INVE$T | Market Sentiments
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.