Malaysian market still attractive for investors – Bursa CEO

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According to Bursa Malaysia Bhd Chief Executive Officer Datuk Muhamad Umar Swift, Malaysia’s capital market will still be attractive for investors despite the recent monetary tightening globally, particularly for those who have a medium-term investment horizon. Looking at Malaysia, we have a projected GDP growth of around 5.5% for 2022, and it is a compelling story. He was speaking during Bursa Malaysia’s financial results briefing held virtually. Theoretically, there should be a flight to higher yield products when interest rates are increased. That is what we see particularly in the foreign exchange market. That being said, it may also spur interest in the equity market, as there is more clarity. With the ringgit weakening recently, there is an upside potential for investors to invest in Malaysia, given the country’s strong current account surplus. This is a tremendous opportunity for investors, particularly foreign investors, to come to our market over a medium term for potential uplift on foreign exchange, as well as growth of our companies. The ringgit has depreciated by 6.85% to 4.4517 against the US dollar year-to-date. Bursa Malaysia Bhd reported a 33.16% fall in net profit for the second quarter ended June 30, 2022 (2QFY22) to RM59.47 million, from RM88.97 million a year ago, mainly due to lower securities trading revenue. Quarterly revenue declined 22.55% to RM151.89 million, from RM196.1 million previously. Bursa’s average daily trading value for 2QFY22 also fell by 42% to RM2.23 billion, from RM3.86 billion. For 1H2022, Bursa’s net profit dropped 39.42% to RM127.44 million, from RM210.36 million in the previous year’s similar period, amid lower operating revenue — down 26.4% to RM309.4 million from RM420.2 million — amid a decline in securities trading revenue. Six-month revenue declined 25.96% to RM317.185 million, from RM428.37 million previously. Also speaking at the briefing was Bursa Malaysia Chairman Tan Sri Abdul Wahid Omar who said that Malaysia’s economic growth is expected to be supported by firm domestic demand and this could potentially lift investor sentiment and boost stock market performance. While Bursa Malaysia remains committed to long-term market development through products and ecosystem enhancement, the bourse will also focus on a number of items to help boost market sentiment and sustain foreign investors’ interest in the short-term. 

Banks remain resilient in economic uncertainties – RAM 

According to RAM Ratings banking sector specialist Amy Lo, he local banking system could continue to deliver resilient performance in the coming year although global and domestic conditions have become more uncertain. Sturdy capitalisation and strong provisioning buffers have put banks in a good position to cope with fresh macroeconomic headwinds from the spill over effects of the Russia-Ukraine war. The majority of bank ratings is expected to stay intact in the next 12 months. Any rating action will likely be prompted by bank-specific challenges, rather than broad industry concerns. She was speaking at the RAM Insight Series webinar titled “Banking Sector: Gearing up for the next challenge”. The agency expects loan growth to come in at 4.5% to 5% in 2022 (2021: 4.5% growth), driven by both household and business loans. Loan applications began to pick up in the fourth quarter of 2021, underpinned by pent-up demand and the reopening of the economy. Bank Negara’s two recent 25 basis point (bps) overnight policy rate hikes and another 25 bps increase expected in the second half of 2022 may dampen credit demand, but should not derail the loan growth momentum. 

Country on firm recovery path – domestic and external factors to drive growth – BNM 

According to Bank Negara governor Tan Sri Nor Shamsiah Mohd Yunus, Malaysia’s economy is firmly on a recovery path supported by domestic and external demand. The economy is expected to grow steadily in 2022 and 2023 despite the challenges from rising cost pressures, the Russia-Ukraine military conflict and China’s strict Covid-19 containment measures. The country is benefiting from the strong demand for its exports especially electrical and electronics, commodity-based and other diversified export products. The global market will continue to support the country’s export growth. Based on observation, we are seeing increased strength in domestic demand, domestic spending particularly consumers’ expenditure, of which retail sales, debit card transactions and consumer goods imports have exceeded pre-pandemic levels. She was delivering her keynote address at the 12th International Conference on Financial Crime and Terrorism Financing 2022. She noted the strengthening job market has benefited the country’s economy and 26,000 new jobs were created in the first three months of this year – similar to the pre-pandemic level. Simultaneously, job vacancies and wages are also rising, which would further reinforce the recovery in domestic demand going forward. On rising prices, the current situation is a global phenomenon and Malaysia is impacted due to the indirect effect of high global commodity prices as they are the key driver for the rise in producer input costs. Inflation development in Malaysia was reflected by the pass-through of some of these costs as well the strengthening domestic demand. Consequently, although the headline inflation is projected to remain low and stable to range between 2.2% and 3.2% this year, core inflation increased to an average of 2.2% in the first six months of this year compared with only 0.7% in 2021. As the economy was on a firmer growth trajectory and no longer in a state of crisis, the central bank through the Monetary Policy Committee judged that it was the right time to begin withdrawing the excess support, revising the overnight policy rate from its historically low 1.7%. What is important is by acting pre-emptively, BNM will be in a position to undertake the adjustment to the monetary policy setting in Malaysia gradually and this is also to restore and support sustainable growth over the medium and longer term. The timing, pace and extent of interest rate increases would be guided by assessments. 

REITs 2Q earnings likely to remain strong – Inflationary concerns prompt caution for third quarter – UOB Kay Hian 

According to UOB Kay Hian Research, the real estate investment trust (REIT) sector’s 2Q earnings are expected to remain strong, but the trend may not be robust enough to carry into 3Q of this year because of inflationary concerns. However, REITs still command attractive yields of at least 5%, compared with fixed income instruments. The better earnings in 2Q22 is led by the festive season and the Employees Provident Fund (EPF) special withdrawal scheme. The 3Q earnings will be weaker and cautioned that the impact of inflation may also dampen consumer sentiment. For 2Q22, the research house is forecasting earnings growth of 36% and 5% for 2022 and 2023 respectively, on the back of the absence of rental assistance amid the economic reopening. Headline inflation for June breached 3%, coming in at 3.4% from 2.8% in May. The central bank has raised the overnight policy rate (OPR) by 50 basis points (bps) year-to-date and is expected to increase it by another 25 bps by year-end and 50 bps in the first half of 2023 to reach 3% by mid-2023. Although any rate hike would be considered a negative for the sector, UOBKH Research believes the impact would be manageable, given the REITs’ healthy gearing levels and earnings recovery. The current gearing levels are healthy at 31.7% on average. The majority of the debt taken by REITs are on fixed financing (61% of total debt on average), which makes the impact manageable. In addition, the earnings growth trajectory is enough to overcome it as well. This has been proven in their latest quarterly results where footfall and tenant sales continued the momentum from 4Q21. In the recent 2Q22 results posted, CapitaLand Malaysia Trust-REIT retail recorded 13% and 101% earnings growth quarter-on-quarter and year-on-year. The research house prefers the retail segment, particularly prime, niche malls for their proven business resilience. Tenant sales at malls continued with good momentum since 4Q21, amid the festive season, in addition to the special EPF withdrawal scheme. Furthermore, the opening of international borders in April will further boost footfall and sales. On hotels and hospitality REITS, it expects a gradual recovery with substantial traction from 2H22 onwards, during the holiday season. On office REITs, it said although the industry is still grappling with oversupply, it believes selected office REITs located in strategic locations with good connectivity, such as KL Sentral, will benefit from higher demand. Industrial REITs will continue to thrive with businesses continuing as usual. UOBKH Research maintains its “overweight’’ stand on the sector. Its top picks are Sunway-REIT (border reopening recovery), Sentral-REIT (high and resilient yields of 7% to 8%), and IGB-REIT (resilient and stable earnings). 

Eye On The Markets 

This week, on Friday (29July), the Ringgit opened at 4.450 against the USD from 4.453 on Monday (25July). Meanwhile, the Ringgit was 3.2246 to the Sing Dollar on Friday (29July). On Monday (25July), the FBM KLCI opened at 1463.78. As at Friday (29July) 10:00am, the FBM KLCI is up 30.98 points for the week at 1494.76. Over in US, the overnight Dow Jones Industrial Average closed up 332.04 points (+1.03%) to 32,529.63 whilst the NASDAQ added 130.17 points (+1.08%) to 12,162.59. 

Bursa posts largest YTD on-month drop in listed firms’ market cap

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According to Bursa Malaysia’s research arm Bursa Digital Research, the total market capitalisation (market cap) of companies listed on the bourse was lower at RM1.648 trillion as at end June 2022 compared to RM1.774 trillion a month earlier amid lingering concerns on a potential recession in the US and global monetary policy tightening or interest rate hikes to fight inflation. At RM1.648 trillion as at end June 2022, Bursa-listed companies’ market cap had fallen RM126 billion from RM1.774 trillion a month earlier to post the largest year-to-date (YTD) on-month drop in Bursa-listed firms’ market cap so far in 2022. Fear over recession in the US market and tightening monetary policy continued to linger over market sentiment. In June, trading on the local bourse was weaker as monthly ADV  (average daily traded value) moderated to RM1.9 billion (May: RM2.39 billion). Trading momentum was lowered across all investor segments, with the largest decline in the foreign ADV. Local institutions became net buyers of local equities in June 2022 after selling for the past five months. In June, local institutional inflow (into local equities) amounted to +658 million. Meanwhile, foreign investors were net sellers of local equities with a net outflow of RM1.28 billion in June 2022. However, they remained as net purchasers up to June (2022) with +RM6.08 billion. Research data shows that so far in 2022, Bursa-listed companies’ market cap had fallen on-month in January, March, May and June. In January 2022, the figure fell RM58 billion from a month earlier while the March figure dropped RM11 billion. In May, Bursa-listed companies’ market cap was down RM52 billion from a month earlier. At the bourse’s 12:30pm break on Tuesday, its share price settled down one sen or 0.16% at RM6.24 with 41,600 shares traded. At RM6.24, Bursa has a market cap of about RM5.05 billion based on the group’s 809.3 million outstanding shares. Bursa has scheduled to release its financial results for the second quarter ended June 30, 2022 on July 28, 2022. 

Budget 2023 to focus on sustainable subsidies, boosting country’s resilience – Tengku Zafrul 

According to Finance Minister Tengku Datuk Seri Zafrul Abdul Aziz, Budget 2023 will focus on a more sustainable subsidy management, strengthening the country’s resilience against future shocks and fiscal consolidation. This is in view of increasing inflationary pressures, especially on commodity and food prices. Budget 2023 will take into consideration sustainability-related initiatives as the world grapples with challenges involving geopolitical uncertainties and climate change. This was in a written parliamentary reply to Datuk Seri Saifuddin Nasution Ismail (PH-Kulim-Bandar Bharu), who wanted to know how the policies, strategies and approach in drafting Budget 2023 differ from past budgets. He continued that economic reform efforts will also be given priority to enhance business competitiveness and the value chain. In line with the post-Covid-19 economic recovery momentum, Budget 2023 will also continue to focus on the people’s well-being agenda, especially in terms of income and social protection. The inclusivity agenda, in line with the Shared Prosperity Vision 2030’s objectives, will be emphasised as well, to ensure a fair and equitable wealth distribution. Throughout the Budget 2023 preparation process, the government is committed to holding stakeholder engagement sessions especially to gain public views and feedback in line with the priorities set. The theme of Budget 2023 is “Strengthening Recovery, Facilitating Reforms Towards Sustainable Socio-Economic Resilience of Keluarga Malaysia”. 

Petrochemical industry to see faster growth – MPA 

According to the Malaysian Petrochemicals Association (MPA) president Akbar Md Thayoob, the country’s petrochemical industry is poised to grow at a faster rate in future, considering petrochemical is an important element for the world to move towards energy efficiency and net zero emission. The industry is expected to record an average compound annual growth rate of 5% to 6%, which is higher than the country’s gross domestic product (GDP), despite numerous external economic uncertainties like the Russia-Ukraine conflict. Petrochemicals will always be growing at above the GDP rate and some industries will be growing much faster than the others but on average, overall, it is an important growth engine for the country. He was speaking at the press conference on the upcoming Oil and Gas Asia 2022 conference. While noting that petrochemicals offer solutions that many are not familiar with, he dismissed the notion that the industry is on a downcycle and reiterated that it is stabilising after the Covid-19 pandemic. However, there is a lot of uncertainty still, moving forward. The cycle in today’s era is no longer the same as the last time, where every 10 years, you see a very clear trend. Now, there are blips in between and it’s no longer like before, where one can simply say that we are riding up. He observed that the petrochemical industry in Malaysia is also moving from commodities-based towards specialties, with many companies also going into merger and acquisitions to accelerate the acquisition of knowledge and capability towards offering the kind of solutions they can bring to the market. Citing Petronas’ downstream unit, Petronas Chemical Bhd, which recently purchased Swedish company Perstorp Holdining AB, he said this is very important for the state oil company to leapfrog and acquire such capability and bring that over throughout the region and replicate it. 

Eye On The Markets 

This week, on Friday (22July), the Ringgit opened at 4.4530 against the USD from 4.4460 on Monday (18July). Meanwhile, the Ringgit was 3.2016 to the Sing Dollar on Friday (22July). On Monday (18July), the FBM KLCI opened at 1420.89 As at Friday (22July) 10:00am, the FBM KLCI is up 33.08 points for the week at 1453.97. Over in US, the overnight Dow Jones Industrial Average closed up 162.06 points (+0.51%) to 32,036.90 whilst the NASDAQ added 161.96 points (+1.36%) to 12,059.61. 

Bank stocks still offer hedge against inflation, says RHB IB

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According to RHB Investment Bank Bhd (RHB IB), it has maintained its “overweight” call on bank stocks as it believes banks still offer some degree of hedging against inflation despite rising recessionary risks. These stocks had recorded a modest 5% growth for year-to-date July 2022, retreating from an almost 10% gain between January 2022 and early May 2022. Still, Malaysian banks have fared relatively better than their regional peers in Singapore and Indonesia, which are down 7% and 5% respectively in US dollar terms. Malaysian banks would continue to outperform the broader market, offering decent earnings growth of 5% and dividend yields, while trading at an undemanding 1.0 times price-to-book value ratio. In terms of the net profit margin (NIM), the earlier and higher-than-expected overnight policy rate hikes should have a positive impact on banks’ NIMs in 2022-2023. Its calculations point to an about 2% uplift in financial year 2022 (FY22) sector earnings, with smaller banks expected to post stronger improvement of 3% to 5%, versus about 2% for large banks. Its economists expect Bank Negara Malaysia to raise interest rate by 25 basis points to 2.50% in September 2022, its third hike for the year. On loan growth, banks would sustain their loan growth in the second half of 2022 as the rebound in consumption and business activities from the depressed levels during the pandemic lockdown periods should see banks achieving their mid-single-digit loan growth for 2022. It projected the banking sector to see its earnings grow 5.4% in FY22, capped by Cukai Makmur (the Prosperity Tax). Overall, the domestic economic recovery, reopening of international borders, and special RM10,000 Employees Provident Fund withdrawal from April 2020 should sustain banks’ business momentum and support the delivery of another set of decent results for the second quarter of 2022. However, the recovery outlook was getting clouded, noting that with the Russia-Ukraine war likely to drag on for quite a while longer, global inflation had been made worse. Aggressive monetary tightening across the world would also exacerbate the risk of a recession. RHB IB expects gross domestic product growth to moderate to 4.5% in 2023 from 5.3% in 2022. 

Bursa Malaysia Derivatives inks MoU with the Shanghai Futures Exchange and Shanghai International Energy Exchange 

According to Bursa Malaysia Derivatives (BMD) CEO Samuel Ho, Bursa Malaysia Derivatives Bhd, the Shanghai Futures Exchange (SHFE) and the Shanghai International Energy Exchange (INE) have inked a memorandum of understanding (MoU) to strengthen existing business partnership. The MoU will commit the exchanges to share information and best practices pertaining to product development, market operations, and in the areas of common interest for all three markets. The signing of this MoU is a positive development that will lay the groundwork for a long-term relationship between Bursa Malaysia Derivatives, SHFE and INE. Aside from driving the growth of the ASEAN derivatives markets, this collaboration will indirectly support and contribute towards the China-Malaysia economic trade, given China’s position as Malaysia’s largest trading partner and rubber importer. BMD looks forward to working with SHFE and INE on the development of new products that will not only complement existing offerings, but will also meet the needs of increasingly sophisticated customers. Meanwhile, according to SHFE and INE CEO Wang Fenghai, the MoU between SHFE, INE and Bursa Malaysia Derivatives is the culmination of the three exchanges’ close friendship over the years. SHFE and INE are keen to collaborate with Bursa Malaysia Derivatives in order to learn while deepening mutual understanding of each other’s markets, and provide more risk management tools to investors. Currently, INE has attracted overseas investors from more than 20 countries and regions across six continents, including Asia, Europe, North America, South America, Africa, and Oceania. It also has the most international products than any other China commodity futures exchanges. 

RAM Ratings revises 2022 inflation forecast to 3% 

According to RAM Ratings, the rating agency has revised the inflation forecast for 2022 to 3% from 2.5% earlier. The revision reflected recent changes in subsidies and the price ceiling for key price-controlled food items, as well as a stronger-than-expected cost pass-through to consumers so far this year. The removal of subsidies for bottled cooking oil, as well as a higher price ceiling for food items like chicken and eggs had taken effect on July 1. It estimates these measures to lift headline inflation in the second half of 2022 (2H22) by approximately 0.3 percentage points. Food inflation already climbed to 5.2% in May 2022, compared to 3.2% in December 2021. Given the prolonged price pressures faced by businesses, more prevalent cost pass-through to consumers will also be inevitable in 2H22. The low base due to the Pemulih electricity tariff discount in the third quarter of 2021 will also push the overall inflation rate higher this year. While the government is currently considering alternative schemes for petrol subsidies, the current subsidies in place for RON95 petrol and diesel as well as electricity and water tariff would help to temper further inflationary pressures. These items collectively constitute close to 13% of the consumer price index (CPI) basket. Following the recent hike in the overnight policy rate to 2.25%, its updated projection is for the rate to end the year at 2.5%. Barring an unexpected economic slowdown, it expects the tightening cycle to continue in 2023, at a measured pace and quantum. 

Trading activity on Bursa to remain volatile – CGS-CIMB Research 

According to CGS-CIMB Research, it expects trading activity on Bursa Malaysia to remain volatile in 2H22 as market sentiment remains weak with potential further downside risks in 3Q22. That is as investors worry about corporate earnings and try to price in the peak of the interest rate cycle by the Federal Reserve (Fed) which is trying to engineer a soft landing of the American economy that is facing inflationary pressures. It noted the benchmark 30-stock FBM KLCI has fallen by 16% from its highs of 1,685 points in December 2020 after pricing in the earnings risks from a slowing global economy and political concerns and could go lower in the 3Q22 pricing in the next rate hikes by the Fed as well as lower commodity prices and higher costs due to rise in the minimum wage level. Thereafter, the market could be range-bound with potential upside if concerns over rate hikes or US recession risks subside and earnings risks for Malaysian corporates have been priced in. This could offer trading opportunities for investors looking for bargains in the stock market over the medium term. The research house lowered its earnings estimates for the FBM KLCI to reflect its earnings downgrade for Top Glove Corp Bhd and MR DIY Group (M) Bhd. It now projects the market benchmark’s earnings to fall 0.1% in 2022 and rise 10.7% in 2023. This lowers its end-2022 FBM KLCI target to 1,506 points (from 1,568 points), on unchanged 12.9 times target price-to-earnings (2.5 standard deviation below three-year mean). The research house advises investors to take shelter in sectors with defensive earnings (utilities, telco, healthcare, consumers) and high dividend yields. It also likes banks as beneficiaries of rising interest rates. It also noted the earnings of the FBM KLCI during the global financial crisis in 2008 fell by 8.7% due to the collapse in commodity prices and consumer sentiment before rebounding in 2009 while during the Covid-19 pandemic, earnings fell by 6.6%, due to a significant drop in demand caused by lockdown measures. Given the high inflation and rising risk of a US recession, there could be downside risks to its 2023 earnings growth forecast of 10.7%. On the assumption that FBM KLCI earnings reflect a similar degree of decline as during the global financial crisis (i.e. minus 8.7%) and Covid-19 (minus 6.6%), its FBM KLCI target falls to 1,213 and 1,245 points from the revised FBM KLCI target of 1,506 points.  

The research house’s analysis of past market downturns revealed that in four out of the past six downturn cycles since 1997, the FBM KLCI bottomed in the August to October period. The exception was during the dotCom bubble when the market bottomed in April and during the Covid-19 pandemic where it bottomed in March. Historically, during a market downturn period, the FBM KLCI corrected by 16% to 79% from its peak. The index has fallen by 15% from its recent peak of 1,685 points in December 2020, which means Bursa Malaysia is not in a bear market. To be in a bear market, the market needs to fall to 1,348 points or below. Investor sentiment and the market could get a lift from the return of foreign workers to worker-starved sectors and better-than-expected inbound tourist numbers. Easing inflationary pressure could also contribute together with the resolution to some of the environmental, social and governance concerns relating to forced labour, a market friendly Budget 2023, and additional liquidity at domestic institutional funds like the Employees Provident Fund following the end of the withdrawal schemes under stimulus packages announced in 2020, 2021 and 1H22 totalling around RM141bil. 

The 15th General Election (GE15) will be crucial as a more stable political environment post-GE15 could provide more clarity and certainty on policy direction on issues like 5G, foreign workers and construction projects which would help boost earnings visibility and investments and in turn attract liquidity into the equity market from domestic and foreign institutional investors. Sectors that tend to perform better against the market benchmark during past market downturns were consumer, technology, telco, healthcare and utilities suggesting investors best take shelter in utilities (Gas Malaysia Bhd, Malakoff Corp Bhd and Tenaga Nasional Bhd), telco (Telekom Malaysia Bhd), healthcare (IHH Healthcare Bhd), consumer (QL Resources Bhd, MR DIY and Genting Malaysia Bhd). The brokerage identified seven themes for 2H22, namely beneficiaries of the overnight policy rate hike cycle (RHB Bank Bhd, Hong Leong Bank Bhd, Public Bank Bhd, AMMB Holdings Bhd), beneficiaries of a weaker ringgit (IHH, PBB Group Bhd, Yinson Holdings Bhd). Other themes include high dividend yielders (Maxis Bhd, Gas Malaysia); beneficiaries of GE15 (Telekom, Maxis, Tenaga Nasional Bhd, Gamuda Bhd, Farm Fresh Bhd); value plays (WCT Holdings Bhd, SP Setia Bhd, UEM Sunrise Bhd, Star Media Group Bhd); ESG picks (Malayan Banking Bhd, AMMB) and ESG and syariah picks (MISC Bhd, Dialog Group Bhd, Maxis Bhd). The research house retains RHB Bank (target price of RM7.70), MR DIY (target price of RM2.40) and Genting Malaysia (target price of RM3.40) as its top three picks. 

Eye On The Markets 

This week, on Friday (15July), the Ringgit opened at 4.4475 against the USD from 4.4330 on Tuesday (12July). Meanwhile, the Ringgit was 3.1685 to the Sing Dollar on Friday (15July). On Tuesday (12July), the FBM KLCI opened at 1426.19. As at Friday (15July) 10:00am, the FBM KLCI is down 9.50 points for the week at 1416.69. Over in US, the overnight Dow Jones Industrial Average closed down 142.62 points (-0.46%) to 30,630.17 whilst the NASDAQ added 3.60 points (+0.03%) to 11,251.18.

BNM raises OPR by 25 bps to 2.25%BNM raises OPR by 25 bps to 2.25%

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According to Bank Negara Malaysia, the Monetary Policy Committee (MPC) has decided to increase the overnight policy rate (OPR) by 25 basis points (bps) to 2.25% as the unprecedented Covid-19-driven conditions that necessitated a historically low OPR continued to recede. The ceiling and floor rates of the OPR’s corridor are correspondingly increased to 2.5% and 2.0% respectively. Amid the positive growth prospects for the Malaysian economy, the MPC decided to further adjust the degree of monetary accommodation. This is consistent with the MPC’s view that the unprecedented conditions that necessitated a historically low OPR have continued to recede. At the current OPR level, the stance of monetary policy remains accommodative and supportive of economic growth. The MPC will continue to assess evolving conditions and their implications for the overall outlook to domestic inflation and growth. Any adjustments to the monetary policy settings going forward would 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. The reopening of the global economy and improvement in labour market conditions continued to support the recovery of economic activity. However, these have been partly offset by the impact of rising cost pressures, the military conflict between Russia and Ukraine, and strict Covid-19-driven containment measures in China. Inflationary pressures have continued to increase mainly due to elevated commodity prices and strong demand conditions despite some easing in global supply chain conditions. Consequently, central banks are expected to continue adjusting their monetary policy settings, some at a faster pace, to reduce inflationary pressures. Going forward, the pace of global growth is expected to moderate, and will continue to be affected by elevated cost pressures, the conflict in Ukraine, global supply chain conditions and financial market volatility. On the Malaysian economy, the country’s economic activity continued to strengthen in recent months. Exports and retail spending indicators have affirmed the nation’s economic growth momentum, supported by the country’s transition to Covid-19 endemic status from pandemic previously, according to BNM. In the labour market, the unemployment rate declined further, with higher labour participation and improving income prospects. Looking ahead, while external demand is expected to moderate, weighed by headwinds to global growth, Malaysia’s economic growth will be supported by firm domestic demand. Additionally, the reopening of international borders since April 1, 2022 would facilitate the recovery of tourism-related sectors. Investment activity and prospects continue to be supported by the realisation of multi-year projects. However, downside risks to growth continue to stem from a weaker-than-expected global growth, further escalation of geopolitical conflicts, and worsening supply chain disruptions. On inflation, year-to-date in 2022, Malaysia’s headline inflation, as measured by the Consumer Price Index, averaged 2.4%. While the country’s inflation is projected to remain within the 2.2% to 3.2% forecast for the year, the nation’s headline inflation may be higher in some months due mainly to the base effect of electricity prices. Underlying inflation, as measured by core inflation, is expected to average between 2% and 3% in 2022 as demand continues to improve amid the high-cost environment. Nevertheless, the extent of upward pressures on inflation will remain partly contained by existing price controls, fuel subsidies and continued spare capacity of the economy. The inflation outlook for Malaysia 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. 

Macro issues weigh on Bursa Malaysia – Maybank IB 

According to Maybank Investment Bank’s research unit, while resilient external demand and strong banking sector fundamentals provide key support, the market will struggle to find traction in the face of broadening growth and earnings stresses. This was due to negative revisions stemming from an interrelated combination of margin squeeze and weakening end-demand. In a report to clients titled “Malaysia 2H2022 Market Outlook Storm Warning”, policy flip-flops relating to subsidies have also raised market risk premium as the implied urgent fiscal situation will raise concerns about further earnings-sapping levies on the corporate sector akin to Cukai Makmur. It also said hopes of an early general election that would allow a reset in delivering optimal and expedited policy responses based on long-term economic realities now appeared unlikely. On thematic, inflation and interest rates will dominate market direction. However the local market and other Asean benchmark indices as a whole had been relative outperformers on a year-to-date basis. But macro challenges relating to surging inflation, sharply rising interest rates and growing recession risks that have weighed on developed markets are now catching up with this region. As evidenced during the mixed first-quarter 2022 reporting, operating margin pressures have been rising across a broad range of sectors, underpinned by increasing labour and raw material input costs, while a damaging combination of rising inflation and interest rates are eroding disposable incomes, and hence demand, into the second half of 2022. The tight fiscal situation means concerns around the sustainability of current inflation-capping subsidies are a major market overhang, the latter made worse by policy inertia and more U-turns by a fractious governing coalition that has yet to signal readiness to go to the polls. Maybank IB is reducing its end-2022 FBM KLCI target to 1,500 points (from 1,710 points) and retains a balanced positioning, via a mix of value and growth stocks and continuing focus on yield. 

Malaysia still most preferred market for retail investors – CGS-CIMB retail investors’ sentiment survey 

According to CGS-CIMB, its 2022 CGS-CIMB retail investors’ sentiment survey revealed that Malaysia continues to be the most preferred market for retail investors to invest in this year. The survey, which was conducted from June 13-22 and included some 1,068 Malaysian participants, revealed that 63% of the retail investors picked Malaysia as their most preferred market to invest in. Based on the score derived from the ranking placed by respondents, the final score on the most preferred market for exposure in equities were Malaysia, the United States, Singapore, Hong Kong/China, Indonesia, Thailand and others. The survey also indicated that higher income investors are keener to invest overseas, in particular the United States, Hong Kong/China and Singapore markets, because they look to diversify and search for better returns on their investments. It noted rising preference to invest in US, Hong Kong/China and Singapore markets. Investors that choose the United States as their most preferred market rose to 21% from 16% in 2021. Another 8.1% revealed that Hong Kong/China is their most preferred market to invest in now. For Malaysia, the survey showed that retail investors’ share of trade fell from its peak of 37% in 2021 to 27% in the first half of this year (1H22). Likewise, their net buy flow for equities has fallen 79% year-on-year to RM1.7bil in 1H22 from RM8.2bil in 1H21. They are currently the second-largest participants behind institutional investors’ share of trade of 47% but ahead of foreign investors’ 26% share of trades in 1H22. Most retail investors surveyed remained net buyers in the market over the past 12 months. The survey noted that retail investors surveyed were bearish about the market outlook for the next six months, with 47% expecting it to post negative returns. That said, the majority of the respondents expected lower return from the stock market of 0%-10% this year as compared to 11%-20% a year ago. The respondents’ top three concerns for the equity market were the state of the domestic economy, sharp fall in stocks as well as external factors including rising interest rates and a crash in the US market. Nonetheless, the survey gathered three big catalysts that could prompt investors to buy more equities – a sharp fall in the stock market that could push stock valuations to attractive levels, stronger economic growth and a more stable political landscape. In particular, the survey showed that respondents preferred to invest directly in the Malaysian equity market and appeared less keen on unit trust products and robo-advisers compared to a year ago. Their key motivation for investing in equities is to achieve higher returns from their savings and their preferred trading strategies continue to be buy and hold. 

Eye On The Markets 

This week, on Friday (8July), the Ringgit opened at 4.4250 against the USD from 4.4085 on Monday (4July). Meanwhile, the Ringgit was 3.1642 to the Sing Dollar on Friday (8July). On Monday (4July), the FBM KLCI opened at 1449.50. As at Friday (8July) 10:00am, the FBM KLCI is down 24.21 points for the week at 1425.29. Over in US, the overnight Dow Jones Industrial Average closed up 346.87 points (+1.12%) to 31,384.55 whilst the NASDAQ added 259.49 points (+2.28%) to 11,621.35. 

Malaysia’s banking system remains well capitalised to support economic recovery – BNM

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According to Bank Negara Malaysia, Malaysia’s banking system remains well capitalised to support economic recovery. The capital ratios rose marginally in May 2022, driven by valuation gains on available-for-sale financial instruments as bond yields eased temporarily during the period. As at end-May 2022, the banking system recorded RM121.5 billion in excess capital buffers. The overall gross and net impaired loans ratios remained broadly stable at 1.6% and 1% respectively, reflecting the marginal increase in impairments from the business and household segments, following the tapering of repayment assistance measures since the first quarter of 2022. Total provisions remained at a prudent level, accounting for 1.8% of total banking system loans and 109.1% of impaired loans. As of end-May 2022, total provisions and regulatory reserves stood at RM40.7 billion (end-April: RM40.2 billion). On the domestic financial market, market adjustments remained orderly, following a decrease in the 10-year Malaysian Government Securities yield by 21 basis points (bps) during the month, supported by foreign portfolio inflows into the domestic bond market. By contrast, regional bond yields rose by 24.5bps on average. The local financial market was also driven by tighter global financial conditions due to expectations for faster and larger policy rate hikes by advanced economies, especially the US, amid higher and more prolonged inflationary pressures.  

Malaysia’s economic recovery remains in sight amid global uncertainty – DOSM 

According to the Department of Statistics Malaysia Chief statistician Datuk Seri Dr Mohd Uzir Mahidin, economic recovery remains in sight with a better trend as signalled by Malaysia’s macroeconomic performance in April 2022 amid global uncertainty. More than two years after an unprecedented global health crisis that profoundly altered the world’s socioeconomic landscape, nations had started the recovery process with extensive exit strategy activities to boost economic viability and public health. While the public had started to adjust to endemicity, a new threat comes in the form of supply chain disruptions due to the ongoing geopolitical tension between Russia and Ukraine; uncertain weather conditions; and escalating demand following the easing of health restrictions in most countries. Based on Malaysia’s macroeconomic performance in April 2022, the country is blessed with natural resources and commodities such as petroleum products and palm oil. As a net commodity exporter, Malaysia also benefits from higher commodity prices resulting in total trade chalking up a double-digit annual growth of 21.3 per cent to RM231.4 billion. Exports rose 20.7 per cent to RM127.5 billion while imports went up 22.0 per cent to RM103.9 billion. The trade balance rose 15.7 per cent and continued to remain in surplus at RM23.5 billion. Malaysia’s trade performance in May 2022 remained resilient, recording the fastest growth since November 2021, with total trade surpassing RM1 trillion. Going forward, Malaysia is expected to maintain a better economic recovery in the upcoming months. The Leading Index (LI) for April recorded 110.8 points with an improved negative growth of 0.5 per cent year-on-year compared to negative 1.4 per cent in March 2022. It is hoped that the economic recovery remains in sight with a better trend amid global uncertainty. In line with this, the S&P Global Ratings recently revised Malaysia’s long-term sovereign credit ratings outlook to ‘stable’ from ‘negative’ as it believes Malaysia is on a strong economic recovery path compared to other countries at similar income levels. 

EPF outsourced RM167.63b to fund managers as at Dec 31,2021 

According to the Employees Provident Fund (EPF) chairman Tan Sri Ahmad Badri Mohd Zahir, the fund outsourced RM167.63 billion to external fund managers as at Dec 31, 2021, representing an increase of 8%, compared with RM155.18 billion at end 2020. This allocation, invested across equity and fixed-income instruments, represented 16.66% of EPF’s total investment assets. EPF’s line of external fund managers fared well in 2021 and delivered commendable results that were within the fund’s objectives and expectations for the year. The fund managers have been instrumental in enhancing the performance of EPF’s assets and as the funds grow, EPF will continue with this diversification strategy and leverage on their insights and skillsets that complement EPF’s own internal fund management capabilities. In conjunction with the EPF External Fund Managers Awards, EPF announced 22 awards presented to the top external fund managers in recognition of their performance in managing EPF’s portfolios in 2021. For the financial year ended 2021, EPF delivered a dividend rate of 6.10% with a payout of RM50.45 billion for Simpanan Konvensional, and a rate of 5.65% with a payout of RM6.27 billion for Simpanan Shariah. Cumulatively, the total payout for 2021 was RM56.72 billion. 

Eye On The Markets 

This week, on Friday (1 July), the Ringgit opened at 4.4060 against the USD from 4.4010 on Monday (27June). Meanwhile, the Ringgit was 3.1684 to the Sing Dollar on Friday (1July). On Monday (27June), the FBM KLCI opened at 1438.82. As at Friday (1July) 10:00am, the FBM KLCI is up 9.95 points for the week at 1448.77. Over in US, the overnight Dow Jones Industrial Average closed down 253.88 points (+0.82%) to 30,775.43 whilst the NASDAQ shed 149.16 points (-1.33%) to 11,028.74.