BNM evaluating potential of central bank digital currency 

INVE$T | Market Sentiments

Download INVE$T #100

According to Deputy Finance Minister I Datuk Mohd Shahar Abdullah, Bank Negara Malaysia (BNM) is actively evaluating the potential of a central bank digital currency (CBDC) driven by the growing technology and payment landscape. He was speaking during a winding-up debate on the motion of thanks for the Royal Address for his ministry in the Dewan Negara. The CBDC is different from a cryptocurrency in that the former would be a digital currency issued by the central bank to achieve public policy objectives, such as increasing efficiencies of cross-border payments and progressing financial inclusion. As an example, BNM has recently cooperated with the central banks of Australia, Singapore and South Africa through the Dunbar project to develop a shared platform prototype which enables international settlements using various CBDCs by reducing dependency on intermediaries. This prototype platform has the potential to reduce the cost and time taken to carry out cross-border transactions. The outcome of the project would be used by BNM and the other central banks to develop a more efficient next-generation payment infrastructure. In line with the government’s stand, cryptocurrencies such as Bitcoin are not suitable for use as payment instruments due to various obstacles, including price fluctuations, exposure to cyberthreats, lack of scalability and negative impact on the environment. Hence, such currencies are not recognised as legal tenders in Malaysia. 

Sustainability theme key to recovery, ESG a driving force for upcycle phase – CGS-CIMB Research 

According to CGS-CIMB Research, a new recovery theme for the local construction sector could likely come from sustainability practices. The rising adoption of sustainable construction will emerge as a longer-term sector recovery theme. This will happen on the back of new macro policy measures and the reactivation of the RM31bil MRT 3 project. These would mitigate short-to-medium term sector risks, such as weak visibility in other new mega jobs, limitations in the government’s fiscal space and uncertainties surrounding mega contracts due to the political landscape. Malaysia’s construction sector has been one of the biggest casualties of the Covid-19 pandemic, with much work and projects experiencing severe slowdowns or even coming to a complete halt as a result of the movement control orders and stringent standard operating procedures. The industry is now struggling to get back on its feet as new jobs dry up largely due to cutbacks in government spending. A sustainability theme may provide better visibility and an alternative view in terms of resetting the government’s strategy in rolling out new contracts and better positioning for contractors in tendering for upcoming new mega projects. It will also provide investors with a better perspective on the potential longer-term winners and beneficiaries of the rollout of new contracts that are more aligned to the sustainability agenda. While historically sector-wide sustainability strategies and plans were somewhat fragmented, the government has placed greater emphasis on the domestic construction sector’s pathway to higher sustainability standards, as seen in the 12th Malaysia Plan (12MP). These sustainability initiatives will cause Malaysia’s construction industry to enter into a “transformation phase” this year as the research house was seeing a shift towards climate action and sustainable mega projects. Water, flood mitigation and transport projects are key potential beneficiaries of this theme, which bodes well for Gamuda Bhd, IJM Corp Bhd and HSS Engineers Bhd. The construction sector accounts for 6% of global gross domestic product which implies that development activities will always be an integral part of economic activity and growth. This is particularly so for developing countries like Malaysia. Also the construction sector is the largest global consumer of building materials and accounts for 25% to 40% of global carbon emissions. This directly relates to the building material supply chain and the manner in which main building materials are produced. Cement and steel historically make up 30% to 40% of total construction input. Construction activities have been linked to up to 50% of climate change, 40% of global energy usage and 50% of landfill waste. This also extends to air, water and noise pollution and the destruction of natural habitats. The research house’s assessment of the sustainability theme on the overall local construction sector’s environmental, social and governance (ESG) spectrum points to opportunities to further transform and revamp the sector in its post-Covid-19 pandemic recovery phase in 2022 and potentially back to its upcycle phase over the longer-run. If policy and implementation of the various sustainability initiatives under the 12MP and the National Construction Policy 2030 gain greater traction in the later part of the 12MP period (2021 to 2025). This, and with proper planning and execution, could translate into several positives, mainly a revival in private and public sector job flows coupled with the emergence of new infrastructure project proposals beyond the legacy contracts. Other positives include a revisit of other legacy mega developments such as the estimated RM50bil to RM100bil gross development value Bandar Malaysia, the emergence of new growth areas such as those proposed under the RM5bil Penang South Islands project and the rollout of backlog water infrastructure projects. Issues like labour shortage and a continuous rise in raw material prices will continue to impact earnings for some time. 

According to World Bank’s East Asia and Pacific regional vice president Manuela V Ferro, Malaysia needs an underlying structural economic transformation to increase productivity growth. While the country has done relatively well compared to its regional peers, it has lagged its global aspirational peers that have nearly three times the productivity levels. Further, there are significant variations in productivity levels among firms within Malaysia. Pre-pandemic estimates suggest that smaller firms generally lag significantly behind their larger counterparts. Firms in the top 25% of the productivity distribution are nearly 12 times more productive than those in the bottom 25%. The pandemic has further exacerbated these differences. In recent years, spending on research and development (R&D) activities in Malaysia has decreased after a steady increase until 2016. Gross public expenditure on R&D has dropped from 1.4% of gross domestic product (GDP) in 2016 to 1.0% of GDP in 2018. This falls short of Malaysia’s envisaged goal of 2.0% of GDP and the Organisation for Economic Co-operation and Development (OECD) average of 2.6%. The World Bank also found that Malaysian firms are also less likely to spend on R&D compared to their regional peers. Its engagement with the government has provided opportunities to look at relevant policy areas to assist in charting a path forward. One aspect of this which it focussed on in its recent work relates to increasing small and medium enterprises’ (SMEs) contribution to Malaysia’s economic growth. Based on analysis undertaken in the ‘SME Program Review’, Malaysia could consider realigning its public support for SMEs to not only enable a private sector-led recovery from the pandemic but also support firm-level innovation. Another World Bank study titled ‘Assessment of the Malaysian Start-Up Financing Ecosystem’ revealed that Malaysia’s venture capital activities are relatively low compared to the region, in relation to its level of economic development. Thus funding activities are performing below potential, affecting investible deal flow down the line. As public support is concentrated on the more advanced stages of innovative activities, she called for a possible need to rebalance this to earlier and hence the riskier stages of the innovation cycle. Meanwhile, the assessments on the effectiveness of public research institutions found that while the linkages between academia and industry have increased over time, it broadly remains weak, hence affecting commercialisation of research outputs. It has been encouraging to see that in response to the report’s recommendations, the government established a Research Management Unit to reorient its technology transfer and commercialisation programmes to be more responsive to industry needs. Based on the reports, the World Bank recommended the government to enhance evidence-based policymaking for SME development by increasing monitoring and evaluation of government programmes and coordination among agencies, to recalibrate SME programmes to support needs on digitalisation and skills upgrading, and to rebalance the policy mix towards the ideation stage with programmes that crowd in private investments. 

SC registers two initial exchange offering operators 

The Securities Commission Malaysia (SC) has registered two initial exchange offering (IEO) operators to promote responsible innovation in the digital space. The two IEO operators are Kapital DX Sdn Bhd and Pitch Platforms Sdn Bhd. The registered IEO operators will provide an alternative avenue for eligible companies to raise funds via the issuance of digital tokens in Malaysia. An issuer may raise funds up to RM100 million from retail, sophisticated, as well as angel investors, subject to the investment limits provided in the SC’s Guidelines on Digital Assets. These new operators will be required to carry out the necessary assessments, among others, to verify the issuer’s digital value proposition, review the issuer’s proposal and disclosures in its whitepaper, and undertake a comprehensive due diligence on the issuer and its token offering, prior to hosting the issuer’s digital token on their platform. In addition, they will be given up to nine months to comply with all the regulatory requirements before commencing operations, and these include putting in place a robust and effective Anti-Money Laundering/Combating the Financing of Terrorism (AML/CFT) process to mitigate Money Laundering and Terrorism Financing (ML/TF) risks. Furthermore, the SC reminded members of the public that they are not permitted to offer, issue or distribute any digital assets — which have been prescribed as securities in Malaysia — without obtaining a registration or authorisation from the SC. In this regard, a person convicted may be liable to a fine not exceeding RM10 million or imprisonment for a term not exceeding 10 years or both. Members of the public are also advised to be mindful of the risks related to investing in digital assets, including risks of investing on platforms not registered with the SC. 

Eye On The Markets 

This week, on Friday (25Mar), the Ringgit opened at 4.2225 against the USD from 4.1975 on Monday (21Mar). Meanwhile, the Ringgit was 3.1112 to the Sing Dollar on Friday (25Mar). On Monday (21Mar), the FBM KLCI opened at 1588.07. As at Friday (25Mar) 10:00am, the FBM KLCI is up 11.88 points for the week at 1599.95. Over in US, the overnight Dow Jones Industrial Average closed up 349.44 points (+1.02%) to 34,707.94 whilst the NASDAQ added 269.23 points (+1.93%) to 14,191.84.  

Resilient rental income & increase in footfall a boost to REITs performance – Maybank Research 

INVE$T | Market Sentiments

Download INVE$T #99

According to Maybank Research, there are expectations of an eventual earnings recovery for retail and hospitality real estate investment trusts (REITs) in Malaysia this year. This will be driven by lower rental assistance and the soon re-opening of international border gates. It remains selectively positive on the REITs with industrial properties, prime malls and office with long-term tenants where earnings will be supported by resilient rental income and sustained occupancy rates. The recent Q42021 results showed the REITs were mostly performing above expectations. The average core net profit growth seen were to the tune of 31% year-on-year (y-o-y) and 99% quarter-on-quarter. Growth was mainly supported by the retail assets due to easing of movement restrictions and also long-term office tenants. However, there is limited rental growth potential over the short-to-medium term for retail malls and offices. Given the expectations, it has maintained its “neutral” call on the sector. Its selective buy calls are on Axis REIT, Sentral REIT, Pavilion REIT and KLCC REIT. The sector offers 2022 and forecast 2023 average net dividend per unit yields of 5.5% and 6.7% respectively. Their top buy pick is Axis REIT which offers a 5.6% forecast net yield for 2022. Sentral REIT, Pavilion REIT and KLCC REIT offers 7.6%, 5.2% and 4.9% forecast yields respectively. Also there was a recovery seen in the retail footfall levels with the easing of pandemic restrictions. The retail segment saw encouraging recovery in retail footfalls and retail sales, with prime malls recording almost pre-pandemic levels, boosted by the festive seasons. Core net profit for REITs with shopping malls saw a jump of up to 41% y-o-y quarterly earnings, mainly due to lower rental rebates. The research house expects a progressive recovery for the retail sub-segment this year from a reduction in rental assistance. However, outlook for rental reversion remains muted. Meanwhile, any overnight policy rate which may rise at the end of this year would marginally nudge lower selected REITs bottom lines by an average of 1%. As at end-2021, their coverage’s debt base was at a circa 47% comprised of floating rate debt, with average interest cost in 2021 having ranged between 2.8% to 4.3%. 

Listed companies’ market cap climbed to RM1.81 trillion – Bursa Research  

According to Bursa Malaysia Bhd’s research arm Bursa Digital Research, the total market capitalisation of companies listed on the bourse climbed 4.4% to RM1.81 trillion as at Feb 28, 2022 from a month earlier due to buying in the energy and plantation sectors as crude oil price topped US$100 per barrel while crude palm oil breached RM7,000 a tonne. In its latest trade performance and fund flow report, it states that in February 2022, average daily trading volume (ADV) across Bursa rose 36.8% to RM2.77 billion, with growth recorded across all investor segments. Foreign investors accelerated the buying with an inflow of RM2.84 billion (+RM2,843 million) compared with +RM332 million in January. 

MOF, BNM, SC to formulate framework on consumer credit regulation 

According to Deputy Finance Minister II Yamani Hafez Musa, the Ministry of Finance (MoF), Bank Negara Malaysia (BNM) and the Securities Commission (SC) are spearheading collaborations with relevant agencies to formulate a comprehensive legal framework to regulate all consumer credit activities, including the “Buy Now Pay Later” (BNPL) scheme. The framework would be set in place with the enactment of the Consumer Credit Act (CCA) this year. With the CCA, all credit and BNPL providers will be subject to relevant regulations that also encompass risk control and consumer protection as well as the appropriate Shariah-compliance rules in performing BNPL activities. The government expects to see more new innovations in line with the digital acceleration but these innovations would need to be well regulated. He said this during the Dewan Rakyat sitting in reply to a question from Lukanisman Awang Sauni (Sibuti-GPS) on the BNPL purchasing method on the online trading platforms, stressing that currently, BNPL activities are not being regulated by any agency. As such, consumers are advised to understand the BNPL’s terms and conditions, ensure that instalment payments are made in full and on time, and monitor their BNPL commitments to ensure that their personal debts remain manageable.  

Eye On The Markets 

This week, on Friday (18Mar), the Ringgit opened at 4.1955 against the USD from 4.1970 on Monday (14Mar). Meanwhile, the Ringgit was 3.0994 to the Sing Dollar on Friday (18Mar). On Monday (14Mar), the FBM KLCI opened at 1570.70. As at Friday (18Mar) 10:00am, the FBM KLCI is up 14.40 points for the week at 1585.10. Over in US, the overnight Dow Jones Industrial Average closed up 417.66 points (+1.23%) to 34,480.76 whilst the NASDAQ added 178.23 points (+1.33%) to 13,614.78. 

Malaysia’s foreign portfolio inflow hit six-month high in Feb – UOB

INVE$T | Market Sentiments

Download INVE$T #98

According to UOB Global Economics and Market Research analysts Julia Goh and Loke Siew Ting, Malaysia’s foreign portfolio inflow, comprising the combined value of net foreign purchases in the country’s debt and equity markets, rose to its highest in six months at RM5.9 billion in February from RM3.8 billion the month prior. Both Malaysian debt and equity markets saw net foreign purchases of RM3.1 billion and RM2.8 billion respectively in February from RM3.5 billion and RM0.3 billion in January. Year to date, foreign portfolio inflows amounted to RM9.7 billion in the first two months of 2022, slightly higher than the RM9.2 billion inflows recorded in Jan-Feb 2021. It was driven by resilient demand for the debt securities (at +RM6.6 billion vs +RM10.9 billion in Jan-Feb 2021) and a return of buying interest in equities (at +RM3.1 billion vs -RM1.7 billion in Jan-Feb 2021). February’s foreign debt inflows were driven by all sub-debt instruments, led by government investment issues (GII). Non-resident holdings of Malaysian government bonds (MGS), jumped for the third straight month by RM2.2 billion to a new all-time high of RM240.4 billion as at end-Feb (end-Jan: +RM4.3 billion to RM238.2 billion). It is equivalent to 25.3% of total government bonds outstanding (end-Jan: 25.5%). Foreign holdings of MGS alone also marked a new all-time high of RM194.6 billion even though just RM500 million worth of MGS were snapped up in February. This brought overseas investors’ shareholding of MGS to 39.3% of total MGS outstanding (end-Jan: 39.6%). Similar to GII, foreign investors raised their holdings by RM1.7 billion to a new record high of RM45.8 billion (end-Jan: -RM0.3 billion to RM44.2 billion), which made up 10.5% of total GII outstanding (end-Jan: 10.4%). Risk-off sentiment and sky-rocketing commodity prices sparked by the Russia-Ukraine conflict and sanctions are initiating some asset reallocation into commodity producing countries, including Malaysia. However expectations of narrower interest rate differentials, domestic policy uncertainty, constrained fiscal policy space, and increasing downside risks to domestic growth prospects are wildcards for Malaysia’s foreign portfolio flows and currency outlook, should geopolitical risk escalate further. The US Federal Reserve is anticipated to start its rate hike cycle at next week’s Federal Open Market Committee (FOMC) meeting (March 15-16), while most regional central banks including Bank Negara Malaysia (BNM) are projected to begin their monetary normalisation at a more measured pace and later than the US Federal Reserve. This will likely lead to narrower interest rate differential between regional central banks including Malaysia and the US Federal Reserve. Key events to watch out for in March include the ongoing developments of the Russia-Ukraine conflict, March’s FOMC meeting outcome, Johor state election results, as well as BNM’s publication of its Annual Report 2021, Economic and Monetary Review 2021, and Financial Stability Review for 2HFY21 with its latest economic forecasts for gross domestic product and inflation. 

Malaysia attracted record approved investment of RM306.5b in 2021, driven by E&E boom 

According to Senior Minister and International Trade and Industry Minister Datuk Seri Mohamed Azmin Ali, Malaysia attracted a record amount of approved investments worth RM306.5 billion in the manufacturing, services and primary sectors in 2021, driven by higher foreign direct investment (FDI) and increased projects in the manufacturing and the electrical and electronics (E&E) sectors. Malaysia’s FDI of RM208.6 billion accounted for 68.1% of total approved investments, with the remaining 31.9% coming from domestic direct investment (DDI) at RM97.9 billion. Year-on-year, Malaysia’s FDI was significantly higher by 224.9% from RM64.2 billion in 2020, however, DDI declined marginally by 5.13% from RM103.2 billion the year before. The Netherlands (RM78 billion), Singapore (RM47.3 billion), the People’s Republic of China (RM31.3 billion), Austria (RM18.9 billion) and Japan (RM9.9 billion) accounted for 88.9% of total FDI approved in the manufacturing, services and primary sectors. Pulau Pinang (RM83.5 billion) recorded the highest investments approved last year, followed by Kedah (RM68.3 billion), Kuala Lumpur (RM37.7 billion), Selangor (RM28.8 billion) and Sarawak (RM25.7 billion). These five states contributed 79.6% of total approved investments in 2021. The record-breaking approved investments for the manufacturing, services and primary sectors were a 83.1% jump from 2020’s figure. Malaysia’s RM97.9 billion DDI in 2021 is a signal that local industry players had grown in terms of capabilities and business capacity to be competitive on the global stage. MIDA has already secured 352 projects in the pipeline with proposed investments of RM39.2 billion for the manufacturing and services sectors. These projects will create more than 19,000 new job opportunities for the rakyat. Meanwhile, the manufacturing sector led total investments approved in 2021 by recording RM195.1 billion, followed by the services sector and the primary sector at RM94.1 billion and RM17.3 billion respectively. The manufacturing sector reported a leap in approved investments by 113.7% from RM91.3 billion in 2020, while the services and primary sectors saw improvements of 34.4% and 183.6% from RM70 billion and RM6.1 billion respectively. Notably, the E&E industry contributed the bulk of the FDI as well as total approved investments within the manufacturing sector by recording RM148 billion for 94 approved projects.  Chief among the E&E industry’s RM148 billion in total approved investments included RM42.2 billion from Risen Solar for the design development and manufacturing of solar modules and solar cells, followed by Intel Electronics’ RM30 billion to produce wafer fabrication and stacked dies in Pulau Pinang, AT&S’ RM8.5 billion to establish design development and manufacturing of integrated circuit substrates in the Kulim Hi-Tech Park, and Infineon Technologies’ RM3.25 billion in Melaka. MIDA had secured 75 capital-intensive projects valued at RM100 million and above in 2021, which could spur the growth of new advanced manufacturing technologies and produce a highly skilled workforce. Meanwhile, the services sector’s 34.4% improvement in 2021 was driven by sub-sectors such as real estate (RM28.8 billion), global establishments (RM19.7 billion), financial services (RM12 billion), utilities (RM9.6 billion), and information and communications (RM8.2 billion). The bulk of the primary sector’s approved investments were led by the mining sub-sector’s RM17.1 billion or 98.7% amid higher crude oil and natural gas prices, while the plantation and commodities and agriculture sub-sectors brought in RM211.4 million and RM20.5 million respectively. 

Bursa: Malaysia sees increasing number of new women investors 

According to Bursa Malaysia Bhd chief executive officer Datuk Muhamad Umar Swift, Malaysia continued to see an increasing number of new women investors in the stock market, representing 36% of new Central Depository System (CDS) accounts opened year-to-date. In 2020, 32% of the CDS accounts were held by women, and the number rose to 34% last year. Female investors made up 30% of total trade value in 2021, and women’s total trade volume surged 194.1% between 2018 and 2021. Speaking at the annual Ring the Bell for #EqualityforEquity Campaign in conjunction with the International Women’s Day 2022 celebration on Tuesday (March 8), he said that women have become more actively involved in investing activities. Various studies conducted showed that portfolios managed by women tend to outperform those overseen by their male counterparts. In 2021, a study by Fidelity Investments showed women investors achieved positive returns and surpassed men by 0.4% on average in terms of annual performance between January and December. However there is still room to grow and much needs to be done to further encourage the participation of women investors. Hence, Bursa Malaysia launched the #MyFirstTrade campaign that runs from March 8 until March 31 exclusively for women investors who have a positive story to share. During the period, Bursa and participating brokers will wave respective portions of the opening fee for the first 4,000 CDS accounts opened by women. Bursa provides a fair and open platform where everyone, men or women, can participate in the capital market and corporate space. Bursa has implemented rules for more women representation on the board of directors and will continue with efforts to reduce the gender equality gap in the workplace. 

ICMR launches inaugural book on sustainable finance 

The Institute for Capital Market Research Malaysia (ICMR) launched its inaugural edited book, “Financing Sustainability: Critical Issues with East Asian Experiences.” Led by chief editor, Professor Dato’ Dr. Rajah Rasiah, the book is a compilation of thought pieces contributed by ICMR analysts and regional experts. Together, they offer valuable insights to address the financing of sustainable development to meet the UN’s Sustainable Development Goals (SDGs). In dissecting the experience of a high-income economy and that of some middle and low-income economies in East and Southeast Asia, the book breaks new ground by linking evidence with strategies and mechanisms in countries at different levels of development. The experiences of more developed economies are presented as learning opportunities for less developed ones. The book offers a refreshingly novel account of the different funding alternatives that are now pursued by various socio-economic agents to address sustainability issues worldwide. This goes beyond environmental issues alone to cover financial inclusion, sustainable trade, Islamic finance, as well as the role of corporate governance and pension institutions. Drawing on a careful review of the extant literature and the crafting of policy-relevant strategies, the book is therefore intended to contribute significantly to the literature on sustainable development. It will serve as an essential guide for policy makers and market actors in their quest to promote the financing of sustainability across the globe. The book is published by the University of Malaya Press and can be purchased at www.umpress.com.my. At the conclusion of the event, ICMR and Sunway University, represented by the Jeffrey Sachs Center for Sustainable Development, inked a Memorandum of Understanding to promote greater knowledge sharing on sustainable finance with the hope of working closer together on positive developments in this area. 

Eye On The Markets 

This week, on Friday (11Mar), the Ringgit opened at 4.1890 against the USD from 4.1795 on Monday (7Mar). Meanwhile, the Ringgit was 3.0814 to the Sing Dollar on Friday (11Mar). On Monday (7Mar), the FBM KLCI opened at 1606.27. As at Friday (11Mar) 10:00am, the FBM KLCI is down 44.03 points for the week at 1562.24. Over in US, the overnight Dow Jones Industrial Average closed down 112.18 points (-0.34%) to 33,174.07 whilst the NASDAQ shed 125.58 points (-0.95%) to 13,129.96.  

EPF allocates RM1bil for investment opportunities in pre-IPO space

INVE$T | Market Sentiments

Download INVE$T #97

According to The Employees Provident Fund (EPF) CEO, Datuk Seri Amir Hamzah Azizan, the fund aims to venture into the private equity pre-IPO space in 2022. There is not enough stimulus going into Bursa Malaysia as there seems to be an “investment trap” – a funding gap between the time a company moves from the venture capital market and enters the pre-initial public offering (IPO) stage. This gap presents investment opportunities. Towards the later stage of the pre-IPO, EPF can play a role as it can manage the risk element and get fairly good returns for the members and in that process, it can also help generate the engine that feeds into Bursa. He was speaking at the fund’s FY2021 results media briefing. For this endeavour, EPF will be working with specific funds to promote and look into opportunities in that particular stage. The move will also stem the shifting of companies to outside Malaysian waters. Nonetheless EPF needs to deliver its core mandate and in that mandate, it will not take abnormal risks and the investments have to fit its risk investments tolerance levels. For 2021, EPF has declared a 6.10% dividend for conventional savings which translates into a total payout of RM50.45 billion and syariah savings receive a 5.65% dividend, amounting to RM6.27 billion. The latest dividends surpass the 5.2% and 4.9% payouts for conventional and syariah savings reported for 2020, as well as the 5.45% and 5.0% for the pre-pandemic year of 2019, respectively. The strong results were attributed to the continued market recovery in 2021, particularly in the developed markets, which contributed to its listed equity portfolios, providing opportunities for it to realise profits. Equities, particularly foreign-listed equities, which recorded a return on investment (ROI) of 10.44%, continued to be the driver of returns. For 2022, the fund will be increasing its investments in various domestic asset classes. The reopening of economies and businesses, as well as various initiatives under the National Economic Recovery Plan, would provide fertile ground for the EPF to increase its investment efficiencies and leverage on the opportunities that a recovery brings. Due to the complications from the Covid-19 pandemic, the fund received a mandate to allow early withdrawals for its members via i-Lestari, i-Sinar and i-Citra that collectively saw RM100.9 billion withdrawn from EPF between April 2020 and February 2022. EPF had to manage liquidity due to the withdrawals and the best way to manage this was by repatriating its investments in the international market as EPF has a diverse portfolio and won’t rattle the market. If there were no withdrawal schemes, there’s a likelihood the fund could have stayed a bit longer in the international market and had the potential to ride the market as it crested. Now that the schemes have ended the fund will continue to go back and invest both domestically and internationally, continue to design a portfolio that will give risk reward returns that its normal Strategic Asset Allocation will give. On projections for 2022, he said it is too early to tell, but assured contributors that the fund does not have any direct exposure to any interest in Ukraine or Russia, hence there is no material impact from the conflict. When the Ukraine-Russia situation occurred, the market gyrated a little bit and it has since recovered to where it was, save for oil prices. The key is to understand what the long-term ramification of that is and make sure we have the agility in our portfolio to address that. EPF can make money whether the market moves up or down, depending on its volatility play, as it has a long-term investment horizon. For example, when the market goes down, it can take the opportunity to buy good long-term assets at the favourable prevailing price. By asset class, EPF’s fixed income instruments account for 45% of investments, followed by equities at 44%, real estate & infrastructure is at 6% and money market instruments make up the remaining 5%. 

OPR kept unchanged at record low of 1.75% – BNM 

According to Bank Negara Malaysia (BNM), its Monetary Policy Committee (MPC) decided to maintain the overnight policy rate (OPR) at 1.75% as it evaluated various factors including the Russia-Ukraine conflict, which has emerged as a key risk to global economic growth, trade prospects, commodity prices and financial markets. It is also mindful of lingering concerns over the Covid-19 pandemic. For Malaysia, risks to the country’s economic growth outlook remain tilted to the downside due to external and domestic factors while Malaysia’s inflation in 2022 is projected to remain moderate. The MPC considers the current stance of monetary policy to be appropriate and accommodative. Fiscal and financial measures will continue to provide support to economic activity. Amid the prevailing uncertainties, the stance of monetary policy will continue to be determined by new data and their implications on the overall outlook for domestic inflation and growth. The OPR has been maintained at 1.75% since July 7, 2020, when BNM cut the rate from 2%. While the global economy continues to recover and the recent moderation in economic activity due to the Omicron variant-driven Covid-19 resurgence, the overall recovery trajectory remains on track. Inflation in many economies remain elevated, due to both demand and supply factors. Going forward, more countries will transition to endemic management of Covid-19, hence, supporting global growth prospects. The unfolding developments surrounding the military conflict in Ukraine, however, have emerged as a key risk to global growth and trade prospects, commodity prices and financial market conditions. The global growth outlook will also continue to be affected by developments surrounding Covid-19, risks of prolonged global supply disruptions, and heightened financial market volatility amid adjustments in monetary policy in major economies. Despite the challenging environment, the Malaysian economy expanded by 3.1% in 2021 from a year earlier. Looking ahead, Malaysia’s economic growth recovery will strengthen in 2022, driven by the expansion in global demand and higher private sector expenditure, amid improvements in the labour market and continued targeted policy support. The expected reopening of international borders would also provide further support to economic recovery. The economic impact from the recent increase in Covid-19 cases due to the Omicron variant is expected to be considerably less severe than previous waves in the absence of stringent restrictions. Risks to Malaysia’s economic growth outlook remain tilted to the downside due to external and domestic factors. These include a weaker-than-expected global growth, ongoing geopolitical conflicts, worsening supply chain disruptions, and developments surrounding Covid-19. Malaysia’s 2022 headline inflation, as measured by the consumer price index, is projected to remain moderate as the base effect from fuel inflation continues to dissipate. The country’s core inflation is expected to normalise to around its long-term average as economic activity continues to pick up amid the environment of high input costs. Nevertheless, core inflation is expected to be modest, with the upside risk partly contained by the continued slack in the economy and labour market. The inflation outlook continues to be subject to global commodity price developments amid risks from prolonged supply-related disruptions. 

Malaysia’s GDP to grow by 6pc in 2022 – MIDF Research 

According to MIDF Research, Malaysia’s gross domestic product (GDP) is expected to grow stronger at six per cent in 2022 from 3.1 per cent for 2021, mainly driven by further reopening of the economy such as lifting the ban on international travels which will support a better growth outlook this year. The research firm said that with high vaccination rate, there is less need for the government to tighten COVD-19 restrictions given the ability of the healthcare system to withstand the recent resurgence in Covid-19 infections. Therefore the momentum of growth will continue to strengthen this year, backed by growing domestic spending, improving labour market and increased business activities. In its Monthly Economic Review, it said sustained growth in external demand will also support Malaysia’s trade and production activities this year. Near-term growth outlook remains positive as growth momentum seen improving with the leading index (LI) increasing to 2.1 per cent year-on-year (y-o-y) in December 2021 compared to 1.6 per cent in November 2021, buoyed by the increment in the number of housing units approved, indicating increased business activities going forward. Although the Ukraine-Russia conflict will not have a direct significant impact to Malaysia’s trade, prolonged disruption in the global supply chain, rising commodity prices and higher import costs will be among downside risks to growth outlook. Meanwhile, Malaysia’s total trade in January 2022 stood at RM203 billion or 24.8 per cent y-o-y higher than January 2021, driven by sustained growth in both exports and imports. Exports rose at 23.5 per cent y-o-y in January 2022, sustaining double-digit growth for the sixth straight month. The pace of exports growth was, however, more moderate than December 2021 (29.2 per cent y-o-y), reflecting the moderation in manufacturing exports and similar trends observed in regional exports. Imports growth accelerated to 26.4 per cent y-o-y compared to December 2021 at 23.6 per cent y-o-y and maintained two-digit growth since February 2021, mainly due to the low base effect as imports previously weakened in January 2021 because of movement control order 2.0. On Malaysia’s headline inflation rate, January 2022 headline inflation recorded a four-month low, where it eased to 2.3 per cent y-o-y compared to 3.2 per cent y-o-y in December 2021, dragged by lower price growth of non-food. Core inflation remained on upward momentum, rose by 1.6 per cent y-o-y, the fastest pace in two-years. The continuous pick-up in core consumer price index indicates the revival effects of growing domestic demand on general prices amid moderate recovery in labour market and economic reopening. On sequential basis, overall inflation data rose at marginal pace. The softening pace seen in headline inflation is expected following dissipating low-base effects especially from transport inflation. 

Eye On The Markets 

This week, on Friday (4Mar), the Ringgit opened at 4.1900 against the USD from 4.2010 on Monday (28Feb). Meanwhile, the Ringgit was 3.0808 to the Sing Dollar on Friday (4Mar). On Monday (28Feb), the FBM KLCI opened at 1595.74. As at Friday (4Mar) 10:00am, the FBM KLCI is up 8.19 points for the week at 1603.93. Over in US, the overnight Dow Jones Industrial Average closed down 96.69 points (-0.29%) to 33,794.66 whilst the NASDAQ shed 214.07 points (-1.56%) to 13,537.94.