INVE$T | Market Sentiments
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.
