INVE$T | Market Sentiments
19 August 2022
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.