Businesses positive on 2Q prospects but remain cautious – DOSM

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According to the Department of Statistics Malaysia’s (DOSM) chief statistician Datuk Seri Dr Mohd Uzir Mahidin, businesses remain positive about their prospects for the second quarter of 2022 (2Q22) as well as for the six-month period to September 2022. Going into 2Q22, businesses are positive albeit at a slower pace, with a confidence indicator of +3.5% for the quarter against +7.6% in 1Q22. Despite the reopening of Malaysia’s international borders, which is anticipated to spur economic activities, businesses stay cautious about their prospects amid inflation pressure, supply chain and labour shortage issues. Except for construction, all sectors surveyed anticipated better business conditions in 2Q22. The wholesale and retail trade sector is the most optimistic on its business outlook. The sector’s confidence indicator has increased for three quarters in a row, with +15.5% in 2Q22 from +4% in the preceding quarter. Based on the quarterly business tendency survey, brighter sentiment in both the wholesale trade sub-sector as well as the retail trade sub-sector led to this improvement. Meanwhile, the services sector predicted the business situation to improve at a moderate rate, posting a confidence indicator of +5.6% compared with +11.1% in 1Q22. As for the industry sector, it expects its business performance to grow at a slower pace in 2Q22 with an indicator of +0.8% compared with +12.2% in the preceding quarter. The agriculture and mining sub-sectors, in particular, anticipated unfavourable business conditions in 2Q22. Meanwhile, the construction sector remained pessimistic but its confidence indicator improved to -23.2% compared with -40.4% in 1Q22. He added that 45.2% of the survey respondents predicted that their gross revenue would rise in 2Q22, while 19% expect a reduction, leading to a net balance of +26.2%. The rest of the respondents (35.8%) anticipated gross revenue to stagnate. For the same quarter, 72.2% of the businesses expect their manpower to stay the same despite showing a net balance of +10.8%. Of the businesses, 19.3% intend to hire more manpower in 2Q22, while 8.5% have planned a reduction. On expectations of business performance for the upcoming six months (April to September 2022), businesses also remained optimistic about their outlook with a net balance of +25%, up slightly from the +18.9% recorded previously. This was attributed to better sentiments in the wholesale and retail trade, industry and services sectors. 

Sub Title: Businesses need tech-enabled shopping experiences to woo Malaysian consumers, some of the most discerning in the world – ADYEN 

According to Priyanka Gargav, ADYEN’s Head of Commercial, Southeast Asia & Hong Kong, despite challenges posed by the pandemic, the Malaysian retail industry proved its resilience in 2021, with 71% of Malaysian businesses across the retail, food and beverage, and hospitality sectors growing their revenue by 20%. Malaysian companies that outperform competition are those reaping the benefits of investing in digital transformation – an opportunity now worth MYR 334 billion. The Adyen Malaysia Retail Report 2022, commissioned by Adyen and sponsored by KPMG, interviewed over 40,000 consumers across 26 markets, including 1,000 from Malaysia, to understand how they feel about the state of retail. It also surveyed 11,500 businesses across 23 countries, including 500 from Malaysia, to learn about their concerns, aspirations, strategies, and investments for 2022 and beyond. 

One key finding from the report was that over 1 in 4 businesses connected payment systems to other parts of the organization, such as inventory management and supply chain, to improve operations and break down silos in backend processes. As a result, 60% of businesses are now in a better position. This is 11% above the global average and the highest in APAC. Specifically, companies that connect payment systems with other sections of their business grow 18% more than those that do not. This shift has given Malaysian consumers a real taste for technology. 80% of consumers believe retailers used technology well to make their products available during the pandemic. The majority believe that retailers should deliver the same cross-channel flexibility they provided during the pandemic (77%) and use technology to improve loyalty/rewards schemes (90%). These figures are both 16% above the APAC average. Falling short of these expectations could spell trouble, as 81% of consumers will not shop with businesses that have a bad shopping experience, either online or in store, 11% above the global average. 

Businesses intend on continuing to ride the digital wave, with 97% planning to invest in business improvement over the next year. The acceleration of digital transformation will contribute an additional 5.6% to the total growth of Malaysia’s retail sector over the next five years. Malaysian businesses have proven their resilience and adaptability during the pandemic, and their future is bright. Malaysian consumers’ love for tech-enabled, seamless shopping experiences stands out on a global level and the time is ripe for retailers to capitalize on the MYR 334 billion opportunity in digital transformation. Many retail players have unlocked the promise of unified commerce as a strategic growth driver and its exciting to see the retail industry in Malaysia reach greater heights in 2022.  

Physical stores will stay — but the role of the store is changing  

More than any other market surveyed, Malaysian consumers believe online shopping is about convenience, but physical stores are for shopping for pleasure (76%). One way to meet their expectations is through melding online and offline realms to create new customer experiences. In fact, 87% of consumers are more likely to shop with retailers that use technology to enhance the customer experience, 32% above the global average. The report also uncovered an area for growth: 74% of consumers would be more loyal to retailers that enabled them to buy things online and return them in store, though only 30% offer this service. While Malaysia is ahead of the global and APAC averages in offering this functionality, there is room for improvement. 

The untapped potential in real time payments data 



In line with Malaysians’ preference for digitized shopping experiences, they are above the average in wanting more tailored and personalized interactions. 67% prefer retailers who remember preferences and previous shopping behaviors to create a more tailored shopping experience and 66% like personalized adverts or suggestions. This is 20% and 21% above the global average respectively. Fortunately, Malaysian businesses are among the best at using data to inform decision making and engage customers. Currently, 39% of businesses use payments data to build a better picture of their customers, 12% above the global average.  
When doing so, businesses must prioritize safeguards to protect customer data and address consumer concerns around privacy. Half of Malaysian consumers will only allow their data to be stored and used by retailers if there are assurances around security and privacy, while almost half of them (45%) believe retailers shouldn’t be able to use their data/purchase behaviour information unless they give permission. With more businesses looking to embrace digitalization and Malaysian consumers’ preference for technology to permeate the in-store experience, businesses in 2022 are optimistic about the future. The impressive resilience and adaptability of Malaysia’s retail industry will likely be key themes even beyond the pandemic 

Eye On The Markets 

This week, on Friday (27May), the Ringgit opened at 4.3925 against the USD from 4.3893 on Monday (23May). Meanwhile, the Ringgit was 3.1993 to the Sing Dollar on Friday (27May). On Monday (23May), the FBM KLCI opened at 1553.15. As at Friday (27May) 10:00am, the FBM KLCI is down 15.67 points for the week at 1537.48. Over in US, the overnight Dow Jones Industrial Average closed up 516.91 points (+1.61%) to 32,637.19 whilst the NASDAQ added 305.91 points (+2.68%) to 11,740.65. 

Foreigners bought RM56.9m on Bursa last week – MIDF Research

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According to MIDF Research, foreign investors turned net buyers again after a week of net selling the week before, with net inflows summed up to RM56.9 million last week. Local retailers remained net buyers for the fifth consecutive week at RM234.8 million while local institutions turned net sellers after a week of net buying with a net selling position of RM291.8 million last week. To date, international funds have been net buyers for 15 out of the 19 weeks of 2022, with a total net inflow of RM6.98 billion. They were net sellers on Wednesday and Thursday, at RM2.08 million and RM145.2 million, respectively. Local institutions were net sellers on all the trading days last week, except on Thursday where they were net buyers to the tune of RM41.38 million. The highest net selling was recorded on Tuesday at RM200.67million, and the smallest net selling on Wednesday at RM40.44 million. They have been net sellers for 16 out of 19 weeks this year. To date, they have sold RM8.1 billion of equities. Local retailers were net buyers on all trading days of the week with the highest net buying on Thursday at RM103.83 million, and smallest net buying on Tuesday, at RM21.34 million. In terms of participation, foreign investors saw a decrease in the average daily trade value by 24.76%. Local retailers saw a decline of 6.9% while local institutions saw an increase of 9.49%. 

OPR decision due to inflation pressures – Moody’s 

According to Moody’s Analytics, Bank Negara’s surprise decision to increase its overnight policy rate (OPR) by 25 basis points to 2% from 1.75% came on the back of rising inflation pressures. The Russian invasion of Ukraine, together with China’s zero-Covid policy, has caused supply-chain disruptions and an uptick in global commodity prices. Several central banks are expected to adjust monetary policy settings ‘at a faster pace’, hinting at concerns over capital outflows and the weakening ringgit. Given that the country’s borders had fully reopened on April 1, Bank Negara now expects the economy to strengthen. Domestic Covid-19 restrictions have also largely been lifted, allowing consumer and investor spending to pick up. Inflation remains relatively subdued, and this renders the central bank’s move largely pre-emptive. Higher food and fuel prices pushed the consumer price index to 2.2% year-on-year (y-o-y) in March. In comparison, consumer prices in neighbouring Singapore, Thailand and the Philippines rose between 4.5% and 5.5% in April. Being a net exporter of oil, Malaysia could afford to subsidise its domestic prices to ward off price increases due to the high oil price. Nonetheless, the country is subjected to rising food prices, which has been exacerbated by the Russian invasion of Ukraine. The price of food and non-alcoholic beverages had soared 4% y-o-y in March, on par with the rest of the Asia-Pacific region. Malaysia’s gross domestic product for the first quarter of 2022 came in stronger than expected at 5% compared to its previous quarter’s performance – the fourth quarter of 2021 – which was 3.6% y-o-y. Industrial production grew 5.1% y-o-y in March, compared with a 4% increase in February. 

Malaysia not at risk of recession – Finance Minister 

According to Finance Minister Tengku Datuk Seri Zafrul Abdul Aziz, Malaysia is not at risk of recession and is on track to meet forecast economic growth targets of between 5.3% and 6.3% this year. The country’s economic growth would be supported by the government’s expansionary fiscal policy as well as accommodative monetary policy. The current talk of a global recession was premature and unwarranted, and Malaysia would see further growth momentum in the second quarter after recording a strong first-quarter gross domestic product growth of 5%. However, he remains wary of potential downside. There is a potential risk due to the war in Ukraine, high commodity prices and global monetary policy tightening. As a result, the government will need to ensure adequate fiscal flexibility in the future to manage such risks. This is why he intends to gradually reduce the fiscal deficit from 6.4% in 2021 to 6% in 2022 and also rationalise the subsidies to be more targeted. Failure to meet debt obligations was a major risk for countries in the event of a global recession but it was not a risk for Malaysia, as the risk was mitigated due to its low exposure to external debt, with less than 3% in foreign currencies. Malaysia had ample liquidity to finance the government and private sector borrowing needs. 

Eye On The Markets 

This week, on Friday (20May), the Ringgit opened at 4.3965 against the USD from 4.3950 on Tuesday (17May). Meanwhile, the Ringgit was 3.1839 to the Sing Dollar on Friday (20May). On Tuesday (17May), the FBM KLCI opened at 1555.68. As at Friday (20May) 10:00am, the FBM KLCI is up 0.85 points for the week at 1556.53. Over in US, the overnight Dow Jones Industrial Average closed down 236.94 points (-0.75%) to 31,253.13 whilst the NASDAQ shed 29.66 points (-0.26%) to 11,388.50. 

BETTER RISK-REWARD IN SMALL AND MID-CAPS – RHB RESEARCH

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According to RHB Research analyst Lee Meng Horng, it is time to be nimble in small and mid-caps on Bursa Malaysia given the better risk-reward ratio on current forward price to earnings (P/E). Both the FBM 70 and FBM SC are trading below their five-year means, and at about two times P/E discounts to that of the FBM KLCI — based on RHB’s stock coverage universe. In addition, the valuation of the MSCI Malaysia Small Cap Index is on par with the MSCI benchmark index, reversing the trend of the outperformance of small-cap indices in the past two years. This came as investors refocused on value-oriented big caps amid rising interest rates and greater market volatility. It is time to go long in this current sell-down with the expectation of a range-bound market amid a volatile backdrop and below-mean valuation. The investor’s strategy should be two-pronged — rotational play on sectors and bottom-up stock-picking — while continuing to look for ideas based on unique turnarounds, event-driven catalysts, exporters and politically linked thematic plays. The research house has a preference for the consumer discretionary, technology, logistics, oil and gas, and plantation sectors. The outperformance of the FBM SC (+5.3% year to date) continues in 2022, despite the market being range-bound overall in the absence of major positive catalysts, while uncertainties from external events linger. The FBM SC’s stronger performance has been underpinned by commodity-related stocks that benefited from the surge in various commodity prices. On the other hand, the FBM 70 (-5.8% year to date) has underperformed the FBM KLCI (-0.2% year to date) so far this year, as heavyweights that consist of mainly technology sector-related stocks took a beating amid high inflation and rising interest rates. The return of foreign fund inflows has supported the FBM KLCI so far, thanks to the Malaysian market’s defensive attributes, while the spike in commodity prices has been a boon. The market liquidity has declined, with the cautious tone from local institutions and a lack of participation from retail investors — further exacerbated by the risk-averse sentiment casting a further pall on the market. These factors were partially cushioned by the return of foreign fund inflows. Compounded by the resumption of intra-day short selling (IDSS), the market has witnessed a rather volatile market in the first quarter of 2022, especially for the small-mid cap space. In fact, year-to-date traded value for the FBM 70 and FBM SC declined by 32% and 61% respectively. Against the backdrop of a full-blown economic recovery in 2022, and supported by in-house gross domestic product (GDP) growth forecast of 5.5% year on year, certainly there are companies that are expected to perform well and record growth. However market volatility is expected to remain high for a large part of 2022, no thanks to the fluid situation and prevailing uncertainties. The upside is capped, as the expectation of a broad-based economic recovery seems priced in, while the downside continues to be supported by bottom-fishing activities. A ‘buy’ at the support level and ‘sell’ at the resistance level approach could thrive.  

BNM raises OPR to 2% from record low of 1.75% 

Bank Negara Malaysia’s (BNM) Monetary Policy Committee (MPC) on Wednesday (May 11) increased the overnight policy rate (OPR) by 25 basis points to 2% from a record low of 1.75% as global inflationary pressures have increased sharply and after taking into account that the sustained reopening of global economy and improvement in labour markets continue to support the recovery of economic activity from the impact of Covid-19-driven movement restrictions. The ceiling and floor rates of the OPR’s corridor are correspondingly increased to 2.25% and 1.75% respectively. Inflationary pressures have increased sharply due to a rise in commodity prices, strained supply chains and strong demand conditions, particularly in the US. For the Malaysian economy, latest indicators show that growth is on a firmer footing, driven by strengthening domestic demand amid sustained export growth. The OPR at 1.75% was the lowest dating back to 2004. The sustained reopening of the global economy and improvement in labour market conditions continue to support the recovery of economic activity. The global growth outlook will continue to be affected by the developments surrounding the conflict in Ukraine, Covid-19, global supply chain conditions, commodity price shocks, and financial market volatility. On the Malaysian economy, the latest indicators show that the country’s economic growth is on a firmer footing, driven by strengthening domestic demand amid sustained export growth. The labour market is further lifted by a lower unemployment rate, higher labour participation and better income prospects. The transition to endemicity on April 1, 2022 is expected to strengthen economic activity, in line with further easing of restrictions and the reopening of international borders. Investment activity and prospects have also improved, underpinned by the realisation of multi-year projects and positive growth outlook. However, risks to growth remain, which include a weaker-than-expected global growth, further escalation of geopolitical conflicts, worsening supply chain disruptions, and adverse developments surrounding Covid-19. Malaysia’s headline inflation, as measured by the consumer price index, is projected to average between 2.2% and 3.2% in 2022. Given the improvement in economic activity amid lingering cost pressures, the country’s underlying inflation, as measured by core inflation, is expected to trend higher to average between 2% and 3% in 2022. Nevertheless, upward pressure on prices would be partly contained by existing price controls and the continued spare capacity in the economy. The inflation outlook continues to be subject to global commodity price developments, arising mainly from the ongoing military conflict in Ukraine and prolonged supply-related disruptions, as well as domestic policy measures on administered prices. Looking back over the course of the Covid-19 crisis, the OPR was reduced by a cumulative 125 basis points to a historic low of 1.75% to provide support to the Malaysian economy. The unprecedented conditions that necessitated such monetary actions have since abated. With the domestic [economic] growth on a firmer footing, the MPC decided to begin reducing the degree of monetary accommodation. This will be done in a measured and gradual manner, ensuring that monetary policy remains accommodative to support a sustainable economic growth in an environment of price stability. 

Eye On The Markets 

This week, on Friday (13May), the Ringgit opened at 4.3930 against the USD from 4.3760 on Monday (9May). Meanwhile, the Ringgit was 3.1476 to the Sing Dollar on Friday (13May). On Monday (9May), the FBM KLCI opened at 1563.80. As at Friday (13May) 10:00am, the FBM KLCI is down 19.22 points for the week at 1544.58. Over in US, the overnight Dow Jones Industrial Average closed down 103.81 points (-0.33%) to 31,730.30 whilst the NASDAQ added 6.73 points (+0.06%) to 11,370.96.