Inve$t | Market Sentiments
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.