Bursa Malaysia enhances reporting framework

Market Sentiments | 20 Sept 2022

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According to Bursa Malaysia chief executive officer Datuk Muhamad Umar Swift, Bursa Malaysia has enhanced sustainability reporting in the Main Market Listing Requirements (Main LR) and the ACE Market Listing Requirements (ACE LR) in efforts to drive sustainability practices and disclosures of listed issuers. The exchange has enhanced the sustainability reporting requirements in the LR to ensure continued relevance and to propel listed issuers to adopt international best practices on issues like climate change. The enhancements are a clear and unequivocal signal of the bourse’s ambition to be the leading exchange for environmental, social and governance (ESG) in the region.  

The high bar set for all the listed issuers is underpinned by a multi-year, phased implementation approach to ensure a successful rollout. By embracing these enhancements, listed issuers would boost their overall resilience, competitiveness and, in turn, appeal as attractive investments.  

Main Market listed issuers would now be required to include the following disclosures in their sustainability statements: 

(i) a common set of prescribed sustainability matters and indicators that are deemed material for all listed issuers, 

(ii) climate change-related disclosures that are aligned with Task Force on climate-related financial disclosures (TCFD) recommendations, 

(iii) at least three financial years’ data for each reported indicator, corresponding targets (if any) as well as a summary of such data and corresponding performance target(s) in a prescribed format, and 

(iv) a statement on whether the Sustainability Statement has been reviewed internally by internal auditors or independently assured. 

The requirements for ACE Market listed corporations have also been strengthened to align with those of the Main Market. In addition, ACE Market listed corporations are now required to disclose a basic plan to transition towards a low carbon economy, with regards to climate change reporting. This not only facilitates ACE Market listed corporations in considering climate change-related risks and opportunities but also takes into account their maturity in this space. 

The enhanced sustainability reporting requirements for Main Market listed issuers will be implemented in a phased manner, beginning with the disclosure of the common sustainability matters for the financial year ending (FYE) on or after Dec 31, 2023, and culminating with the TCFD-aligned disclosures for FYE on or after Dec 31, 2025. Similarly, ACE Market listed corporations will adopt the enhanced sustainability disclosures on a staggered basis, with disclosures of the prescribed sustainability information taking effect for FYE on or after Dec 31, 2024, and concluding with disclosures of the basic transition plan for FYE on or after Dec 31, 2026. 

Bursa Malaysia had launched a sustainability reporting framework in 2015 where listed issuers are required to disclose a narrative statement of the management of material economic, environmental and social risks and opportunities in their annual reports. 

Foreign investors post largest weekly net sale value of Malaysian stocks YTD – CGS-CIMB 

According to CGS-CIMB analyst Ivy Ng Lee Fang, foreign investors had last week posted their highest weekly net sale value of Bursa Malaysia-listed stocks year-to-date (YTD) at RM565 million, possibly due to the weak ringgit and global recession concerns at a time when world central banks are pursuing aggressive interest rate hikes to fight inflation. Last week (ended Sept 23, 2022), they were net sellers in the healthcare and financial services sectors, with Malayan Banking Bhd (Maybank), Top Glove Corp Bhd and Press Metal Aluminium Holdings Bhd as their top three net sell stocks. 

Foreign investors were the only net sellers of Malaysian equities last week when market sentiment was dented by Top Glove’s Sept 20, 2022 announcement of its first quarterly loss since listing. The best-performing Bursa indices last week were the transport, construction and REIT sectors. The KLCI fell 2.9% w-o-w (week-on-week) due to concerns over more aggressive rate hikes. Local institutional investors recorded their highest weekly net buy YTD of RM336 mil. Local retail investors turned second-largest net buyers last week. They net bought RM218 mil of equities, which represent a 12% w-o-w rise in their net buy. 

Among individual stocks, Maybank was the largest net buy stock for local institutional investors and largest net sell stock for foreign institutional investors. Top Glove was the largest net buy stock for retail and nominee investors but the second-largest net sell stock for foreign institutional investors. CIMB Group Holdings Bhd was the largest net buy stock for foreign institutional investors, but the largest net sell stock for local institutional investors. Top Glove, Hartalega and Maybank were the top three regulated short-selling targets last week. The top three short-sell sectors in terms of value were healthcare, technology, and financial services sectors. 

World Bank lowers 2023 growth target for M’sia but upgrades growth for this year to 6.4% 

According to World Bank lead economist for Malaysia Apurva Sanghi, the World Bank has lowered its 2023 growth target for Malaysia to 4.2% from 4.5% earlier and warned that significant headwinds will continue to persist. As an open economy, Malaysia faces the brunt of global supply disruptions. But upon zooming out, the disruptions are not as bad as compared to, for example, the West. He was speaking at an online briefing session held in conjunction with the release of the World Bank’s East Asia and Pacific Economic update report. 

The Asian region in general has suffered from fewer disruptions and Malaysia’s status as a commodity, semiconductor as well as electrical and electronic products producer and exporter, has held it in good stead. Having said that, there will be significant headwinds and downsides in 2023 and beyond. On the global front, overall stagflation and recessionary pressures as well as the ongoing Russia-Ukraine tensions will have an adverse effect on Malaysia’s demand for exports. On the regional front, the slowdown in China due to its continuing zero-Covid policy, which is hampering its growth, will also impact Malaysia. China is Malaysia’s largest direct trading partner, so anything that happens in China will affect the economy here. 

On the domestic front, there are the issues of rising inflation, particularly food inflation, and a sluggish labour market where there is a shortage of workers. One thing he hasn’t spoken of about the domestic front is the shrinking fiscal space, the persistently declining revenues for almost 10 years – these are issues that need to be tackled on the domestic front. 

The World Bank also announced it had upgraded its forecast for Malaysia’s economic growth for this year to 6.4% from an earlier 5.5%. The higher figure is premised largely on the fact that the local economy had performed above expectations in the first half of this year, driven by a high second-quarter growth. Positive momentum is expected to spill over into the second half of this year with growth for the remaining of the year boosted by a low-base effect. 

On the ringgit, the bulk of Malaysia’s trade is denominated in US dollars. While 83% of Malaysia’s exports and 80% of its imports are invoiced in US dollars, a “measly” 5.4% (exports) and 4.5% (imports) are denominated in ringgit. It does speak of the power of the US dollar, so a depreciating ringgit against the US dollar is a concern. What can be done? Bank Negara is doing what it can but basically the strength of the currency will depend on how well the economy will perform and how well Malaysia can keep its focus on its fundamentals and structural reforms. There’s no quick and easy fix. 

Notably, the ringgit and other regional currencies have been seeing huge falls against the greenback as the US Federal Reserve continues to aggressively raise interest rates, causing investors looking for higher returns to shift their monies from this part of the world to the United States. The ringgit has fallen to its lowest in more than 20 years against the US dollar, trading at around RM4.60 against US$1.  

Consumer stocks likely to remain steady – Kenanga Research 

According to Kenanga Research, the top line of listed consumer stocks is expected to remain resilient for the remainder of 2022, underpinned by the recovery of the labour market, year-end festive sales and a gradual pick-up in tourism. Earnings of consumer-based firms are anticipated to remain steady despite inflationary pressures. The research house is of the opinion that the M40 group will continue to maintain spending on the back of a healthy household balance sheet. The Bottom 40 group, however, will struggle due to depleted pandemic handouts and fund withdrawals. 

It expects retail players to be able to defend their margins on a combination of better product mix and operational efficiency, coupled with the absence of major supply disruptions, especially from China. However, the same cannot be said for food and beverage (F&B) producers, who have not raised product prices sufficiently to offset higher input costs. Some F&B players are reluctant to jack-up prices for fear of demand destruction, which would result in consumers down-trading or switching to cheaper alternatives. This could also lead to a market share loss for the F&B players. 

F&B producers face renewed economic challenges, such as elevated input and logistics costs arising from inflationary pressures. Ongoing geo-political tensions are stoking further inflationary pressures as energy prices surge amid volatile supply. Despite the gradual softening of commodity prices in the last few months, global trends are starting to indicate otherwise. Global indicators show a reversed trend well into 2023, posing risks to earnings and indicating that pre-pandemic level margins are still a long way off, especially for F&B producers. 

On the local front, the research house notes that consumer consumption has been softening. Citing the Malaysian Institute of Economic Research, it said the country’s consumer sentiment index fell 23 points to the 86-mark during the second quarter of 2022. This was below the consumer optimism threshold. Rising prices and subdued expectations for employment and finances, sentiment appears to be softening. Year-to-date growth of total distributive trade sales as of July is hovering around the 20% mark. 

Based on its in-house forecast of 15% for the full year, growth is expected to taper off going forward as interest rate hikes and inflationary pressure squeeze consumption. It is projecting consumption to soften from August onwards due to tighter financial conditions following Bank Negara’s back-to-back rate hikes. On top of that, the rising cost of living and impending global recessionary pressures due to China’s persistent zero-Covid policy and Europe’s worsening energy crisis may also lead to a decline in consumer spending. It expects growth in private consumption as the economy reopens, but overall growth is expected to normalise significantly. It cited Retail Group Malaysia (RGM), which is upbeat about the outlook of the local retail sector. Owing to the firm recovery of the Malaysian retail industry since the beginning of this year, RGM has revised its growth target for the retail industry to 32% year-on-year from 13% previously. 

Note From Publisher: There were no stocks that met our Criteria & Conditions under the Non-Shariah Hot Stocks.  

Eye On The Markets 

This week, on Friday (30Sept), the Ringgit opened at 4.6375 against the USD from 4.5890 on Monday (26Sept). Meanwhile, the Ringgit was 3.2378to the Sing Dollar on Friday (30Sept). On Monday (26Sept), the FBM KLCI opened at 1423.83. As at Friday (30Sept) 10:00am, the FBM KLCI is down 28.02points for the week at 1395.81. Over in US, the overnight Dow Jones Industrial Average closed down 458.13 points (-1.54%) to 29,225.61 whilst the NASDAQ shed 314.13 points (-2.84%) to 10,737.51. 

Robust GDP seen to sustain in 3Q – Growth of between 8% and 9% estimated – SERC

Inve$t | Market Sentiments | 23 Sept 2022

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According to Socio-Economic Research Centre (SERC) executive director Lee Heng Guie, Malaysia is estimated to experience a robust gross domestic product (GDP) growth of between 8% and 9% in the third quarter of this year (3Q22), partly owing to the low base of 3Q21 where GDP contracted by 4.5% year-on-year (y-o-y). This would be similar to the GDP growth recorded in the previous quarter (2Q22). Speaking at a media briefing on Malaysia’s quarterly economy tracker, he said that for 3Q22, buying sentiment is quite positive up till now.  

In 2Q22, Malaysia recorded an extraordinary GDP growth of 8.9% y-o-y, beating market expectations and bringing GDP growth in the first half of the year (1H22) to 6.9% y-o-y. However GDP growth is expected to ease to the range of 4% to 5% y-o-y going into 4Q22 on account of slowing global growth prospects. With that, SERC has revised its full-year GDP growth projection for Malaysia to 6.5% from an initial 5.2%. 

For 2023, the GDP is forecast to grow at a more moderate pace of 4.1% owing to weakening global growth, the normalisation of domestic demand and also the high-base effect. Domestic demand will be impacted by higher inflation and cost of living, as well as interest rates, while private investment remains cautious due to increased costs, shortage of workers, external uncertainties and domestic political uncertainty. 

On the global economic outlook, he foresees an increasing risk of a slowdown next year pointing out that the International Monetary Fund had said a global recession in 2023 cannot be ruled out and the World Bank said global rate hikes could trigger a recession in 2023. In the United States, over two-thirds of economists believe a recession is likely to hit in 2023. 

Commenting on inflation, it is too early to say if price pressures have peaked owing to the mixed inflation data by major advanced economies. While headline inflation in the United States indicated a reversal of the surge, core inflation accelerated. In Europe, inflation surged higher. However he agrees with Bank Negara’s projection of inflation peaking in 3Q22. 

Interest rates are expected to remain at 2.5% this year, following a cumulative 75-basis-point (bps) hike throughout the year so far. But the central bank is expected to raise the interest rate by another 50 bps in 1H23 to 3%. However he believes that Bank Negara will take into consideration the impact of its gradual and measured pace of interest rate hiking trajectory due to growth risks while anchoring inflation under its radar. 

The pressure on the Ringgit would remain in the near term as there was no sign of US interest rates peaking. Once interest rate in the United States stabilises, pressure on emerging markets’ currencies will reduce, including the Ringgit. Commenting on Budget 2023, he hopes it will contain more development and structural reforms rather than be election-centric. As the economy has moved out of contraction, it no longer requires extraordinary massive deficit fiscal spending packages as during the Covid-19 pandemic. SERC estimates a deficit budget of between 4.5% and 5.5% of GDP in 2023 compared to an estimated average deficit of 6.2% in 2020 to 2022. He also recommended the reintroduction of the goods and services tax (GST) starting with a 4% rate. 

Maybank IB issues structured warrants over Hong Kong stocks – First ever structured warrants over NetEase Inc on Bursa Malaysia 

According to Azzahir Azhar, Head of Investment Management at Maybank Investment Bank, Maybank IB has begun issuing structured warrants over companies listed on the Hong Kong Stock Exchange (HKEX). The maiden launch of 16 structured warrants comprises an even combination of call warrants and put warrants over 8 different HKEX-listed stocks. This includes the first ever structured warrants on Bursa Malaysia over NetEase Inc, China’s second largest online game company by revenue. Other global brands in the maiden launch today are from the automotive and e-commerce sectors, such as Alibaba Group Holding Ltd, JD.com Inc, Geely Automobile Holdings Ltd, Tencent Holdings Ltd, Ganfeng Lithium Co Ltd, Meituan and BYD Company Ltd. 

As these warrants are listed on Bursa Malaysia and settled in Ringgit, investors will be able to gain exposure to Hong Kong-listed companies without the need for a foreign trading account or currency conversion. The warrants enable investors to exercise their investment strategies on the underlying stocks with a much lower capital outlay while taking advantage of the leverage effect. 

As a leading equity-linked structured products issuer in Malaysia, Maybank Investment Bank continues to innovate to satisfy market demand for more sophisticated products to aid in portfolio diversification. This launch of warrants over HKEX-listed stocks caters to investors seeking diversified investment instruments and geographical exposure while having the convenience of settling their trades in the local currency. Call warrants enable investors to profit from price appreciation of the underlying shares. Put warrants are the opposite whereby they are used to hedge against negative price performance of the underlying shares. The advantage of this call-put issuance is that investors will be able to express their views in either direction. 

Investors who are new to structured warrants are advised to understand and evaluate the risks involved and seek professional advice in order to make informed investment decisions. In conjunction with this launch, Maybank IB will be conducting a webinar on structured warrants investing on Wednesday, 21 September 2022 at 8:00pm. To learn more, visit www.warrants.maybank2u.com.my and join Maybank IB’s Telegram channel, “Trade With Maybank”. 

Eye On The Markets 

This week, on Friday (23Sept), the Ringgit opened at 4.5690 against the USD from 4.5380 on Monday (19Sept). Meanwhile, the Ringgit was 3.2223 to the Sing Dollar on Friday (23Sept). On Monday (19Sept), the FBM KLCI opened at 1459.51. As at Friday (23Sept) 10:00am, the FBM KLCI is down 29.81 points for the week at 1443.11. Over in US, the overnight Dow Jones Industrial Average closed down 107.10 points (-0.35%) to 30,076.68 whilst the NASDAQ shed 153.39 points (-1.37%) to 11,066.80. 

Healthier outlook seen for construction industry – Kenanga Research

INVE$T | Market Sentiments

09 September 2022

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According to Kenanga Research, the Malaysian construction industry is poised for improved earnings in the second half of 2022, given the gradual return of foreign workers and the recent easing in base metal prices. It is reiterating an “overweight” call on the sector, believing that the worst is over. Since the end of June, certain key building material prices, such as steel and aluminium, have come off substantially due to the intermittent lockdowns in China. So are diesel and bitumen on the back of weaker oil prices. Meanwhile, most new contracts being negotiated would have priced in the current market prices (which are higher) and have an element of price variation built in, to protect the contractor’s margins in the event of huge swing in material prices. Overall margins should gradually improve, as the low-margin old jobs tail off and the new projects adjusted for higher input costs start to contribute.  

Construction counters under the research house’s coverage saw marginal deterioration in the second quarter of this year. Gamuda Bhd was the only company that beat stronger-than-expected property and construction margins. While on the disappointing end is WCT Holdings Bhd, which saw a weak contribution from its property unit as it struggled to cover overhead costs. Kerjaya Prospek Group Bhd was affected by slower billings on labour shortages.  

The margins realised by most contractors in the first half of 2022 were still below the pre-Covid levels, due to the soaring costs of building materials, particularly steel and labour shortages that hampered work progress. Gamuda is the exception, which saw construction margins stronger than pre-Covid levels due to cost savings recognition from its MRT2 project, which is coming to an end. Amid a slow job market, year-to-date, IJM Corp Bhd and WCT have yet to secure any new work packages. Similarly, Kimlun Corp Bhd and Sunway Construction Group Bhd are trailing their replenishment targets. Consequently, orderbook levels of most players are depleting. However, it foresees better job replenishment prospects with the imminent rollout of MRT3 and Pan Borneo Highway (Phase 2). As multinational companies diversify their manufacturing bases geographically (away from China) to de-risk, there are opportunities in the construction of new semiconductor plants and data centres locally. 

Asean PMI data shows business improvement – S&P Global 

According to S&P Global Market Intelligence economist Maryam Baluch, the Purchasing Managers’ Index (PMI) data for August 2022 signalled an eleventh monthly improvement in business conditions across the Asean manufacturing sector. In its Global Asean Manufacturing PMI report, growth was supported by quicker upturns in production levels and new factory orders. The headline PMI posted at 52.3 in August, up from 52.2 in July, marking eleven months of expansion, with the latest reading indicating a solid improvement in the health of the Asean manufacturing sector. 

For Malaysia, while the headline PMI figure was posted above the neutral 50 threshold for the fifth month running at Malaysian manufacturers (50.3), the pace of increase softened from July and signalled only a marginal improvement in operating conditions. In Singapore, six of the seven constituents recorded improvements in operating conditions in August with the country registering the quickest upturn, and for the ninth month running. That said, the rate of increase (56.8) softened from the survey high observed in July to the weakest since March. 

Mild growth was noted at Indonesian manufacturers, thereby extending the current run of increase to 11 months. At 51.7, the rate of increase was the quickest in four months. Similarly, at 51.2, the Philippines also reported an improvement in business conditions. Looking ahead 12 months, manufacturing companies remain hopeful of expansion in output. Sentiment improved for the third month running with the degree of confidence the highest since November 2016. 

The August data signalled yet another modest expansion across the Asean manufacturing sector. Data suggested that higher production volumes and intakes of new orders resulted in firms raising employment and inventories. Supply-side and inflationary pressures eased during the latest survey period. Lead times lengthened at the slowest pace in 23 months, while input price inflation eased to the weakest in six months. Firms will hope these trends continue. Overall, client appetite across Asean nations remained strong. However, interest rate hikes will likely challenge demand in the coming months. 

Eye On The Markets 

This week, on Friday (9Sept), the Ringgit opened at 4.4975 against the USD from 4.4880 on Monday (5Sept). Meanwhile, the Ringgit was 3.2068 to the Sing Dollar on Friday (9Sept). On Monday (5Sept), the FBM KLCI opened at 1492.03. As at Friday (9Sept) 10:00am, the FBM KLCI is up 5.78 points for the week at 1497.81. Over in US, the overnight Dow Jones Industrial Average closed up 193.24 points (+0.61%) to 31,774.52 whilst the NASDAQ up 70.23 (+0.60%) to 11,862.13. 

Foreign capital inflows to bolster market – Rakuten

INVE$T | Market Sentiments

2 September 2022

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According to Kenny Yee, head of research at Rakuten Trade, the benchmark FBM KLCI is expected to be at the 1,600 to 1,650 level by year’s end due to increased foreign capital inflow and improved corporate results. The growth momentum is anticipated to continue into the following year, with the barometer index likely to be more stable than it was this year. The net inflow of foreign funds has already reached RM8bil following the introduction of Rakuten Trade’s currency facility here. It is a plus point since volatility is still low in Malaysia compared to the region. Next year will be even smoother with much better corporate earnings. For this year, even though there was still uncertainty in the market, coupled with the implementation of the prosperity tax (Cukai Makmur), the corporates had managed to record good earnings growth. Saying to watch out for next year as it’s going to be much better as the inflationary pressure is still not as bad as in the developed countries. Over the short term, the Ringgit is still on the weak side. However, it is only weakening against the US dollar, whereas against the region’s currencies it is strengthening. However once the US Federal Reserve has eased its quantitative tightening, then the Ringgit may rebound. 

Tech stocks are currently “sexy” but his personal preference is banking stocks, real estate investment trusts and telco counters. The healthcare sector, especially rubber glove companies, still has a lot of uncertainty adding that fundamentally, things are still not that positive.  

Meanwhile, the brokerage has launched its enhanced foreign market service that includes the benefits of a FX facility. Investors can now convert funds between the ringgit and the US dollar via its iSpeed.my app and web platform. Conversions are made in real-time, at competitive rates and with no additional FX charges imposed on inter-currency trades. With the rollout, investors can now trade in either the ringgit or the US dollar at low brokerage rates of RM7 to RM100 or US$1.88 to US$25, respectively.  

According to Rakuten CEO Kazumasa Mise, almost 25,000 US trading accounts have been activated through Rakuten Trade since the service was first introduced in January and it has also served as a catalyst for new investors to test trading strategies on Bursa Malaysia before diversifying onto the US markets. To date, more than 85% of Rakuten Trade’s clients trade first on Bursa Malaysia before going into US markets. The brokerage continues to record strong and steady trading growth on the New York Stock Exchange and Nasdaq. 

Foreign fund inflows continued for sixth consecutive week – MIDF Research 

According to MIDF Research, Bursa Malaysia continued to see foreign fund inflows for the sixth consecutive week for the week ended Aug 26, although at a much more moderated pace, with an inflow of RM355.1 million compared with the net inflow of RM615.5 million in the previous week. Malaysia was among five Asian exchanges which were in the positive region last week. Strong inflows were seen in South Korea (US$463.7 million), India (US$405.8 million), Thailand (US$259.5 million) and Indonesia (US$119.5 million).  

In its weekly Fund Flow Report, the research house that said foreigners were net buyers on every trading day last week except on Wednesday, where they disposed of RM90.5 million worth of equities, while local institutions remain as net sellers. Foreign investors were net buyers on Monday (RM56.2 million) and Tuesday (RM14.2 million), and on Thursday (RM193 million) and Friday (RM71.7 million), respectively. However, local institutions remained net sellers for the seventh consecutive week at RM286.2 million. They have been net sellers for every trading day since Aug 3 before briefly turning into net buyers on Wednesday (Aug 24) at RM24.3 million. They were net sellers on Monday (RM92.4 million), Tuesday (RM40.4 million), Thursday (RM114.3 million) and Friday (RM63.5 million). Meanwhile, local retailers maintained their net buying spree for the third consecutive week at RM41.7 million. They bought RM128.6 million net from Monday to Wednesday before net selling RM87 million over the next two days.  

To date, international funds have been net buyers in Bursa Malaysia for 23 out of the 34 weeks of 2022, with a total net inflow of RM7.97 billion. Local retailers have been net buyers for 22 out of 34 weeks of 2022 at RM1.8 billion year-to-date. On the other hand, local institutions were net sellers for 27 out of 34 weeks, with a total net outflow of RM9.76 billion. In terms of participation, there has been a decline in average daily trade value (ADTV) across the board, led by local institutions (-8.9 per cent), retailers (-2.97 per cent) and foreign investors (0.9 per cent). 

Eye On The Markets 

This week, on Friday (2Sept), the Ringgit opened at 4.4845 against the USD from 4.4740 on Monday (29Aug). Meanwhile, the Ringgit was 3.2001 to the Sing Dollar on Friday (2Sept). On Monday (29Aug), the FBM KLCI opened at 1486.52. As at Friday (2Sept) 10:00am, the FBM KLCI is up 3.82 points for the week at 1490.34. Over in US, the overnight Dow Jones Industrial Average closed up 145.99 points (+0.46%) to 31,656.42 whilst the NASDAQ shed 31.08 (-0.26%) to 11,785.13. 

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 

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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 

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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. 

Malaysian market still attractive for investors – Bursa CEO

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According to Bursa Malaysia Bhd Chief Executive Officer Datuk Muhamad Umar Swift, Malaysia’s capital market will still be attractive for investors despite the recent monetary tightening globally, particularly for those who have a medium-term investment horizon. Looking at Malaysia, we have a projected GDP growth of around 5.5% for 2022, and it is a compelling story. He was speaking during Bursa Malaysia’s financial results briefing held virtually. Theoretically, there should be a flight to higher yield products when interest rates are increased. That is what we see particularly in the foreign exchange market. That being said, it may also spur interest in the equity market, as there is more clarity. With the ringgit weakening recently, there is an upside potential for investors to invest in Malaysia, given the country’s strong current account surplus. This is a tremendous opportunity for investors, particularly foreign investors, to come to our market over a medium term for potential uplift on foreign exchange, as well as growth of our companies. The ringgit has depreciated by 6.85% to 4.4517 against the US dollar year-to-date. Bursa Malaysia Bhd reported a 33.16% fall in net profit for the second quarter ended June 30, 2022 (2QFY22) to RM59.47 million, from RM88.97 million a year ago, mainly due to lower securities trading revenue. Quarterly revenue declined 22.55% to RM151.89 million, from RM196.1 million previously. Bursa’s average daily trading value for 2QFY22 also fell by 42% to RM2.23 billion, from RM3.86 billion. For 1H2022, Bursa’s net profit dropped 39.42% to RM127.44 million, from RM210.36 million in the previous year’s similar period, amid lower operating revenue — down 26.4% to RM309.4 million from RM420.2 million — amid a decline in securities trading revenue. Six-month revenue declined 25.96% to RM317.185 million, from RM428.37 million previously. Also speaking at the briefing was Bursa Malaysia Chairman Tan Sri Abdul Wahid Omar who said that Malaysia’s economic growth is expected to be supported by firm domestic demand and this could potentially lift investor sentiment and boost stock market performance. While Bursa Malaysia remains committed to long-term market development through products and ecosystem enhancement, the bourse will also focus on a number of items to help boost market sentiment and sustain foreign investors’ interest in the short-term. 

Banks remain resilient in economic uncertainties – RAM 

According to RAM Ratings banking sector specialist Amy Lo, he local banking system could continue to deliver resilient performance in the coming year although global and domestic conditions have become more uncertain. Sturdy capitalisation and strong provisioning buffers have put banks in a good position to cope with fresh macroeconomic headwinds from the spill over effects of the Russia-Ukraine war. The majority of bank ratings is expected to stay intact in the next 12 months. Any rating action will likely be prompted by bank-specific challenges, rather than broad industry concerns. She was speaking at the RAM Insight Series webinar titled “Banking Sector: Gearing up for the next challenge”. The agency expects loan growth to come in at 4.5% to 5% in 2022 (2021: 4.5% growth), driven by both household and business loans. Loan applications began to pick up in the fourth quarter of 2021, underpinned by pent-up demand and the reopening of the economy. Bank Negara’s two recent 25 basis point (bps) overnight policy rate hikes and another 25 bps increase expected in the second half of 2022 may dampen credit demand, but should not derail the loan growth momentum. 

Country on firm recovery path – domestic and external factors to drive growth – BNM 

According to Bank Negara governor Tan Sri Nor Shamsiah Mohd Yunus, Malaysia’s economy is firmly on a recovery path supported by domestic and external demand. The economy is expected to grow steadily in 2022 and 2023 despite the challenges from rising cost pressures, the Russia-Ukraine military conflict and China’s strict Covid-19 containment measures. The country is benefiting from the strong demand for its exports especially electrical and electronics, commodity-based and other diversified export products. The global market will continue to support the country’s export growth. Based on observation, we are seeing increased strength in domestic demand, domestic spending particularly consumers’ expenditure, of which retail sales, debit card transactions and consumer goods imports have exceeded pre-pandemic levels. She was delivering her keynote address at the 12th International Conference on Financial Crime and Terrorism Financing 2022. She noted the strengthening job market has benefited the country’s economy and 26,000 new jobs were created in the first three months of this year – similar to the pre-pandemic level. Simultaneously, job vacancies and wages are also rising, which would further reinforce the recovery in domestic demand going forward. On rising prices, the current situation is a global phenomenon and Malaysia is impacted due to the indirect effect of high global commodity prices as they are the key driver for the rise in producer input costs. Inflation development in Malaysia was reflected by the pass-through of some of these costs as well the strengthening domestic demand. Consequently, although the headline inflation is projected to remain low and stable to range between 2.2% and 3.2% this year, core inflation increased to an average of 2.2% in the first six months of this year compared with only 0.7% in 2021. As the economy was on a firmer growth trajectory and no longer in a state of crisis, the central bank through the Monetary Policy Committee judged that it was the right time to begin withdrawing the excess support, revising the overnight policy rate from its historically low 1.7%. What is important is by acting pre-emptively, BNM will be in a position to undertake the adjustment to the monetary policy setting in Malaysia gradually and this is also to restore and support sustainable growth over the medium and longer term. The timing, pace and extent of interest rate increases would be guided by assessments. 

REITs 2Q earnings likely to remain strong – Inflationary concerns prompt caution for third quarter – UOB Kay Hian 

According to UOB Kay Hian Research, the real estate investment trust (REIT) sector’s 2Q earnings are expected to remain strong, but the trend may not be robust enough to carry into 3Q of this year because of inflationary concerns. However, REITs still command attractive yields of at least 5%, compared with fixed income instruments. The better earnings in 2Q22 is led by the festive season and the Employees Provident Fund (EPF) special withdrawal scheme. The 3Q earnings will be weaker and cautioned that the impact of inflation may also dampen consumer sentiment. For 2Q22, the research house is forecasting earnings growth of 36% and 5% for 2022 and 2023 respectively, on the back of the absence of rental assistance amid the economic reopening. Headline inflation for June breached 3%, coming in at 3.4% from 2.8% in May. The central bank has raised the overnight policy rate (OPR) by 50 basis points (bps) year-to-date and is expected to increase it by another 25 bps by year-end and 50 bps in the first half of 2023 to reach 3% by mid-2023. Although any rate hike would be considered a negative for the sector, UOBKH Research believes the impact would be manageable, given the REITs’ healthy gearing levels and earnings recovery. The current gearing levels are healthy at 31.7% on average. The majority of the debt taken by REITs are on fixed financing (61% of total debt on average), which makes the impact manageable. In addition, the earnings growth trajectory is enough to overcome it as well. This has been proven in their latest quarterly results where footfall and tenant sales continued the momentum from 4Q21. In the recent 2Q22 results posted, CapitaLand Malaysia Trust-REIT retail recorded 13% and 101% earnings growth quarter-on-quarter and year-on-year. The research house prefers the retail segment, particularly prime, niche malls for their proven business resilience. Tenant sales at malls continued with good momentum since 4Q21, amid the festive season, in addition to the special EPF withdrawal scheme. Furthermore, the opening of international borders in April will further boost footfall and sales. On hotels and hospitality REITS, it expects a gradual recovery with substantial traction from 2H22 onwards, during the holiday season. On office REITs, it said although the industry is still grappling with oversupply, it believes selected office REITs located in strategic locations with good connectivity, such as KL Sentral, will benefit from higher demand. Industrial REITs will continue to thrive with businesses continuing as usual. UOBKH Research maintains its “overweight’’ stand on the sector. Its top picks are Sunway-REIT (border reopening recovery), Sentral-REIT (high and resilient yields of 7% to 8%), and IGB-REIT (resilient and stable earnings). 

Eye On The Markets 

This week, on Friday (29July), the Ringgit opened at 4.450 against the USD from 4.453 on Monday (25July). Meanwhile, the Ringgit was 3.2246 to the Sing Dollar on Friday (29July). On Monday (25July), the FBM KLCI opened at 1463.78. As at Friday (29July) 10:00am, the FBM KLCI is up 30.98 points for the week at 1494.76. Over in US, the overnight Dow Jones Industrial Average closed up 332.04 points (+1.03%) to 32,529.63 whilst the NASDAQ added 130.17 points (+1.08%) to 12,162.59. 

Bursa posts largest YTD on-month drop in listed firms’ market cap

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According to Bursa Malaysia’s research arm Bursa Digital Research, the total market capitalisation (market cap) of companies listed on the bourse was lower at RM1.648 trillion as at end June 2022 compared to RM1.774 trillion a month earlier amid lingering concerns on a potential recession in the US and global monetary policy tightening or interest rate hikes to fight inflation. At RM1.648 trillion as at end June 2022, Bursa-listed companies’ market cap had fallen RM126 billion from RM1.774 trillion a month earlier to post the largest year-to-date (YTD) on-month drop in Bursa-listed firms’ market cap so far in 2022. Fear over recession in the US market and tightening monetary policy continued to linger over market sentiment. In June, trading on the local bourse was weaker as monthly ADV  (average daily traded value) moderated to RM1.9 billion (May: RM2.39 billion). Trading momentum was lowered across all investor segments, with the largest decline in the foreign ADV. Local institutions became net buyers of local equities in June 2022 after selling for the past five months. In June, local institutional inflow (into local equities) amounted to +658 million. Meanwhile, foreign investors were net sellers of local equities with a net outflow of RM1.28 billion in June 2022. However, they remained as net purchasers up to June (2022) with +RM6.08 billion. Research data shows that so far in 2022, Bursa-listed companies’ market cap had fallen on-month in January, March, May and June. In January 2022, the figure fell RM58 billion from a month earlier while the March figure dropped RM11 billion. In May, Bursa-listed companies’ market cap was down RM52 billion from a month earlier. At the bourse’s 12:30pm break on Tuesday, its share price settled down one sen or 0.16% at RM6.24 with 41,600 shares traded. At RM6.24, Bursa has a market cap of about RM5.05 billion based on the group’s 809.3 million outstanding shares. Bursa has scheduled to release its financial results for the second quarter ended June 30, 2022 on July 28, 2022. 

Budget 2023 to focus on sustainable subsidies, boosting country’s resilience – Tengku Zafrul 

According to Finance Minister Tengku Datuk Seri Zafrul Abdul Aziz, Budget 2023 will focus on a more sustainable subsidy management, strengthening the country’s resilience against future shocks and fiscal consolidation. This is in view of increasing inflationary pressures, especially on commodity and food prices. Budget 2023 will take into consideration sustainability-related initiatives as the world grapples with challenges involving geopolitical uncertainties and climate change. This was in a written parliamentary reply to Datuk Seri Saifuddin Nasution Ismail (PH-Kulim-Bandar Bharu), who wanted to know how the policies, strategies and approach in drafting Budget 2023 differ from past budgets. He continued that economic reform efforts will also be given priority to enhance business competitiveness and the value chain. In line with the post-Covid-19 economic recovery momentum, Budget 2023 will also continue to focus on the people’s well-being agenda, especially in terms of income and social protection. The inclusivity agenda, in line with the Shared Prosperity Vision 2030’s objectives, will be emphasised as well, to ensure a fair and equitable wealth distribution. Throughout the Budget 2023 preparation process, the government is committed to holding stakeholder engagement sessions especially to gain public views and feedback in line with the priorities set. The theme of Budget 2023 is “Strengthening Recovery, Facilitating Reforms Towards Sustainable Socio-Economic Resilience of Keluarga Malaysia”. 

Petrochemical industry to see faster growth – MPA 

According to the Malaysian Petrochemicals Association (MPA) president Akbar Md Thayoob, the country’s petrochemical industry is poised to grow at a faster rate in future, considering petrochemical is an important element for the world to move towards energy efficiency and net zero emission. The industry is expected to record an average compound annual growth rate of 5% to 6%, which is higher than the country’s gross domestic product (GDP), despite numerous external economic uncertainties like the Russia-Ukraine conflict. Petrochemicals will always be growing at above the GDP rate and some industries will be growing much faster than the others but on average, overall, it is an important growth engine for the country. He was speaking at the press conference on the upcoming Oil and Gas Asia 2022 conference. While noting that petrochemicals offer solutions that many are not familiar with, he dismissed the notion that the industry is on a downcycle and reiterated that it is stabilising after the Covid-19 pandemic. However, there is a lot of uncertainty still, moving forward. The cycle in today’s era is no longer the same as the last time, where every 10 years, you see a very clear trend. Now, there are blips in between and it’s no longer like before, where one can simply say that we are riding up. He observed that the petrochemical industry in Malaysia is also moving from commodities-based towards specialties, with many companies also going into merger and acquisitions to accelerate the acquisition of knowledge and capability towards offering the kind of solutions they can bring to the market. Citing Petronas’ downstream unit, Petronas Chemical Bhd, which recently purchased Swedish company Perstorp Holdining AB, he said this is very important for the state oil company to leapfrog and acquire such capability and bring that over throughout the region and replicate it. 

Eye On The Markets 

This week, on Friday (22July), the Ringgit opened at 4.4530 against the USD from 4.4460 on Monday (18July). Meanwhile, the Ringgit was 3.2016 to the Sing Dollar on Friday (22July). On Monday (18July), the FBM KLCI opened at 1420.89 As at Friday (22July) 10:00am, the FBM KLCI is up 33.08 points for the week at 1453.97. Over in US, the overnight Dow Jones Industrial Average closed up 162.06 points (+0.51%) to 32,036.90 whilst the NASDAQ added 161.96 points (+1.36%) to 12,059.61.