Malaysia’s leading index up 5.3% y-o-y in June 2022, signals economic growth confidence – DOSM 

Inve$t | Market Sentiments

26 August 2022

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According to the Department of Statistics Malaysia (DoSM), Malaysia’s leading index (LI) rebounded 5.3 per cent year-on-year to 111.7 points in June 2022 after a rise of 2.3 per cent in May 2022 (111.3 points). The increase was mainly backed by the increment in real imports of other basic precious and other non-ferrous metals driven by the import of platinum-based metals and influenced by the low base effect from the previous year (June 2021: 106.1 points). Concomitantly, the monthly change of LI increased 0.4 per cent in the reference month attributed mainly by real imports of other basic precious and other non-ferrous metals (0.6 per cent) and the number of new companies registered (0.6 per cent).  

In June 2022, the LI which shows the ability to anticipate the future direction of the economy, signals confidence towards further growth in the coming months through smoothed long-term trend index movements that are intact above 100.0 points. This is in line with the anticipated promising signs of strong domestic and export demand as well as the reopening of international borders amid slow global economic growth.  

For the current economic scenario, the coincident index (CI) spiked 12.6 per cent y-o-y to record 121.5 points in June 2022 in tandem with the economic performance in the second quarter of this year where strong growth was recorded in June 2022. Furthermore, the CI registered 0.2 per cent month-on-month led by the increases in industrial production index (0.9 per cent), capacity utilisation in the manufacturing sector (0.7 per cent) and total employment in the manufacturing sector (0.2 per cent). The diffusion index for LI recorded 42.9 per cent in June 2022. At the same time, the diffusion index for CI remained at 100.0 per cent since December 2021 representing that all the CI components increased over the past six months. The full publication of the Malaysian Economic Indicators: Leading, Coincident & Lagging Indexes, June 2022 can be downloaded through eStatistik portal. 

Foreign buying of Malaysian equities rose 36% to RM615.5m last week – MIDF 

According to MIDF Research, foreign buying of Malaysian equities rose 36% week-on-week to RM615.5 million for the week ended Aug 19, from RM451.69 million the prior week. In its weekly fund flow report on Monday (Aug 22), the MIDF Research team noted that last week saw net buying activities by foreigners for every trading day. The amount of net inflows recorded was RM120.4 million last Monday, RM163.9 million last Tuesday, RM153.3 million last Wednesday, and RM132.7 million last Thursday. Friday was also a net buying day, but at a lower rate of RM45.2 million. 

Local institutions continued to be net sellers every day last week, with a total net weekly outflow of RM675.9 million. Last Tuesday saw the highest net money outflow of RM193.1 million. To note, local institutions have been net sellers for 13 consecutive days since the week ended Aug 3. Local retailers remained as net buyers for the second consecutive week, with a total net inflow of RM60.4 million. They were net buyers last Monday to Wednesday but turned net sellers last Thursday and Friday.  

To date, international investors were net buyers for 22 out of 33 weeks of 2022, with a total net inflow of RM7.72 billion. Local institutions were net sellers for 26 out of 33 weeks, with a total net outflow of RM9.48 billion. Local retailers were net buyers for 21 out of 33 weeks of 2022. Year-to-date, they have net bought RM1.76 billion. In terms of participation, there was an increase in average daily trade value among all investor classes, with retail investors at 21.3%, institutional investors at 20.7%, and foreign investors at 11.7%. 

Eye On The Markets 

This week, on Friday (26Aug), the Ringgit opened at 4.4740 against the USD from 4.4850 on Monday (22Aug). Meanwhile, the Ringgit was 3.2179 to the Sing Dollar on Friday (26Aug). On Monday (22Aug), the FBM KLCI opened at 1501.61. As at Friday (26Aug) 10:00am, the FBM KLCI is up 3.76 points for the week at 1505.37. Over in US, the overnight Dow Jones Industrial Average closed up 322.55 points (0.98%) to 33,291.78 whilst the NASDAQ added 207.74 (1.67%) to 12.639.26. 

Weakening ringgit attracting foreign property investors – Juwai IQI 

INVE$T | Market Sentiments

19 August 2022

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According to real estate technology group Juwai IQI co-founder and group chief executive officer Kashif Ansari, the weakening ringgit, which has lost more than 6% of its value against the US dollar so far this year, has been luring foreign investors back into the Malaysian property market. Foreign investors have benefited from exchange rate trends with the ringgit falling 13% from its 2018 high against the greenback. Citing data from the Ministry of International Trade and Industry (MITI) that foreign direct investment has been strong, and the country attracted RM27.8 billion in the first quarter of 2022.  

The manufacturing sector accounted for the majority of investment, which will increase capacity and allow Malaysia to capture additional market share. Malaysia is benefiting from the commodities boom, higher exports, strong foreign direct investment, and the recovery in domestic demand. Inflation is expected to peak this year at 3.2%, before falling to 2.8% in 2023.  

Bank Negara Malaysia (BNM) has begun tightening the overnight policy rate in May this year and had since moved the rate up to 2.25%, from an accommodative rate of 1.75%, and the country’s banks had moved in lockstep, pushing the base lending rate up to 5.9% per annum. While these moves represent an increase from the extraordinarily low levels that prevailed for the past two years, interest rates remain historically low. He believes the economy and property market have enough momentum to absorb the increases in stride, without falling into a downcycle. Malaysia’s real gross domestic product (GDP) growth is expected to reach 5.7% in 2022. 

GDP momentum to remain positive this year – Outlook remains favourable despite headwinds – AmBank Group 

According to AmBank Group chief economist Anthony Dass, Malaysia’s economy is projected to grow at 5.7% to 6.5% this year, with at least another 25 basis point (bps) hike in the overnight policy rate (OPR) amid higher inflationary pressures. The projection of gross domestic product (GDP) growth is higher than Bank Negara’s forecast growth range of 5.3% to 6.3% for the year despite headwinds. The GDP growth projection is revised upwards for this year and the base case GDP growth target for 2022 is now 6.4%, up from 5.6% previously. Despite some headwinds, the overall momentum is expected to remain positive in 2022. This is reflected in the healthy loan growth of 5.6% year-on-year (y-o-y) as at end-June 2022, where business loans grew by 5.3% y-o-y and consumer loans by 5.9% y-o-y.  

The leading indicator also suggested the potential outlook remains favourable, reading at 111.2 (May’s reading). The AmBank Group has baked in another 25 bps OPR rate hike in September with a probability of 40% for another 25 bps in November, supported by healthy potential incoming data that reflects a pick-up in demand pressures. The second quarter (2Q22) GDP grew better than expected, up 8.9% y-o-y, bringing the average first half of the year (1H22) GDP to 6.9% y-o-y. After growing by 5% y-o-y in the first quarter, 2Q22 growth exceeded the 7% median forecast of Bloomberg polled analysts.  

On a quarter-on-quarter (q-o-q) basis, the economy grew by 1.7% in 2Q22 versus a contraction of 3.0% q-o-q in 1Q22. 2Q22’s growth rate is the best performance in this region. Singapore grew by 4.4%, Indonesia by 5.4%, Vietnam by 7.7%, and the Philippines by 7.4% in the same quarter. Following the strong 1H22 performance, 2H22 GDP is also expected to perform well, part of which would be supported by the low base in 2H21. Besides the low base, the economy is expected to continue to benefit from strong export earnings backed by firm commodity prices, a healthy global semiconductor environment, resource-based exports and foreign direct investment inflows.  

But the upside to the economy is being contained by shortages of foreign workers at the entry level and talents. Businesses are struggling to cope with existing orders. To add fuel to the fire, they are also hurt by supply chain disruptions and high costs. As a result, the country is losing new orders to neighbours like Vietnam and Indonesia. We can expect some degree of knock-on impact from the ongoing geopolitical risks and uncertainties on the external front with a growing risk of a slower global GDP and trade in 2022. 

Foreign investors continued Bursa buying spree for fourth consecutive week – MIDF Research 

According to MIDF Research in its weekly Fund Flow Report, foreign funds maintained their net buying stance on Bursa Malaysia for the fourth consecutive week, which saw a net inflow of RM451.7 million for the week ended Aug 12, 2022. This was 16.4 per cent higher than the RM388.21 million of net buying seen the previous week. The week started with foreign funds net buying on Monday and Tuesday, amounting to RM530,000 and RM15.8 million respectively. 

Despite the concerns of US inflation on Wednesday, foreign funds net sold only minus RM3.8 million. This was the only day of net selling by foreigners. The bulk of the net buying happened on Thursday and Friday at RM232.9 million and RM206.2 million respectively after the release of lower than expected US inflation data and stronger than expected Malaysia gross domestic product (GDP) data. Local institutions continued to be net sellers for the fifth week, at a rate of minus RM573 million, more than double the amount from the previous week, which was negative RM266.9 million.  

Meanwhile, local institutions have been net sellers for eight consecutive trading days since Aug 3. Local retailers reversed their net selling trend over three weeks with a net buy of RM121.3 million for the week. They were net buyers from Monday to Wednesday and on Friday but were net sellers on Thursday. To date, international funds have been net buyers for 21 out of the 32 weeks of 2022, with a total net inflow of RM7.11 billion. Local institutions were net sellers for 25 out of 32 weeks, with a total net outflow of minus RM8.8 billion. Local retailers have been net buyers for 20 out of 32 weeks of 2022. Year-to-date, they have been net buyers at RM1.7 billion. In terms of participation, there was an increase in the average daily trade value (ADTV) among local institutional investors by 1.05 per cent. Reductions in ADTV were seen among foreign investors and local retailers by negative 3.57 per cent and negative 3.36 per cent respectively. 

Eye On The Markets 

This week, on Friday (19Aug), the Ringgit opened at 4.4800 against the USD from 4.4455 on Monday (15Aug). Meanwhile, the Ringgit was 3.2298 to the Sing Dollar on Friday (19Aug). On Monday (15Aug), the FBM KLCI opened at 1506.42. As at Friday (19Aug) 10:00am, the FBM KLCI is up 11.35 points for the week at 1517.77. Over in US, the overnight Dow Jones Industrial Average closed up 18.72 points (+0.06%) to 33,999.04 whilst the NASDAQ added 27.22 points (+0.21%) to 12,965.34.

Seven Malaysian companies make it to Forbes Asia’s Best Under A Billion 2022 list 

Inve$t | Market Sentiments

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Seven Malaysian companies have made it to the Forbes Asia’s Best Under A Billion 2022 list. The annual list highlights 200 Asia-Pacific public companies with less than US$1 billion in sales and consistent top- and bottom-line growth. The seven Malaysian companies are CE Technology, D&O Green Technologies Bhd, Greatech Technology Bhd, Kim Loong Resources Bhd, Tashin Holdings Bhd, UG Healthcare and ViTrox Corp Bhd. 

In the list released on Tuesday (Aug 9), Forbes said that as Covid-19 restrictions ease across the Asia-Pacific and people adapt to the new normal, this year’s annual Best Under A Billion list highlights the shift to discretionary spending. It said while healthcare and pharmaceutical-related companies were standouts last year, the post-pandemic return to daily life has benefitted apparel makers, mall operators, restaurants, consumer electronics and entertainment companies, among others. Forbes said this year’s list includes 75 returnees from the prior year, reflecting their resiliency in a fast-changing environment. 

Methodology – Forbes said the list is meant to identify companies with long-term sustainable performance across a variety of metrics. From a universe of 20,000 publicly traded companies in the Asia-Pacific region with annual sales above US$10 million and below US$1 billion, these 200 companies were selected. The companies on the list, which is unranked, were selected based on a composite score that incorporated their overall track record in measures such as debt, sales and earnings-per-share growth over both the most recent fiscal one- and three-year periods, and the strongest one- and five-year average returns on equity. 

Aside from quantitative criteria, qualitative screens were used as well, such as excluding companies with serious governance issues, questionable accounting, environmental concerns, management issues or legal troubles. State-controlled and subsidiaries of larger companies were also excluded. The criteria also ensured a geographic diversity of companies from across the region. 

The list uses full-year annual results, based on the latest publicly available figures as of July 11, 2022. 

Source: Forbes Asia

Malaysia’s Firming Economic Recovery Allows for Recalibration of Policy Support – AMRO 

According to the ASEAN+3 Macroeconomic Research Office (AMRO) in their 2022 Annual Consultation Report on Malaysia, the Malaysian economy is recovering strongly from the COVID-19 disruptions in 2021 and early 2022. The report was based on AMRO’s virtual Annual Consultation Visit to Malaysia in January – February 2022, and data and information available up to April 29, 2022.  

Protected by its high vaccination rate, continuing nationwide inoculation program, and adequate healthcare capacity, Malaysia has progressively reopened its economy despite the resurgence of infections by the Omicron variant in early 2022. Economic growth should firm up further with the country’s transition to the endemic phase of COVID-19 from the beginning of April. In this respect, accommodative policy settings can be recalibrated to build more buffers against future shocks and safeguard financial stability.  

Economic developments and outlook 

The economy is on track to expand by 6.0 percent in 2022 after growth firmed up in Q1 on the back of a strong rebound in private consumption and buoyant exports. Headline inflation is set to increase moderately to 3.0 percent in 2022 from 2.5 percent in 2021, reflecting the partial pass-through of higher global food and energy prices to consumer prices.  

Robust trade, strong foreign investment inflows, and an SDR allocation from the IMF, have allowed Bank Negara Malaysia (BNM) to build up its reserves buffer in 2021. The improvement in the reserves position has strengthened BNM’s capacity to withstand volatility shocks in capital flows.   

Risks and vulnerabilities 

COVID-19 remains a serious threat to the economic recovery. Although a tail-risk, the emergence of more virulent vaccine-resistant COVID-19 variants could once again prompt stringent mobility restrictions if a surge in cases risks overwhelming the healthcare system. At the same time, the economic outlook is shrouded by a new set of headwinds. The war in Ukraine and a more aggressive monetary policy tightening by the United States and the European Union have exposed Malaysia to the risks of higher inflation and a global economic slowdown. Heightened inflationary pressures could persist due to prolonged disruptions in global supply chains. Meanwhile, aggressive monetary policy tightening in the U.S. and E.U. amidst the ongoing war in Ukraine, could trigger a slump in global demand, including for Malaysia’s exports. 

Aggressive rate hikes by the U.S. Federal Reserve also present financing challenges to the Malaysian economy as bond yields rise in tandem with the U.S. bond yields. On a positive note, the strong earnings recovery, larger cash buffers and lower leverage particularly for larger corporates provide comfort that corporate sector balance sheets would remain robust against increasing refinancing costs.  

Policy recommendations  

While supportive fiscal policy remains critical to narrow the disparity across sectors, a faster pace of fiscal consolidation over the medium term is warranted to safeguard fiscal sustainability. AMRO welcomes the increase in expenditure in the 2022 budget, with more targeted support to vulnerable groups and greater allocation to development expenditure, while lowering the fiscal deficitto-GDP ratio. As the recovery becomes more firmly entrenched, tax reforms—especially with regard to indirect taxes—could be implemented, starting in 2023, to boost fiscal revenue and facilitate a faster reduction of the high debt-to-GDP ratio.  

BNM has started to normalize monetary policy, a welcome move given the strong rebound in economic activity and elevated global inflationary pressures. The policy rate, which was raised from a record low, has scope to increase further as the output gap continues to narrow and inflation continues to rise. Meanwhile, the gradual phasing out of the loan relief schemes in 2022 comes at an appropriate time as business and labor market conditions continue to improve. Loan impairments could emerge as a result, but the banks should be able to withstand the credit losses given their ample buffers and pre-emptive provisioning.  

Lastly, proactive initiatives to facilitate foreign direct investments and to mitigate the impact of climate change are highly commendable and should be sustained to propel the economy to a progressively more sustainable path. It would be critical to ensure the timely realization of investment commitments while strengthening workforce upskilling programs and the domestic financing ecosystem. At the same time, stepping up disaster preparedness and speeding up the implementation of policies that incentivize the shift to low-carbon domestic activities would place Malaysia on a strong footing to deal with the risks surrounding climate change. 

Eye On The Markets 

This week, on Friday (12Aug), the Ringgit opened at 4.4475 against the USD from 4.4595 on Monday (8Aug). Meanwhile, the Ringgit was 3.2461 to the Sing Dollar on Friday (5Aug). On Monday (8Aug), the FBM KLCI opened at 1501.58. As at Friday (12Aug) 10:00am, the FBM KLCI is up 2.95 points for the week at 1504.53. Over in US, the overnight Dow Jones Industrial Average closed up 27.16 points (+0.08%) to 33,336.67 whilst the NASDAQ shed 74.89 points (-0.58%) to 12,779.91.  

KWAP targets RM200b gross fund size by 2025, eyes private market 

INVE$T | Market Sentiments

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According to The Retirement Fund (Incorporated) (KWAP) CEO Nik Amlizan Mohamed, the fund plans to achieve RM200 billion target in total gross fund size by 2025 from RM159 billion currently through increasing its investments in the private market, which include equity, infrastructure and property domestically and internationally. It is seeing double-digit growth of return in the private market space while the return from the public market has not been on a high trajectory. Currently the fund’s asset allocation is towards the public market, that is listed equity as well as the fixed income space. Moving forward the focus is very much on the private market side. He was speaking at the launch of KWAP’s three-year programme Teras 5, which was officiated by Finance Minister Tengku Datuk Seri Zafrul Tengku Abdul Aziz. 

Currently, KWAP’s public and private investment portfolios are at 90% and 10% respectively. Through Teras 5, it plans to increase its private investments to 20% by 2025. KWAP intends to stretch the total return to 7% in three years from 6%, which was its return each year for the past 10 years. Teras 5 is part of the fund’s long-term plan to increase the size of the fund more effectively and sustainably and further strengthen its capability to benefit government retirees at present and in future. 

The programme is based on elevating five enablers, namely structure, governance, people, processes and digital to drive eight workstreams, including organisational structure, enterprise, investment, contribution and retirement services, digital, people and culture, corporate services, and risk, governance and oversight. The programme was entirely developed by the KWAP team with no involvement from external consultants. 

Foreign investors turned net buyers, partly lifting FBMKLCI in July – CGS-CIMB 

According to CGS-CIMB, foreign investors, which turned net buyers in July, helped contribute to the 3.3% month-on-month (m-o-m) gain of the benchmark FBMKLCI last month. The gain was also partly fuelled by expectation that concerns over a US recession may have been priced in after the recent market selloff. The research house noted that foreign investors emerged as net buyers in the local bourse after Bursa Malaysia witnessed an inflow of RM175 million from foreign funds across all Malaysian securities last month. The net buying by foreign investors comes after a RM1.3 billion net sell in the previous month which was also the highest monthly net sell since July 2021. In total, the cumulative foreign net inflows for the first seven months of the year (7M2022) amounted to RM6.3 billion, which is a stark contrast to the 7M2021 net sell of RM5.5 billion. Citing Bursa Malaysia statistics, sectors that attracted the highest foreign investment last month were financial services (RM237.63 million), healthcare (RM120.31 million) and utilities (RM53.12 million). Local retailers and institutional investors turned net sellers for July at RM16 million and RM41 million respectively. Local retailers 7M2022 net buy of Malaysian equities amounted to RM1.7 billion, compared to 7M2021 net buy of RM9 billion. As for local institutional investors, 7M2022 net sell amounted to RM7.9 billion, higher than the 7M2021 net sell of RM6.3 billion. On average daily trading value (ADTV), the broking firm highlighted ADTV in July fell 29% m-o-m to RM1.4 billion, representing the lowest monthly ADTV since December 2012. The average daily trading volume fell 20% m-o-m to 2.2 billion units in July. The market capitalisation of Bursa Malaysia’s main board grew 2.7% m-o-m to RM1.65 billion as at end-July, a smaller gain than the KLCI’s 3.3% m-o-m. Notably, at 3.3% m-o-m gain in July, the KLCI outperformed the MSCI All Country ex-Japan index. Among the benchmark indices of neighbouring countries, namely Indonesia, Singapore and Thailand, it was also the second best performing market in July after Singapore’s, which gained 3.5% m-o-m. For the month of August, the performance of the KLCI tends to be negative based on historical data, with average of -0.3% m-o-m returns over the past 10 years. It expects the KLCI to be range-bound in August, with possible downside risk if there are negative surprises from the earnings season. The 2Q22 results seasons have been mixed so far. On the market outlook, the key negative surprises during the results season so far came from glove makers, while REITs that reported results posted better-than-expected earnings. Its top three picks include Genting Malaysia Bhd (target price: RM3.30, MR DIY Group Bhd (target price: RM2.40) and RHB Bank (target price: RM7.70). 

Eye On The Markets 

This week, on Friday (5Aug), the Ringgit opened at 4.4565 against the USD from 4.4505 on Monday (1Aug). Meanwhile, the Ringgit was 3.2380 to the Sing Dollar on Friday (5Aug). On Monday (1Aug), the FBM KLCI opened at 1492.67. As at Friday (5Aug) 10:00am, the FBM KLCI is up 7.12 points for the week at 1499.79. Over in US, the overnight Dow Jones Industrial Average closed down 85.68 points (-0.26%) to 32,726.82 whilst the NASDAQ added 52.42 points (+0.41%) to 12,720.58.