Inve$t | Market Sentiments | 4 November 2022
The Monetary Policy Committee (MPC) of Bank Negara Malaysia decided to increase the Overnight Policy Rate (OPR) by 25 basis points to 2.75 percent. The ceiling and floor rates of the corridor of the OPR are correspondingly increased to 3.00 percent and 2.50 percent, respectively. For the Malaysian economy, latest indicators show that economic activity strengthened further in the third quarter, driven primarily by robust domestic demand. Going forward, despite the challenging global environment, domestic demand will remain the key driver of growth.
Household spending will continue to be underpinned by improvements in labour market conditions and income prospects. Tourist arrivals have increased following the reopening of international borders and will further lift tourism-related sectors. Investment activity and prospects will be supported by the realisation of multi-year projects. Nevertheless, external demand is expected to moderate following softening global growth. Despite bouts of heightened volatility in the global financial and foreign exchange markets, these developments are not expected to derail Malaysia’s growth. Domestic liquidity remains sufficient, with continued orderly functioning of the financial and foreign exchange markets. Financial institutions also continue to operate with strong capital and liquidity buffers. These will ensure financial intermediation remains supportive of the economy. Downside risks to the domestic economy continue to stem from a weaker-than-expected global growth, higher risk aversion in global financial markets amid more aggressive monetary policy tightening in major economies, further escalation of geopolitical conflicts, and worsening supply chain disruptions.
In line with earlier assessments, headline inflation is likely to have peaked in 3Q 2022 and is expected to moderate thereafter, albeit remaining elevated. Underlying inflation, as measured by core inflation, is projected to average closer to the upper end of the 2.0% – 3.0% forecast range in 2022, having averaged 2.7% year-to-date, given some demand-driven price pressures amid the high-cost environment.
Moving into 2023, headline and core inflation are expected to remain elevated amid both demand and cost pressures, as well as any changes to domestic policy measures. The extent of upward pressures to inflation will remain partly contained by existing price controls, subsidies, and the remaining spare capacity in the economy. The balance of risk to the inflation outlook in 2023 is tilted to the upside and continues to be subject to domestic policy measures on subsidies, as well as global commodity price developments arising mainly from the ongoing military conflict in Ukraine and prolonged supply-related disruptions.
Against the backdrop of continued positive growth prospects for the Malaysian economy, the MPC decided to further adjust the degree of monetary accommodation. The adjustment would also pre-emptively manage the risk of excessive demand on price pressures consistent with the recalibration of monetary policy settings that balances the risks to domestic inflation and sustainable growth. At the current OPR level, the stance of monetary policy remains accommodative and supportive of economic growth. The MPC is not on any pre-set course, which means that monetary policy decisions will continue to depend on evolving conditions and their implications on the overall outlook to domestic inflation and growth. Any adjustments to the monetary policy settings going forward would continue to be done in a measured and gradual manner, ensuring that monetary policy remains accommodative to support sustainable economic growth in an environment of price stability.
The MPC also noted that the global economy continues to be weighed down by rising cost pressures, tighter global financial conditions, and strict containment measures in China. These factors more than offset the support from positive labour market conditions, and the full reopening of most economies and international borders. Inflationary pressures were more persistent than expected due to strong demand, tight labour markets, and elevated commodity prices, despite improvements in global supply chain conditions.
Consequently, many central banks are expected to continue raising interest rates to manage inflationary pressures. In particular, continued aggressive adjustments in US interest rates and expectations of a higher terminal rate in the US, have contributed to a persistently strong US dollar environment. This has resulted in higher volatility in financial markets, affecting other major and emerging market currencies, including the ringgit. Going forward, the global growth outlook will continue to face headwinds from tighter financial conditions amid elevated inflation in major economies and the domestic challenges in China. The growth outlook remains subject to downside risks, including escalation of geopolitical tensions, worsening of domestic headwinds in China and potential energy rationing in Europe.
The meeting also approved the schedule of MPC meetings for 2023. In accordance with the Central Bank of Malaysia Act 2009, the MPC will convene six times during the year. The Monetary Policy Statement will be released at 3 p.m. on the final day of each MPC meeting.
Malaysian economy holding up but headwinds persist: Tan Sri Azman Hashim
Chief executives, industry experts and business leaders discussed major trends impacting the Malaysian economy as well as issues of common concern such as inflation and labour shortages at the 2022 Perdana Leadership Foundation CEO forum.
According to Perdana Leadership Foundation board of trustee chairman Tan Sri Azman Hashim, Malaysia’s economic fundamentals have held up throughout the Covid-19 pandemic thanks to central bank oversight, public sector assistance and efforts of the private sector, but headwinds from external and internal sources continue to plague the country. It is thus timely to have this forum where business leaders and industry experts are gathered to discuss economic trends, and the environment, as well as identify sectors that are growing in importance such as technology and logistics. The business community plays a huge role in strengthening, fortifying, and reviving the Malaysian economy, and this forum is a platform to surface the concerns of business leaders to policymakers.
The Russia-Ukraine war is ongoing with no end in sight, so the food and fuel shortages experienced in Europe will continue for the foreseeable time. This means inflation – which is already at unprecedented levels in many countries – will not abate, and the cost-of-living crisis will continue for many people around the world. China is still pursuing its zero-Covid policy and parts of the country may be subjected to lockdowns. For many companies, including Malaysian ones, this signals potential manufacturing and supply disruptions.
Malaysia is also dealing with the effects of climate change, with floods, typhoons, hurricanes and droughts becoming more unpredictable and severe globally. It is not surprising that the World Bank and the International Monetary Fund are forecasting weak global economic growth of less than 3% in 2023, with the ominous note that the worst is yet to come, and for many people it will feel like a recession. While Malaysia’s growth is forecast to be better than the world average, at 4.5%, it will be lower than in pre-pandemic years, mostly due to lower demand for our exports.
Bursa Malaysia announces RM177.6 million profit after tax and zakat for the nine months ended 30 September 2022
Bursa Malaysia Berhad recorded a Profit After Tax and Zakat of RM177.6 million for the nine-month financial period ended 30 September 2022, a 38.8% decrease from RM290.3 million reported in the previous corresponding period ended 30 September 2021. The decrease in PAT is due to lower operating revenue by 24.6% to RM445.2 million from RM590.0 million in 9M2021, primarily caused by a decline in securities trading revenue. Meanwhile, total operating expenses saw a 0.7% marginal increase to RM214.7 million in 9M2022, compared to RM213.2 million in 9M2021.
According to Chief Executive Officer of Bursa Malaysia Datuk Muhamad Umar Swift, global volatility and the higher interest rate environment continue to challenge our securities market business but improvements in the performance of the derivatives market as well as market data businesses have helped contribute to our profit numbers during this financial period. The Exchange will continue to ensure that it innovates and remains agile to generate increased volumes thus contributing to higher revenue streams in all segments of the business in this investment climate.
For the period under review, the Securities Market registered a trading revenue of RM203.0 million, a decrease by 43.6% compared to RM359.9 million in 9M2021. This is due to lower Average Daily Trading Value for Securities Market’s On-Market Trades and Direct Business Trades in 9M2022 of RM2.2 billion against RM4.0 billion in 9M2021. Trading velocity in 9M2022 was lower by 24 percentage points to 30% compared to 54% in 9M2021. On new listings, funds raised through Initial Public Offerings in 9M2022 totalled RM2.8 billion, higher than the RM2.3 billion raised in 9M2021.
Total derivatives trading revenue increased by 11.5% to RM73.4 million in 9M2022 from RM65.8 million in 9M2021, contributed by higher collateral management income as well as higher number of Crude Palm Oil Futures and FTSE Bursa Malaysia KLCI Futures. Average Daily Contacts in 9M2022 rose 2.2% with 78,540 contracts, compared to 76,836 contracts in 9M2021.
As for the Islamic Markets, higher trading activity in Bursa Suq Al-Sila’ resulted in an increase of trading revenue by 17.3% to RM11.8 million in 9M2022, from RM10.1 million in 9M2021. Meanwhile, the market data business closed 9M2022 with a total revenue of RM45.8 million, a 15.9% increase compared to RM39.5 million in 9M2021, driven by higher number of subscribers.
Based on Bank Negara Malaysia’s report that the Malaysian economy grew by 8.9% in 2Q2022, factors such as improving labour conditions, reopening of international borders, recovery in tourism-related sectors, and increase in investment activities will continue to support this growth trajectory. Trading volume is facing strong global headwinds, but the Exchange continues to actively engage with existing and potential market participants to highlight the market’s value and appeal. To enhance the attractiveness of existing listed companies, the Exchange has launched initiatives such as the Public Listed Companies Transformation Programme, the Bursa Research Incentive Scheme, Investor Relations & Public Relations Incentive Programme and the Bursa Digital Research. To entice domestic and foreign derivatives participants, other initiatives include further extension of the after-hours (T+1) derivatives night trading session.
Ensuring a robust Islamic Capital Market remains one of the Exchange’s main agendas, which is in line with its Sustainable and Responsible Investment and Environmental Social Governance agenda. The Exchange continues to develop new Shariah-compliant products, such as the upcoming Shariah-compliant Voluntary Carbon Market and the Bursa Gold Dinar. The financial results for the period ending 9M2022 are available on Bursa Malaysia’s website at www.bursamalaysia.com.
Note From Publisher: In this issue of Inve$t, we are happy to introduce Good Life, a regular lifestyle section that will present to you opportunities to enjoy the good life. And by good life we mean products, services, places and people who give priority to the environment and sustainability. Also from this issue onwards we bring to you a regular column called Indulge in which we selectively showcase new products or services launched in the marketplace as a means for you to consider buying just to pamper yourself. Afterall, when you have generated profits from your investments, it’s a good time to treat yourself for your success. Enjoy. Oh and do share this issue of Inve$t with your loved ones.
Eye On The Markets
This week, on Friday (4Nov), the Ringgit opened at 4.7445 against the USD from 4.7285 on Monday (31Oct). Meanwhile, the Ringgit was 3.3378 to the Sing Dollar on Friday (4Nov). On Monday (31Oct), the FBM KLCI opened at 1450.94. As at Friday (4Nov) 10:00am, the FBM KLCI is down 24.22 points for the week at 1426.72. Over in US, the overnight Dow Jones Industrial Average closed down 46.51 points (-0.46%) to 32,001.25 whilst the NASDAQ shed 181.86 points (-1.73%) to 10,342.94.
