Malaysian market still attractive for investors – Bursa CEO

Inve$t | Market Sentiments

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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. 

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