Inve$t | Market Sentiments | 6 January 2023
According to Maybank IB chief economist Suhaimi Ilias, Malaysia’s economic growth is poised to moderate this year amid the lingering environment of high inflation and interest rates globally, but the country is unlikely to fall into a recession as local monetary policy remains non-restrictive, while softening of consumer spending cushioned by excess savings built up over the last two years. The investment bank is forecasting a 4% gross domestic product (GDP) growth for 2023, versus the estimated 8% growth last year. Although consumer spending growth is estimated to slow down to around 6% this year versus slightly above 11.5% in 2022, consumers are expected to tap into their excess savings built up during the pandemic years.
He said that consumers have built up excess savings since 2020, amidst lockdowns and economic stimulus measures, such as cash handouts, financial aids and of course the RM145 billion worth of pre-retirement EPF (Employees Provident Fund) withdrawal schemes, that has turned into drawdown of excess savings since May 2022, and this is providing a buffer and support for consumer spending growth. He was speaking at the Maybank IB 2023 Market Outlook media briefing.
Additionally, inbound tourism is expected to sustain a reopening tailwind this year, while robust approved investment growth is likely to continue amid supply chain relocation and rising capital expenditure for data centres, 5G infrastructures as well as automation to address labour shortage issues. Before Covid-19, in 2019, tourism accounted for almost 12% of GDP. As a result of the pandemic and lockdown, closure of international borders, tourism’s contribution to the economy has drastically dropped to less than 4% of GDP on average in 2021 and 2020.
China will be a wildcard as with every one percentage point change in the world’s second largest economy’s GDP, Malaysia’s growth will be affected by swinging 0.5 percentage point accordingly. China’s growth is expected to improve to 4% this year from the estimate of 3.3% last year, on the assumption of unwinding of zero-Covid policy there. This is short of the official figure of 5% growth.
The investment bank remains cautious especially in the real estate sector in China, which makes up 30% in GDP when various related activities in the value chain are included, and also account for a quarter of banking system loans. With the slump in property prices or default and trouble in repaying loans or coupon rate, there is a risk of a major ripple and systemic effect on China’s economy, banks and markets if there is going to be a major meltdown in real estate, irrespective of the unwinding of zero-Covid policy. Hence China remains a wildcard.
Given that the manufacturing and services sectors’ wages and salaries growth remained elevated in the third quarter of last year, Bank Negara Malaysia is expected to raise its overnight policy rate by another 25 basis points to 3% before pausing for the rest of this year. This basically means BNM’s monetary policy is not as restrictive as seen in major advanced economies, specifically the US. So, that means BNM is trying to strike a balance in addressing inflation and supporting growth. He also takes the view that recent improvements in the ringgit against the US dollar eases the pressure on BNM’s interest rate policy.
The ongoing high inflation has eroded consumers’ purchasing power despite the high wage growth since the third quarter of 2021. Therefore, it is unlikely for the government to introduce Goods and Services Tax (GST) in the upcoming Budget 2023. It is never popular to raise or introduce tax at a time when people are impacted by higher cost of living. In any case, any extra revenue needed for the government can come from non-tax revenue, and that basically boils down to Petronas dividend.
Since 2019, consistently every year the government has been getting a special dividend from Petronas anyway, above what was originally budgeted. Although crude oil price has come under pressure to US$80 level recently, current prices are still positive for Malaysia. In times of global downturn, or sharp slowdown, crude oil price typically drops to around US$25-US$45 per barrel range. It is still around US$80 per barrel, so it is not currently behaving in a manner consistent with global downturn in the past.
Another key focus in Budget 2023 would be subsidy measures, as it would affect domestic inflation, which is forecasted to be 3.0% this year, down from 3.3% last year. Budget 2023, which was tabled in October last year, hinted at subsidy rationalisation via a targeted mechanism against the current blanket system. It is indicated in a way looking at allocation for subsidies and social assistance for this year, that it was proposed to be cut by almost 30%. The move towards targeted subsidy is perhaps taking shape already, with the revised electricity tariff for the first half of 2023, where there are hikes to MNCs (multinational corporations) and medium-to-high voltage users, but no change to domestic and low voltage users.
Bursa amends business rules to facilitate market operations on “Surprise Holidays”
Bursa Malaysia Berhad has announced amendments to its Business Rules and Listing Requirements to facilitate the continued operations of Bursa Malaysia and its subsidiaries on days declared as surprise holidays. A “surprise holiday” refers to a public holiday declared in the Federal Territory of Kuala Lumpur that has not been gazetted as a public holiday at the start of the calendar year. The amendments were made in response to instances of unplanned or unanticipated holidays that took place in Kuala Lumpur in recent times.
By remaining open on a surprise holiday, Bursa Malaysia will ensure that all transactions that occurred prior to the surprise holiday can and will be delivered and settled as scheduled. This would accord greater certainty to the capital markets and mitigate any potential market or investment risk that investors may face as a result of the surprise holiday. Pursuant to the amendments, if Bursa Malaysia operates on a surprise holiday, a regulated person must comply with, and give effect, to the rules or any requirements imposed by Bursa Malaysia on such day, or within the stipulated timeframe that falls on or includes the surprise holiday.
Bursa Malaysia will be prudent and exercise due care in deciding whether to remain open on a surprise holiday, after consulting the relevant authorities. The Exchange will only remain open subject to the Real-Time Electronic Transfer of Funds and Securities System (“RENTAS”), which is the financial market infrastructure, being operational on the surprise holiday, in order to facilitate the clearing and settlement service. In the event Bursa Malaysia decides to operate on a surprise holiday, market participants and the general public will be informed in a timely manner via a media release, circulars or electronic notification. The amendments, which incorporate feedback and comments received from the industry, will become effective on 10 January 2023. The full text of these amendments is available at the following web address:
Eye On The Markets
This week, on Friday (6Jan), the Ringgit opened at 4.3970 against the USD from 4.4000 on Tuesday (3Jan). Meanwhile, the Ringgit was 3.2710 to the Sing Dollar on Friday (6Jan). On Tuesday (3Jan), the FBM KLCI opened at 1488.54. As at Friday (6Jan) 10:00am, the FBM KLCI is down 9.99 points for the week at 1478.55. Over in US, the overnight Dow Jones Industrial Average closed down 339.69 points (-1.02%) to 32,930.08 whilst the NASDAQ shed 153.52 points (-1.47%) to 10,305.24.