale which contracted 4%. However other groups in this sub-sector posted positive growth. For q-o-q comparison, volume index of wholesale trade went up 6.%. As for seasonally adjusted volume index, wholesale & retail trade soared 15.3% as against the third quarter of 2021. All sub-sectors recorded positive growth namely motor vehicles 137.1%, retail trade 8.5% and wholesale trade 6%. The volume index of wholesale & retail ended 2021 with 124.1 points, which went up 2.1% supported by wholesale trade and retail trade which grew 3.8% and 3.4%, respectively. As for pre-pandemic comparison, this sector remained below the 2019 figure with -4.2%, pulled down by the motor vehicles sub-sector which slipped -10.2%. 

Consumer spending to continue growing – Unemployment seen hovering below 4% in 2H2022 

According to MIDF Research, consumer spending in Malaysia is set to stay on an upward trajectory this year, underpinned by significantly high vaccination rate, improving labour market, fiscal incentives and stable inflationary pressure. Private consumption and the services sector is expected to contribute positively towards gross domestic product in Q42021. The three-month moving average of distributive trade sales was 5.1% higher year-on-year (Q3 2021: 9.1% drop year-on-year or y-o-y) for the final quarter of 2021. In December 2021, Malaysia’s distributive trade sales growth was 3.5% higher y-o-y, led by motor vehicles (1.5% higher y-o-y), wholesale (4.1% higher y-o-y) and retail (3.5% higher y-o-y). The unemployment rate is expected to hover below 4% in 2H2022 and average at 4% this year. In December 2021, the jobless rate had hit a new pandemic low of 4.2%, as the number of unemployed persons fell below 700,000 for two consecutive months since November 2021. Employment growth in December 2021 reached a seven-month high at 2.8% growth y-o-y, thanks to continuous expansion in both export-oriented and domestic-focused industries. Also, inflationary pressure is predicted to trend lower following receding low-base effects from fuel inflation, especially with retail fuel prices to remain status quo. Cost-induced pressures are set to ease off, given that leading indicators on supply constraints are showing moderating patterns. Steady employment growth and stable inflationary pressure are key fundamentals to benefit and support Malaysia’s consumer spending in the fourth quarter of 2021 as well as for 2022. The country’s retail trade is expected to expand by 5.5% and private consumption to expand by 6% this year with the relaxation of containment measures, economic re-opening and progressive improvements in macroeconomic data, setting the stage for strong consumer spending. With interstate travels allowed, the services sector is projected to benefit and increase by 7.1% this year. Meanwhile, should Malaysia’s international borders be re-opened on March 1, this will be an additional catalyst for the services sector via tourism activity. However, borders are not expected to reopen fully in the first half of this year as the Health Ministry had forecast daily infection cases to peak at 22,000 by the end of next month. Additionally, the vaccine rollout for children aged five to 11 years old had just started in February and they may take at least one-and-a-half months to be fully vaccinated. Meanwhile, retail spending patterns are expected to shift slightly from pre-pandemic years, especially on information and communications technology (ICT) and household items, thanks to remote working and learning arrangements. Spending on non-specialised stores for groceries’ shopping fell in terms of distributive trade sales share to 14.9% in 2021, from a peak point of 15.3% in 2020. As consumers adapted to the new normal, expenditure on ICT products rose to a record high at 4.2% of total distributive trade sales. This year, automotive fuel share is also expected to rebound to its pre-pandemic level at 3.4% (2021: 3.1%) with interstate movements allowed. 

Eye On The Markets 

This week, on Friday (11Feb), the Ringgit opened at 4.1890 against the USD from 4.1850 on Monday (7Feb). Meanwhile, the Ringgit was 3.1123 to the Sing Dollar on Friday (11Feb). On Monday (7Feb), the FBM KLCI opened at 1525.23. As at Friday (11Feb) 10:00am, the FBM KLCI is up 41.70 points for the week at 1566.93. Over in US, the overnight Dow Jones Industrial Average closed down 526.47 points (-1.47%) to 35,241.59 whilst the NASDAQ shed 304.73 points (-2.10%) to 14,185.64.