Ringgit expected to strengthen against US dollar starting Q2 2023 – AmBank Research

Inve$t | Market Sentiments | 28 October 2022


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Ringgit expected to strengthen against US dollar starting Q2 2023 – AmBank Research

According to AmBank Research, the ringgit should start to strengthen against the US dollar from the second quarter (Q2) of next year onwards and settle at the 4.40 level in the fourth quarter (Q4) of 2023, as the greenback is expected to enter a period of cyclical decline. The local currency has seen its weakest valuation against the US dollar on March 31, 1998, at 4.88. 

The research house recently reported that upside pressure on the currency remains which will be coming from both external headwinds and domestic noises. The ringgit is expected to weaken further in the first quarter of 2023 to 4.80 against the dollar. It forecast the interest rate differential between Malaysia and the United States would narrow in the second half (H2) of 2023. With a sharp slowdown or recession risk in the US, there are potential rate pullbacks by the Federal Reserve (Fed) in H2 2023. With an estimated reduction of 100 basis points (bps) in H2 2023, this would mean the interest rate differential would drop from a peak of 1.25-1.50 per cent to 0.25-0.50 per cent.  

The domestic economy would be much more settled post-15th General Election. This would mean the positive impacts of the 12th Malaysia Plan, foreign direct investment, domestic direct investment, domestic activities, exports and better management of inflation and Budget 2023 should provide the necessary comfort for the economy to expand around 4.5 per cent in 2023. 

Recapping the ringgit’s performance this year, the Fed’s aggressive rate hikes in 2022 with the aim to cool inflation led to a strong upwards bias on the ringgit. The currency fell by 13.5 per cent as of Oct 25, 2022, despite Bank Negara Malaysia (BNM) raising its policy rates by a cumulative 75 bps to reach 2.50 per cent until October 2022. Expectations are for BNM to raise another 25 bps in November 2022 and another 25 bps in January 2023, adding that this will bring the policy rate back to the pre-COVID-19 level of 3.00 per cent. The ringgit has remained weak despite the efforts to stabilising the currency by utilising around US$9.5 billion of BNM’s reserves. 

The Gross Domestic Product (GDP) recorded a strong growth of 8.9 per cent year-on-year in Q2 2022, adding that third-quarter 2022 GDP is expected to perform better, projected to hover around nine per cent to 10 per cent with the support of strong exports and domestic activities. However, it added the GDP is projected to grow at a slower pace in Q4 2022 to about 5.0 per cent. Despite a strong full-year GDP forecast of around 7.5 per cent to 8.0 per cent, the ringgit is poised to stay weak due to the “dollar play”. External headwinds plus domestic noises remain major drawbacks to the ringgit. Also, the interest rate differentials remain wide, favouring the dollar. The research house projected the ringgit in Q4 2022 would be at 4.70 against the dollar. 

Robust outlook for tech sector, say analysts – Despite favourable sentiment, there’s word of caution 

According to Hong Leong Investment Bank (HLIB) Research in their report released on Wednesday (27Oct), the Malaysian technology sector is set to experience multi-year earnings growth, supported by exponential demand and government incentives. It is favouring front-end players, as many countries are rushing to develop their semiconductor capabilities. This is especially the case for leading edge front-end fabrication looking to become more self-sufficient on the back of national strategic and security interests. Their top picks are Frontken Corp Bhd and UWC Bhd, which have exposure to front-end opportunities.  

HLIB Research is reiterating a “buy” call on Frontken with a target price of RM3.20. Frontken has a multi-year growth forecast, on the back of a sustainable global semiconductor market outlook, robust fab investment, leading edge technology, and a strong balance sheet to support its Taiwan expansion. The research house is also reiterating a “buy” call on UWC, with an unchanged target price of RM4.38. The ongoing trade intensity may eventually benefit UWC, which provides a one-stop solution as more companies shift production out of China to avoid import tariffs. 

Due to the Covid-19 pandemic, there is an increasing demand for digitalisation. This, has driven sales on a global scale and has also resulted in a worldwide chip shortage that has impacted supply chains across various sectors. After an amazing 26% growth in 2021, Malaysia is expecting a gain of 8% to 10% in 2022, followed by a weaker 2023. This is mainly due to the weaknesses in the consumer-centric end market, namely PCs and smartphones. However, the automotive segment remains resilient with strong bill-to-book ratios. 

On a separate note, HLIB Research said a total of RM52bil in semiconductor investments have been announced in the past 12 months that will potentially create 11,000 new jobs. Malaysia remains a key player in the global supply chain, as 7% of total global semiconductor trade flows through the country. Malaysia commands a 13% share of the global chip testing and packaging market. The electrical and electronics industries remain the largest contributors to Malaysia’s exports. 

In view of the impending implementation of the Global Minimum Tax (15%), the Malaysia Semiconductor Industries Association is working with the government to improve non-monetary incentives, such as automation, talent, supply chain, and research and development connectivity, to attract foreign direct investments. 

However the research house cautioned that despite the robust outlook for Malaysia’s tech sector, the industry is not without its challenges. These include economic headwinds – inflation, global recession risk and Taiwan-United States-China tensions – as well as consumer product demand corrections. Add to that supply disruptions – fire incidents in Japan, weather disruptions in the US, power outages in Germany, power allocation in China, Ukraine conflict, major drought in Taiwan and China’s zero-Covid policy – and a shortage of workers and talents will also present challenges to the sector. 

Indicators show M’sia still on expansion phase – Rising demand, robust external trade to support growth – MIDF 

According to MIDF Research, the domestic economy is expected to retain its momentum in the near term, judging from the latest reading of one of its major indicators – Malaysia’s Leading Index (LI). The LI is a predictive tool used to anticipate economic upturns and downturns an average of four to six months ahead. Most economists have pegged the domestic economy to grow at 4% to 5% versus 6.5% to 7% this year. 

Based on official estimates, the economy is expected to grow by 4% to 5% in 2023 versus a growth rate of between 6.5% and 7% this year. The economy advanced 8.9% year-on-year (y-o-y) in the second quarter (2Q22), accelerating sharply from a 5% y-o-y growth in 1Q22 and beating the consensus forecast of a 6.7% rise. Malaysia’s LI rose by 4% y-o-y in August this year compared with 4.1% y-o-y in July, signalling growth outlook in the near term. The sustained rise in LI was contributed by higher real imports of semiconductors, increased number of housing units approved and growth in real money supply (M1). Relative to July, LI rose by 1.6% month-on-month (m-o-m), indicating more positive developments in August compared to the previous month. 

Malaysia’s economic growth for this year is expected to be better than last year, driven by increasing domestic demand and robust external trade. Given the sustained macroeconomic growth and rising underlying price pressures, it is maintaining its projection that Bank Negara will continue to adjust the overnight policy rate higher to a more normal level at the monetary policy meeting next week. Nevertheless, several risks could affect Malaysia’s growth outlook such as a potential global slowdown, prolonged supply-side challenges, high inflation and rising borrowing costs. Meanwhile, the Coincident Index (CI) also saw sustained increase albeit at a relatively slower pace of 9.8% y-o-y in August compared with July’s 12.5% y-o-y. 

While the moderate growth was due to the higher base in August, continued growth in CI reflects mainly higher industrial production activities and better real salaries and wages in the manufacturing sector. Activities in August expanded due to growing business activities and better income growth for the employees. On a m-o-m basis, the CI rebounded by 0.8% after falling by 1.6% m-o-m in July. The CI is used to identify the current state of the economy. In general, increasing CI index shows that the economy is in an expansion phase, and a decreasing index reflects the economy is in a contraction phase. 

Eye On The Markets 

This week, on Friday (28Oct), the Ringgit opened at 4.7355 against the USD from 4.7115 on Tuesday (25Oct). Meanwhile, the Ringgit was 3.3226 to the Sing Dollar on Friday (28Oct). On Tuesday (25Oct), the FBM KLCI opened at 1383.50. As at Friday (28Oct) 10:00am, the FBM KLCI is up 55.61 points for the week at 1439.11. Over in US, the overnight Dow Jones Industrial Average closed down 90.22 points (-0.30%) to 30,333.59 whilst the NASDAQ shed 65.66 points (-0.61%) to 10,614.84. 

Stick to fundamentally sound and liquid plays ahead of GE15 – UOB Kay Hian

Inve$t | Market Sentiments | 21 October 2022

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According to UOB Kay Hian’s head of Malaysia research Vincent Khoo, in his strategy report released on Wednesday (Oct19), sees some trading opportunities tied to speculation surrounding the upcoming 15th general election (GE15). However, the research firm advises investors to stick to fundamentally sound and liquid stocks. Its assessment assumes a base case for an Umno-led coalition winning a bigger majority in Parliament during GE15, taking cue from the results of several by-elections and three state elections since GE14. While this positively implies stability in politics/business policies, the market still lacks past elections’ (before GE14) mojo of coinciding with major government contract awards.  

Instead, investment sentiment will continue to be swayed by global issues — stubbornly high inflation and the US’ monetary policy contraction throughout 2022, the ongoing Russia-Ukraine war, and China’s zero-Covid policy. UOB Kay Hian’s top picks are large-cap stocks such as government-linked banks CIMB Group Holdings Bhd, Malayan Banking Bhd and RHB Bank Bhd. He also likes Gamuda Bhd and MY EG Services Bhd (MYEG) as he expects the newly installed federal government to award the Mass Rapid Transit 3 Circle Line contracts by the first quarter of 2023 — for which Gamuda is a leading bidder for the tunnelling section — and to give the green light for MYEG to roll out the automated testing module for car driver licence. He added that Citaglobal Bhd (formerly known as WZ Satu Bhd) could also appeal as a concept-driven trading play.  

Acknowledging that some investors would remain wary of GE15’s dampening investment sentiment, the research firm is also recommending a list of defensive high yielders, which are not operating in politically sensitive sectors. These high yielders are also predicted to deliver market-outperforming absolute returns. They include Bermaz Auto Bhd, Hap Seng Plantations Holdings Bhd, Kim Loong Resources Bhd, Malakoff Corp Bhd, Matrix Concepts Holdings Bhd and Sunway Real Estate Investment Trust. Some of these companies are cash-rich and are likely to reward shareholders with special dividends, such as Bermaz. As Hap Seng’s dividends are back-loaded, we expect chunky dividends to be announced [along with its results for the fourth quarter of financial year 2022].  

He also projects that the benchmark FBM KLCI will continue to trend up towards the year end as US core inflation indicators would have peaked by then. However, there is downside risk to our end-2022 FBM KLCI target of 1,585 points should our base assumptions/hopes not all materialise — peak US inflation, the Russia-Ukraine war not worsening, and a not overly harsh winter season in the eurozone. 

Retail investor capital presents US$35b growth opportunity for sustainable investing in Malaysia – StanChart 

According to Standard Chartered’s Sustainable Banking Report 2022 released on Tuesday (Oct18), Malaysia could mobilise US$35 billion (RM165 billion) in sustainable retail investments by 2030, particularly the financing of climate transition. This capital could also play a critical part in bridging funding gaps in Malaysia’s other environmental, social and governance (ESG) priorities such as pollution and waste management. The report said Malaysia has high potential for growth in sustainable investing, largely due to its significant population and rising domestic wealth. Across Malaysia, 36% of investors want to put their money towards addressing climate issues. Greater access and transparency in the sustainable investment ecosystem could mobilise Malaysia’s retail capital potential in reaching its carbon neutrality targets, aside from other ESG issues of concern to retail investors, such as pollution, waste management and energy security. Investors in Malaysia identified perceived low returns/higher risk (53%), accessibility (51%) and comparability (45%) as their top barriers to increasing their sustainable investments.  

The report further highlights the need for investor and market-specific barriers that need to be overcome to translate this investor interest into actual impact. According to Standard Chartered Malaysia managing director and head of consumer, private and business banking Sammeer Sharma, research showed that 72% and 86% of affluent and high net worth investors respectively in Malaysia have a high level of interest in sustainable investments, motivated by their desire to help restore the environment and hedge against ESG risks. The synergies between syariah-compliant investing and sustainable investments also present an opportunity to channel private capital towards sustainable investments. He added that a rapidly growing number of clients want their investments to make a positive impact on the environment and in society, and there is significant appetite to take ESG investment from a niche play to a mainstream investment strategy. 

SC inks regional supervisory cooperation deal 

The Securities Commission (SC) has inked the IOSCO Asia-Pacific Regional Committee’s (APRC) multilateral memorandum of understanding for supervisory cooperation (supervisory MMoU) at the International Organisation of Securities Commissions (IOSCO) annual meetings 2022 in Morocco recently. According to a statement by SC, given the increasing cross-border activities in capital markets within the region, this supervisory MMoU establishes, for the first time, a formal framework for regional supervisory cooperation among capital market regulators. With the signing of the supervisory MMoU, the SC now has a cooperative arrangement on supervisory matters with its regional regulatory counterparts including in Australia, Hong Kong, Japan, Singapore and Thailand. SC chairman Datuk Seri Dr Awang Adek Hussin said cross-border supervisory cooperation is a key element to enhance investor protection. He added, information-sharing with regional regulators through this platform will strengthen the SC’s overall supervisory capabilities.  

APRC chair Takashi Nagaoka congratulated the SC for being among the first signatories of the IOSCO APRC supervisory MMoU. He said, this is an important milestone that will enhance regulators’ cooperation and coordination across borders. The SC has also been re-elected as a member of the board of IOSCO, the governing and standard- setting body responsible for leading the direction and standard-setting process on policy issues affecting global capital markets, for the 2022-2024 term. The SC has been a member of the IOSCO board since 2012. During the IOSCO annual meetings, global securities regulators discussed the impact of current international developments in the financial sector, including the risks and challenges to the capital market. Delegates also shared their views on a wide range of topics, including crypto and digital assets, sustainable finance, emerging risks and retail market conduct. The IOSCO is the leading international policy forum for securities regulators, where the organisation’s members regulate more than 95% of the world’s securities markets in 130 jurisdictions. 

Eye On The Markets 

This week, on Friday (21Oct), the Ringgit opened at 4.7355 against the USD from 4.7115 on Monday (17Oct). Meanwhile, the Ringgit was 3.3226 to the Sing Dollar on Friday (21Oct). On Monday (17Oct), the FBM KLCI opened at 1383.50. As at Friday (21Oct) 10:00am, the FBM KLCI is up 55.61 points for the week at 1439.11. Over in US, the overnight Dow Jones Industrial Average closed down 90.22 points (-0.30%) to 30,333.59 whilst the NASDAQ shed 65.66 points (-0.61%) to 10,614.84. 

 

FBM KLCI seen hitting 1,580 points by year-end – Rakuten 

Inve$t | Market Sentiments | 14 October 2022

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According to Rakuten Trade head of research Kenny Yee Shen Pin, the FBM KLCI is expected to hit 1,580 points by year-end. The possibility of the US Federal Reserve lowering interest rate hikes will provide some stability for the regional and local bourses. He anticipates FBM KLCI to possibly touch 1,580 points by the end of 2022, premised on a very reasonable 13 times calendar year 2022 (CY22) price-to-earnings (PE) ratio. The banking and telecommunication sectors would support the momentum. This is also premised on the much improved earnings growth for CY23, at 6.8%. This is in view of better corporate performance, especially from the banking sector. 

Speaking at a briefing titled “A ‘wow’ Budget”, he said the construction sector will also likely play a significant role to improve the economy from the present slowdown. At the moment, corporate earnings are on a downtrend, with growth revised from 4.3% to about 1%. This was attributed to the cut in profit estimates for the manufacturing and utilities sectors. The manufacturing sector, particularly glove, saw an almost 90% slash in earnings. The banking sector is expected to have a 15% to 16% growth next year, in view of the current high interest-rate environment. 

The FBM KLCI is now trading at a PE of 11.5 times, below its five-year historical average of 18.4 times or a 40% discount. Regional valuations are also trading below their respective historical average. Although Budget 2023 holds no legality now given the Parliament’s dissolution on Monday, until the new government tables a new one, the budget covered the whole spectrum of the country’s population. 

In the last two or three budgets, there has been a lack of an injection of funds into the country’s main engine, which is the construction sector. This is crucial as the construction sector has the highest multiplier effect in terms of economic growth. Although its contribution to gross domestic product is not high, the construction sector has more than 100 linkages into other segments of the economy, from the upstream to downstream players. Therefore, it acts as a wealth creator for many industries. 

Market volatilities, primarily from the United States, remain a persistent headwind for Bursa’s performance. Commodities like crude palm oil (CPO) and crude oil have experienced wild gyrations. The price of CPO fell by about 47% to RM3,800 from a high of RM7,200, while Brent crude oil declined by more than 20% to US$96 (RM448.5) per barrel from US$130 (RM607.3) per barrel.  

Although foreign shareholding of shares is low, it is on an improving trend, backed by foreign net inflows which are currently at RM6.5bil. Foreign shareholding in the equity market as of September 2022 was at 12.4%. Following consecutive declines in 2020 and 2021, foreign shareholding actually touched the lowest at the end of 2021, at 11.35%. However, the situation has improved, underpinned by foreign net inflows so far this year. The Fed is expected to be less aggressive with interest rate hikes next year. This will likely strengthen the ringgit against the US dollar in the second half of 2023. He is of the belief that Bank Negara will implement another 25-basis-point hike in interest rates in order to stop the ringgit from weakening further. While regional market volatility remains high, Malaysia’s volatility is below its peers as the local bourse is a captive market. A large portion of the shares are held domestically and foreign shareholding is still at a low level. Hence volatility in the country is on a low side compared with regional peers. 

IMF ups Malaysia’s 2022 growth forecast to 5.4%, cuts 2023 projection to 4.4%, warns of global recession 

According to the International Monetary Fund (IMF) in its World Economic Outlook Report October 2022 released on Wednesday (Oct 12), it has raised its gross domestic product (GDP) growth forecast for Malaysia in 2022 to 5.4% from 5.1%. At the same time, the fund cautioned that for the global economy in 2023, worse is to come. It also projected that Malaysia would grow at 4.4% next year, lower than its initial forecast of 4.7% in July. The revision upwards for 2022 comes less than three months after the IMF in July cut its projected 2022 growth for Malaysia to 5.1% from 5.6%. The IMF’s projection is lower than Malaysia’s official forecast growth of 6.5%-7.0%. 

The IMF also downgraded 2023 global economic growth to 2.7% from 2.9%  in its July forecast, with a 25% probability that world GDP would fall below 2%. It cautioned that more than a third of the global economy would contract this year, and in 2023, the three largest economies — the US, EU and China — would continue to stall. In short, the worst is yet to come, and for many people, 2023 will feel like a recession. The global economy continues to face steep challenges, due to lingering effects from the Russian-Ukraine war, persistent and broadening inflation pressures and economic slowdown in China. 

IMF foresees that global inflation may escalate to 8.8% this year, from 4.7% in 2021, before tapering to 6.5% in 2023 and 4.1% by 2024. Upside inflation surprises have been most widespread among advanced economies, with greater variability in emerging markets. As storm clouds gather, policymakers need to keep a steady hand. The fund also highlighted that the sharp appreciation of the US dollar adds price pressure to emerging markets, which are already facing a very challenging external environment as capital flows have not recovered and many low-income economies remain in debt distress. The 2022 shocks will re-open economic wounds that were only partially healed following the pandemic. 

Eye On The Markets 

This week, on Friday (14Oct), the Ringgit opened at 4.6945 against the USD from 4.6660 on Tuesday (11Oct). Meanwhile, the Ringgit was 3.2982 to the Sing Dollar on Friday (14Oct). On Tuesday (11Oct), the FBM KLCI opened at 1400.58. As at Friday (14Oct) 10:00am, the FBM KLCI is down 17.33 points for the week at 1383.25. Over in US, the overnight Dow Jones Industrial Average closed up 827.87 points (+2.83%) to 30,038.72 whilst the NASDAQ gained 232.05 points (+2.23%) to 10,649.15. 

Market condition remains orderly amid high volatility — BNM

Inve$t | Market Sentiments | 7 October 2022

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According to Bank Negara Malaysia in its Financial Stability Review Report for 1H2022, businesses continued to show improvement in their financial performance in the first half of 2022 (1H2022) in line with the full resumption of economic activities and reopening of international borders. However recovery remains uneven and slower in certain economic sub-sectors. But overall business loan impairments remain low at 1.1% of total banking system loans. The share of business loans with higher credit risk has continued to decline to 14.4% of total business loans, in line with the gradual improvement in business conditions. 

The share of SME (small and medium enterprise) loans under repayment assistance has halved to 13.1% of total SME loans (or 2.3% of total loans from the banking system and development financial institutions). SMEs that have exited repayment assistance programmes have largely been able to resume their loan repayments. Businesses are expected to face continued headwinds, including tightening global financial conditions and exchange rate developments. However, additional business defaults under simulated severe stress scenarios are expected to remain manageable. 

1: Market remains orderly amid stronger US dollar:  

The combination of aggressive policy rate hikes in the US, the military conflict in Ukraine and more moderate global growth outlook had affected most major and emerging market currencies, including the ringgit. Year-to-date, the ringgit has depreciated by 8.6% against the US dollar. Against other major trade partners, the ringgit has remained broadly stable as reflected in the marginal appreciation of 0.2% in the Nominal Effective Exchange Rate. Notwithstanding the depreciation in the ringgit against the US dollar, adjustments in the onshore foreign exchange (FX) market have remained orderly, with the one-month USD/MYR implied volatility averaging at 4.2%, below recent historical averages (2021: 4.3%; 2015-2019 average: 6.5%). Trading volumes in the domestic FX market have also remained healthy, with the onshore trading volume averaging US$13.3 billion daily (2021: US$11.2 billion). These conditions are expected to ensure that the domestic FX markets will continue to support businesses and market participants in managing their FX exposures. 

2: Household debt-to-GDP at pre-pandemic level:  

Malaysia’s ratio of household debt-to-GDP has reverted closer to pre-pandemic levels at 84.5% as banks continue to maintain prudent lending standards amid a sustained recovery in household lending. The share of household debt under repayment assistance has declined significantly from 18.8% in December 2021 to 2.4% as of June 2022, with a lower share of household debt reported by banks to be of higher credit risk. Household impairment and delinquency ratios increased marginally but continue to remain low and within expectations at 1.2% and 0.6%, respectively. The share of household loans classified by banks as exhibiting higher credit risk (Stage 2 loans) has continued to decline to 7.9% (December 2021: 8.5%). It is expected to decline further over the course of the year as more borrowers that have exited repayment assistance programmes complete a minimum ‘observation’ period of loan servicing. Banks have also set aside sufficient provisioning buffers against these risks. 

3: Financial system well-positioned to withstand shocks:  

The domestic financial system remains well-positioned to withstand shocks and support economic recovery. The strong buffers of banks, insurers and takaful operators will continue to preserve the resilience of financial institutions against potential unexpected losses. Assuming additional severe shocks applied on top of banks’ stress test, post-shock aggregate capital ratios as at end-2023 remain comfortably above regulatory minimum levels at 15.4% for banks and 209% for insurers and takaful operators. This will enable them to continue supporting households’ and businesses’ financing and protection needs as economic activities resume. The funding position of the banking system remained strong in 1H2022, with a healthy aggregate liquidity coverage ratio (LCR) of 148.3% and net stable funding ratio (NSFR) of 118.5%, which supported lending activities. Banking system deposits recorded steady growth (6.6%; 2015-2019 average: 4.4%), mainly driven by business deposits in line with the recovery in economic activities. 

While the overall profitability of insurance and takaful funds declined in 1H2022, driven by weaker investment performance of life insurance and family takaful funds, for life insurance and family takaful funds, excess income over outgo was negative in 1H2022. The decline was driven by net unrealised losses from bond and equity investments, amid higher bond yields and weaker performance of global and domestic equities during the period. In contrast, income from underwriting activity improved on the back of the medical and health segment which has been a major contributor to new business growth. 

4: Strong cyber defence of financial institutions remains a priority:  

Financial institutions are directing significant resources to maintain strong cyber defences and technology risk controls. Financial institutions are also required to implement additional countermeasures against online banking fraud. In parallel, BNM is coordinating efforts with the industry, Royal Malaysian Police (RMP), and the Malaysian Communications and Multimedia Commission (MCMC) to further improve fraud incident response and recovery efforts and educate the public on using digital financial services safely. 

State of economy goes beyond ringgit’s showing, US dollar over-reliance needs rethink – Finance Minister 

According to Finance Minister Tengku Datuk Seri Zafrul Abdul Aziz, it may be time to think of solutions out of an over-reliance on the US dollar as the main global reserve currency of countries. While clarifying he did not mean abandoning the greenback for another currency, he explained the reliance on the US dollar has caused countries, namely Asian economies, to be at the mercy of decisions and market fluctuations occurring continents away. Malaysia remains committed to the global financial architecture as it exists, but sooner or later, these are questions smaller trading nations must consider, uncomfortable as they may be. He was speaking in his closing speech at the Khazanah Megatrends Forum 2022.  

With its 4.7 billion population, Asia is arguably the dynamo of global economic growth, now and in the future. Much of the commodities needed to make the leap to the so-called ‘digital’ and ‘green’ economies are to be found on our turf. The unique position of the US dollar as the reserve currency of the world means that the greenback often appreciates in uncertain times. Thus, a currency’s (non-dollar) position versus the greenback – especially in the short term – is hardly a yardstick of the state of the economy. A world where key countries can adversely affect the growth trajectories of others, including Malaysia, is unsustainable. Certain policies may benefit one superpower domestically, but they must not end up hurting others and potentially jeopardising global prosperity.  

He suggested the creation of a viable International Monetary Cooperation Mechanism to ensure financial systems are not only effective and fair, but also consider the unique needs of small, emerging and developing countries equitably. This has been done before since the 80s with the Plaza Accords to stabilise the US dollar against the Japanese yen and the German mark. More recently this was done during the Global Financial Crisis in 2008. Here, central banks in developed countries had coordinated to prevent financial contagion from spreading to the rest of the world. And at the onset of the Covid-19 pandemic, the Global Financial Safety Net provided ample financing to quickly stabilise the global financial markets and contain the economic crisis. Existing institutions such as the Bank of International Settlements and International Organisation of Securities Commissions also had an important role in aiding developing countries and emerging economies. Meanwhile, despite the alarming fall in the ringgit at the moment, the local currency may return to being based on its economic fundamentals. This is given the strong demand for its goods and services. The ringgit has contracted against the dollar, but this has been more manageable relative to our regional peers and key trading partners.  

Meanwhile it was important for Malaysia to ensure its food and energy security needs are secure amid the likely “perfect storm” for the global economy ahead. We must insulate our food and energy security from rising production and price volatility amid geopolitical conflicts, supply chain disruptions, deglobalisation movements and climate change. Given the heightened global geopolitical tensions, we must seriously consider investing in building a strong Asean-wide supply chain. This is especially for food and energy security. This could also be done by capitalising on the Asean trading bloc to invest in building strong Asean supply chains in critical industries. If Asean policymakers can coordinate and work closely together, we can identify critical industries where we can scale up and enhance to be a critical part of the global supply chain. This will benefit not just our individual economies, but also serve as a mitigating strategy against calamities such as the pandemic, and geopolitical tensions happening in other parts of the world. 

Touching on Budget 2023 to be announced on October 7, he said that it will be forward-looking and people inclusive. It will be pro-investment, development, environment, empowerment; and most importantly, pro-rakyat. 

Global woes cast shadow over ASEAN+3 growth – AMRO 

According to the ASEAN+3 Macroeconomic Research Office (AMRO) Chief Economist Hoe Ee Khor, AMRO has revised downwards its short-term growth forecast for the ASEAN+3 region. The continuing strict dynamic zero-COVID policy and real estate sector weakness in China and potential recessions in the United States and the euro area are weighing on the region’s outlook. In its October Update, AMRO forecasts the ASEAN+3 region to grow by 3.7 percent this year—down from the 4.3 percent growth projected in July reflecting mainly weaker growth in Plus-3 economies. The ASEAN region is expected to grow strongly by 5.3 percent.  The region’s inflation rate for 2022 is now projected to be 6.2 percent—a full percentage point higher than previously forecast. Growth is expected to increase to 4.6 percent in 2023 as China’s economy picks up, with inflation moderating to about 3.4 percent.  

The prolonged war in Ukraine is deepening Europe’s energy crisis, pushing it closer to recession. In the United States, aggressive monetary tightening to fight persistently high inflation is intensifying fears of a hard landing. A simultaneous economic slowdown in the United States and euro area, in conjunction with tightening global financial conditions, would have negative spillover effects for the region through trade and financial channels.  

In ASEAN+3, inflation is accelerating. Food and fuel prices remain elevated despite recent easing in key global commodity benchmarks. Subsidy cuts in some economies and depreciating currencies have also pushed prices higher. Central banks in the region are raising policy interest rates to safeguard price stability and support their currencies. However, the pace of monetary tightening has generally been more measured and gradual than in the United States and the euro area. AMRO’s assessment are found in the latest quarterly update of its flagship report, the ASEAN+3 Regional Economic Outlook (AREO). The next update will be published in January 2023.  

Eye On The Markets 

This week, on Friday (07Oct), the Ringgit opened at 4.6480 against the USD from 4.644 on Monday (03Oct). Meanwhile, the Ringgit was 3.2521 to the Sing Dollar on Friday (07Oct). On Monday (03Oct), the FBM KLCI opened at 1393.70. As at Friday (07Oct) 10:00am, the FBM KLCI is up 18.58 points for the week at 1412.28. Over in US, the overnight Dow Jones Industrial Average closed down 346.93 points (-1.15%) to 29,926.94 whilst the NASDAQ shed 75.33 points (-0.68%) to 11,073.31.