Inflation in Malaysia expected moderate to 2.8-3.3% this year – SERC 

Inve$t | Market Sentiments | 13 January 2023

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According to Socio-Economic Research Centre (SERC) executive director Lee Heng Guie, Malaysia’s headline inflation is expected to moderate to between 2.8% and 3.3% in 2023 from the peak of 4.7% in August last year following stable global commodity prices and the gradual move towards targeted subsidies mechanism locally. During SERC’s media briefing on Malaysia’s quarterly economy tracker (October – December 2022) and 2023 outlook on Monday (Jan9), Lee said SERC expects targeted subsidies to be implemented at a measured pace due to the government’s focus on tackling the impact of inflation and higher cost of living on low- and middle-income households. With the commodity and energy prices cooling off from their peak, the supply disruptions and labour-market pressure subsiding, and the global central banks’ interest rates hikes cooling of demand come into effect – global inflation rates likely will cool throughout the year 2023. Malaysia’s domestic demand will move to a more sustainable pace of 5.5%-6.0% from 11.0% estimated in 2022 with household spending to normalise towards its medium-term growth trajectory in 2023-2024. 

Lee said that in 2022, Malaysia’s domestic demand expanded significantly due to pent-up demand while in 2020, private consumption declined by 4.2% before recovering slowly to 1.9% in 2021. Post-Covid-19 pent-up demand is normalising as cash assistance measures such as RM145 billion EPF withdrawals and loan repayment assistance have ended. Consumers do not have much disposable income and must cut back on spending due to the continued impact of rising inflation as well as higher cost of living and borrowing costs due to the interest rate increases which will erode purchasing power. 

The good news is that labour market conditions have improved to 3.6% at end-Oct 2022 with increasing labour participation rate nearing pre-pandemic level. The Malaysian economy is likely to see weaker growth at 4.1% in 2023 compared with the 8.5% estimated for 2022, reflecting largely the normalisation of technical high-base effects. Moderating exports, the normalisation of domestic demand, continued dampening impact of inflation and higher cost of living, and the lagged effects of interest rate increases will weigh on domestic economic growth. Certainly, the interplay of weakening external environment, new government’s macro-narratives, domestic inflation, and interest rate will ultimately shape Malaysia’s economic growth outlook for 2023. 

Meanwhile export moderation is expected to drag on growth in 2023. Export growth momentum has seen softening in September-November 2022 due to weakening demand for major manufactured goods such as electronics and electrical products, chemical and chemical products and machinery equipment as well as lower prices of crude and palm oil. 

Exports are estimated to slow to 1.8% in 2023 from an estimated 26.5% in 2022, reflecting the dampening impact of weakening global demand, easing prices of energy and commodities as well as being challenged by the high base effects. Brent crude oil price is estimated to lower to US$95/bbl in 2023 vs US$100/bbl in 2022 and crude palm oil price to lower to RM3,850/metric tonne (MT) in 2023 vs RM5,123/MT in 2022. Notwithstanding this, Malaysia’s private investment has regained momentum to expand by 6.3% in January-September 2022 and will likely expand by 4.0% in 2023 (est: 5.8% in 2022) reflecting the continued investment in the manufacturing sector and some services sub-sectors such as telecommunication related to 5G network as well as the climate-related green investment.  

Going forward this year, there is a chance of a global recession. The research centre expects weaker global economic growth at 2.5%-2.7% in 2023 with a mild recession in the United States and Europe. The forces that weigh on the global economy are continued dampening impact of inflation and cost of living crisis though inflation risk will cool off due to higher interest rates; the lagged impact of higher interest rate and tighter global liquidity conditions; and bloated retail inventories adjustment as consumer demand slows. However, China’s better economic prospects in second-half 2023 with growth estimated at 4.5% will act as a global stabiliser as Beijing authorities unwind the zero Covid-19 restrictions. 

Bursa Malaysia derivatives achieves record level trading volume for 2022 

Bursa Malaysia Derivatives Bhd reported an all-time high in yearly trading volume for all its products, as well as for crude palm oil futures (FCPO) for the year 2022. A total of 19.1 million contracts were traded, surpassing the previous record of 18.4 million contracts in 2021 by 3.7 per cent. For FCPO, a total of 16.2 million contracts were traded in 2022, breaking the previous record of 15.6 million by 3.8 per cent. The higher trading volume is largely contributed by foreign institutions which accounted for 50 per cent of the trading volume. Their participation has increased substantially by 27 per cent from 2021. This strong growth demonstrates the continued confidence from the global trading community in FCPO as an effective risk management tool in times of volatility. 

According to Bursa Malaysia Derivatives acting director Mohd Saleem Kader Bakas, the exchange is glad to see higher participation from global market participants in trading its products. The exchange will continue to improve the Malaysian derivatives market ecosystem and strengthen its offerings with innovative products to create more opportunities for investors to diversify and hedge their portfolio.  

To ensure that this positive trading volume growth continues, Bursa Malaysia Derivatives is committed to develop and enhance its product offerings to meet the demand of investors and hedgers. These have resulted in the successful launch of the revamped Gold Futures (FGLD) Contract in September 2022 and the first environmental, social and governance (ESG) based futures contract in December 2022, which is the cash settled FTSE4Good Bursa Malaysia Index Futures (F4GM) Contract. The exchange has also seen active trading during the After-Hours (T+1) Trading Session, with a total of 1.49 million contracts traded in 2022 during T+1 Session, which amounts to eight per cent of the total day and night trading volume. The highest daily trading volume during T+1 Session was recorded at 19,065 contracts on Dec 1, 2022. For more information on derivatives trading, visit https://www.bursamalaysia.com 

Eye On The Markets 

This week, on Friday (13Jan), the Ringgit opened at 4.3330 against the USD from 4.3830 on Monday (9Jan). Meanwhile, the Ringgit was 3.2795 to the Sing Dollar on Friday (13Jan). On Monday (9Jan), the FBM KLCI opened at 1484.56. As at Friday (13Jan) 10:00am, the FBM KLCI is up 9.22 points for the week at 1493.78. Over in US, the overnight Dow Jones Industrial Average closed up 216.96 points (+0.64%) to 34,189.97 whilst the NASDAQ gained 69.43 points (+0.64%) to 11,001.11.

Malaysian economy set to moderate in 2023 but unlikely to tip into recession – Maybank IB 

Inve$t | Market Sentiments | 6 January 2023

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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: 

https://www.bursamalaysia.com/regulation/structure/overview_of_rules

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. 

Growth for 2022 likely to surpass earlier forecast of 6.5% to 7% – PM

Inve$t | Market Sentiments | 23 December 2022

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According to Prime Minister Datuk Seri Anwar Ibrahim, who is also the Finance Minister, Malaysia’s gross domestic product (GDP) growth for this year is very likely to exceed the earlier projection of between 6.5% and 7%. He said that sentiment remains positive at the end of 2022, with encouraging economic performance following the reopening of the economy amid the transition to the Covid-19 endemic phase. He noted during the tabling of the Consolidated Fund (Expenditure on Account) Bill 2022 and motion for interim development expenditure estimates for 2023 in the Dewan Rakyat that the unemployment rate also dropped to 3.6% in October 2022. However, labour participation has not returned fully to the level before the Covid-19 crisis when the unemployment rate was 3.3%. The jobless rate for youth below 25 years old is still worryingly high at 10%. 

He said the entanglement of geopolitical conflicts has led to global inflationary pressures and weakened economic growth, and the surge in commodity and food prices has adversely impacted Malaysians in terms of cost of living. He noted that the International Monetary Fund has forecast that global economic growth would slow from 3.2% in 2022 to 2.7% in 2023. To deal with this significant global impact, the federal government is adopting a whole-of-nation principle. All quarters should join the government in formulating a comprehensive approach. He added that the wealthy and conglomerates that have raked in huge earnings due to rising commodity prices and government subsidies must also contribute towards improving the people’s well-being, especially the B40 and M40 groups and petty traders. He said Padiberas Nasional Bhd, for example, has agreed to contribute RM10mil this year and RM50mil next year to help poor paddy farmers. The government, will spare no effort to strengthen the economic indicators, restore investor confidence and rebuild the country. 

The PM also said he was touched by the reception and support received from other countries that have extended their commitment and assistance to explore potential trade and investment opportunities with Malaysia. For example, His Majesty the Sultan of Brunei (Sultan Hassanal Bolkiah) has offered to have the Brunei Investment Agency explore new investments in Malaysia and hence benefit both countries. He added the International Trade and Industry Ministry and Finance Ministry have been tasked to improve the facilities for business operations and raise the quality of investments in order to generate high-income jobs for Malaysians, especially the youth. At the same time, the administration of foreign workers has been centralised at the Home Ministry to ensure that industry players can flourish, particularly those in the commodity, construction and tourism sectors. 

Bursa Malaysia and RAM collaborate on a new debt fundraising platform

Bursa Malaysia Berhad and RAM Holdings Berhad entered into a shareholders’ agreement (SHA) on Thursday (22Dec) to develop a new debt fundraising platform that will facilitate listed and unlisted small to mid-sized companies tap into a new pool of capital outside of traditional wholesale markets, offering a new avenue and greater flexibility to these companies looking to raise funds. The platform provides for a ‘bond-like’ experience allowing investors to invest in investment notes with credit and ESG ratings as easily as they would invest in shares in a transparent and regulated market, facilitating informed investment decisions. 

Pursuant to the terms of the SHA, the joint venture shall be carried out through a new company (Newco) to be incorporated under the Companies Act 2016, whereby Bursa Malaysia will hold a 51% equity interest and RAM will hold the remaining 49%. Newco will submit an application for registration under the Securities Commission’s (SC) revised Guidelines on Recognized Markets (RMO) which was recently issued on 15 November 2022. 

According to Datuk Muhamad Umar Swift, Chief Executive Officer of Bursa Malaysia, this agreement marks a significant milestone in Bursa Malaysia’s journey to become a multi-asset exchange. The collaboration with RAM will broaden fund raising avenues for both PLCs and unlisted entities – specifically enabling better access to both conventional and Shariah investment notes. It would be able to provide new fixed income investment opportunities to both retail and sophisticated investors. This will further create an alternative fund-raising avenue for businesses which are currently underserved in this challenging environment and for those that are not yet ready to list on the Exchange. 

According to Chris Lee, Group CEO and Executive Director of RAM, to enhance transparency in the ecosystem of debt-based financing and investment, RAM will contribute its expertise in credit rating, ESG ratings and fixed income pricing. 

Eye On The Markets 

This week, on Friday (23Dec), the Ringgit opened at 4.4350 against the USD from 4.4240 on Monday (19Dec). Meanwhile, the Ringgit was 3.2763 to the Sing Dollar on Friday (23Dec). On Monday (19Dec), the FBM KLCI opened at 1476.72. As at Friday (23Dec) 10:00am, the FBM KLCI is down 11.62 points for the week at 1465.10. Over in US, the overnight Dow Jones Industrial Average closed down 348.99 points (-1.05%) to 33,027.49 whilst the NASDAQ shed 233.25 points (-2.18%) to 10,476.12. 

Robust outlook and resilient earnings seen in 2023 for healthcare players – Kenanga Research 

Inve$t | Market Sentiments | 16 December 2022

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According to Kenanga Research latest report, the healthcare sector can look forward to  resilient earnings in 2023, particularly among players in the private hospitals, pharmaceuticals and over-the-counter (OTC) drugs as well as immunotherapy. Growth prospects for the sector in the long-term will continue to be underpinned by an ageing population, rising affluence and growing chronic diseases across the globe such as cardiovascular, cancer and respiratory. 

The research house has an “overweight” call on the sector with its top picks, namely IHH Healthcare Bhd with a target price (TP) of RM7.20 and Kotra Industries Bhd with a TP of RM7. In the private hospitals sphere, IHH’s patient throughput growth and revenue intensity would drive 2023 earnings as demand for non-Covid related services including elective surgeries recovers.  

In 2023, it expects IHH’s revenue per in-patient growth of 10% to 15% versus an estimated 10% to 20% in 2022, while in-patient throughput growth of 10% to 15% against an estimated 12% to 25% in 2022. The group’s bed occupancy rate (Bor) is targeted at 60% to 73% in 2023 compared with an estimated 56% to 70% in 2022 for its hospitals in Malaysia, Singapore, India and Turkey. Kenanga Research also liked IHH for its pricing power adding that the inelastic demand for private healthcare service would allow the group to pass on the higher cost amid rising inflation and its presence in multiple markets such as Malaysia, Singapore, Turkey and Greater China. 

Meanwhile, KPJ Healthcare Bhd’s patient throughput is expected to grow at 12% from an estimated 26% in 2022 due to the low base effect in 2021. The research house noted that KPJ’s Bor at 66% versus an estimated 55% in 2022 would be driven by recovery in demand for its services, particularly non-Covid-related ones including elective surgeries. It liked KPJ for its pricing power as a private healthcare provider and its strong market position locally with the largest network of 28 private hospitals. 

As for health supplements and OTC drugs, the research house said the Statista Consumer Market Outlook projected the OTC pharmaceuticals market in Malaysia to grow at a compounded annual growth rate (CAGR) of 6% to an estimated RM3.2bil by 2027. This augurs well for Kotra that manufactures and sells OTC supplements and nutritional and pharmaceutical products with key flagship household brands such as Appeton, Axcel and Vaxcel. The research house likes Kotra for its integrated business model encompassing the entire spectrum of the pharmaceutical value chain. 

Meanwhile, backed by a new plant, widening distribution network and penetration into local public hospitals, Nova Wellness Group Bhd is guided for a 15% to 18% volume growth, following an average volume growth rate of 16% to 8% from FY20 to FY22. On the other hand, Pharmaniaga Bhd’s growth in 2023 will be “pedestrian” in the absence of lumpy vaccine sales. Kenanga Research expects its concession awarded by the Health Ministry to provide medical supplies to public hospitals to be renewed upon expiry in end-2022.  

For the immunotherapy segment, Kenanga Research said earnings growth of Malaysia Genomics Research Centre Bhd (MGRC) would gather momentum in 2023. This would be driven by maiden contributions from Thailand and the Middle East as MGRC ramps up its distribution network and footprint overseas for its biopharmaceutical products. The research house likes MGRC for its exclusive rights to deliver such immunotherapy treatment in the region under a long-term licensing agreement with reputable principals. In addition, it is also the leading provider of genetic sequencing and analysis in South-East Asia. 

Revised Budget 2023 to see rationalisation in opex, targeted subsidies – RHB IB 

According to RHB Investment Bank Bhd (RHB IB) in a note entitled “Global Economics and Market Strategy”, it expects some rationalisation in the government operating expenditure (opex), while a more targeted approach towards subsidies may be implemented in the revised Budget 2023. This was in view of the still-elevated living costs and inflationary pressures where the pace of the adjustment is likely to be gradual. The investment bank also said the potential revision of the development expenditure allocation might be possible, especially for new and existing projects that have yet to start the tender process. 

Any major changes to Budget 2023 might have a significant impact on RHB IB’s fiscal deficit projection, adding that it maintained its 2023 fiscal deficit projection at 5.5% of the gross domestic product (GDP) for the time being. Moving forward to 2023, it is cautiously optimistic about the country’s economic outlook and has maintained its 2023 GDP growth forecast of 4.5% year-on-year as it expects the growth to be supported by resilient domestic demand. It has also maintained its headline consumer price index inflation projection for 2023 at 3% y-o-y, driven by economic growth momentum, fuel subsidies outlook, and the movement of commodity prices. 

RHB IB has retained its overnight policy rate forecast range at 3-3.5% for 2023, anchored by factors such as a robust domestic economy, resilient inflationary pressures, as well as a potential relaxation of fuel subsidies. 

DOUBLE WIN FOR HEINEKEN MALAYSIA AT UNGCMYB SUSTAINABILITY AWARDS 2022  

Brewer recognised for efforts in Water Conservation & Waste Management 

Heineken Malaysia Berhad (HEINEKEN Malaysia)  was recognised at the United Nations Global Compact Malaysia & Brunei (UNGCMYB) Sustainability Performance Awards 2022, winning two awards in the Sustainable Development Goals (SDG) Ambition Benchmarks Awards category. 

Heineken Malaysia was awarded for : 

SDG Ambition Benchmark 2: Net-positive water impact in water-stressed basins   

SDG Ambition Benchmark 3: Zero waste to landfill and incineration. 

Heineken Malaysia’s managing director Roland Bala said that it is an honour for Heineken Malaysia  to be recognised by UNGCMYB. In line with their Brew A Better World sustainability strategy, the organisation is committed to reaching net zero emissions in production by 2030 and the wider value chain by 2040. Heineken is also committed to working with their stakeholders towards conserving healthy watersheds. He said “We are the first company in Malaysia to have fully balanced the water used in our products since 2020 and we reached 289% of our water balancing target in 2021. The company will continue to make progress in improving the efficiency of our water consumption at our Sungei Way Brewery, with an aim to reach 2.6 litres of water for every litre of our product. These are indeed ambitious targets, nevertheless, we are committed to caring for our people and planet”. 

Roland added that in terms of waste management, the company has achieved Zero Waste to Landfill since 2017 working with partners who support to recycle or upcycle 100% of all waste generated from production. In 2021, the company generated a total of 23,834 tonnes of waste including paper cartons, glass culets, scrap metal, as well as organic waste such as spent grain and spent yeast. Heineken Malaysia is committed to continually improving the ways it converts waste to value and ensure none of its waste ends up in landfills. 

Eye On The Markets 

This week, on Friday (16Dec), the Ringgit opened at 4.4220 against the USD from 4.4140 on Monday (12Dec). Meanwhile, the Ringgit was 3.2569 to the Sing Dollar on Friday (16Dec). On Monday (12Dec), the FBM KLCI opened at 1475.61. As at Friday (16Dec) 10:00am, the FBM KLCI is down 8.26 points for the week at 1467.35. Over in US, the overnight Dow Jones Industrial Average closed down 764.13 points (-2.25%) to 33,202.22 whilst the NASDAQ shed 360.36 points (-3.23%) to 10,810.53. 

FBM KLCI likely to hit 1,700 next year – MIDF Research

Inve$t | Market Sentiments | 9 December 2022

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According to MIDF Research director/head of research Imran Yassin Md Yusof, the research house expects the equity market to rebound next year, with the FBM KLCI reaching 1,700 points at an implied price-earnings ratio 2023 (PER23) of 15 times. The rebound is anticipated despite economic headwinds, as pressure on valuation stemming from external factors, is expected to start dissipating. In the equities market, the FBM KLCI started the year on a positive note on the back of the reopening of the economy. Despite the unexpected eruption of the Ukraine-Russia conflict, the first quarter of 2022 saw the FBM KLCI registering a 1.3% rise. However, the aggressiveness of the US Federal Reserve (Fed) in raising its federal fund rate by 375 basis points year-to-date had caused the performance of the FBM KLCI turning negative, where it is registering a 6.1% decline as of Dec 5, 2022. He was speaking at a media briefing on the market outlook for 2023. 

This impact was not confined to Malaysia’s equity market only as global markets were similarly impacted or had it worse. Hence, he expects external factors such as the decision of the Fed will continue to be an influencing factor for the Malaysian equity market in 2023. In this regard, it is expected that the Fed will start to decelerate its pace of rate hikes in 2023. In general, the baseline expectation going into 2023 is that the Fed is pivoting, the risk of US recession is not insignificant, no escalation in the Russia-Ukraine war beyond the borders of Ukraine, and the authorities in China would be adept in handling its domestic economic situation (limiting the risk of cross border contagion). 

The research house said the equity market would become more bullish principally due to the unwinding or subsiding pressure on required return as the upside risk diminishes with the end of the tightening cycle. The market would also be expected to tread cautiously due to the heightened risk of an impending US recession, the unsettling situation in Ukraine which could change drastically, as well as uncertainty surrounding the real situation of China’s economy. As such, in 2023, the equity market is expected to be supported by a less hostile monetary environment, but equity valuation would continue to remain subpar relative to its historical range due to these limiting factors. 

Besides the equity market, the aggressive Fed had led to a strong US dollar in 2022. But with the pivot by the Fed, the Ringgit is expected to move forward to average stronger at RM4.30 per US dollar and ending 2023 at RM4.23. Commodities’ prices are expected to remain elevated despite normalising. The research house forecasts Brent crude oil price to average at US$96 (RM422) per barrel and crude palm oil to average at RM3,500 per tonne. 

Emphasis on digitalisation, nation building for PLCs – Bursa 

Bursa Malaysia has launched the final two digital guidebooks under the Public-Listed Companies Transformation Programme, aimed at transforming Malaysian PLCs into high-performing organisations. According to chairman Tan Sri Abdul Wahid Omar, Guidebook 4 titled “Being Digitally Enabled”, focuses on the imperatives, opportunities, and benefits for businesses to become more digitally-enabled, which can lead to significant improvements in their overall performance, in line with technological advancements. Meanwhile, Guidebook 5 titled “Contributing Towards Nation Building”, emphasises how the growth initiatives of businesses can fundamentally and profoundly benefit not only the companies themselves, but also directly shape the growth of the economy, community and nation. 

Speaking at the launch of the PLC Transformation Programme’s latest guidebooks, he said that with targeted strategies that are aligned to their respective business purpose and national agendas, PLCs can be more competitive, enhance capabilities of the workforce, and help the nation have stronger standing in global supply chains. These final two books are timely as the two-year COVID-19 pandemic has demonstrated how digitally enabled and agile businesses not only survived but thrived amid difficult times. The PLCs’ earnings performance, as measured by growth in Malaysia’s Index earnings per share (EPS) has been muted since the global financial crisis. Earnings fell to a 10-year low in 2020 and only began to recover last year. Similarly, Malaysia’s weightage in the Morgan Stanley Capital International (MSCI) Emerging Markets Index has been generally declining since 2019, negatively impacting the ability to capture larger fractions of global funds. He noted that that the weightage has recently increased to 1.62 per cent in October 2022, up from 1.39 per cent in 2021. Hence the PLCs clearly need to take deliberate and committed actions to improve their performance. 

He urged all PLCs to actively participate in the PLC Transformation Programme’s upcoming planned activities which span multiple years, up to 2025. To date, more than 100 PLCs have committed to participate in the PLC Transformation Programme. Bursa Malaysia launched the PLC Transformation Programme in March with the aim to steer and support Corporate Malaysia to higher performance levels by nudging actions and strengthening the growth narrative of PLCs of all sizes. 

Whilst the first guidebook focused on building purpose and performance-driven organisations, the second was on sustainable, socially responsible and ethical practises and the third guidebook was on strengthening stakeholder management and investor relations. All five digital guidebooks are now available for download on the Bursa Malaysia website, as a resource for all PLCs and even private companies, especially the small and medium enterprises. 

Eye On The Markets 

This week, on Friday (9Dec), the Ringgit opened at 4.3965 against the USD from 4.3810 on Monday (5Dec). Meanwhile, the Ringgit was 3.2512 to the Sing Dollar on Friday (7Dec). On Monday (5Dec), the FBM KLCI opened at 1482.08. As at Friday (9Dec) 10:00am, the FBM KLCI is down 13.88 points for the week at 1468.20. Over in US, the overnight Dow Jones Industrial Average closed up 183.56 points (+0.55%) to 33,781.48 whilst the NASDAQ gained 123.45 points (+1.13%) to 11,082.00. 

Sultan Nazrin calls on corporations to set up CSOD online platform

Inve$t | Market Sentiments | 25 November 2022

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Sultan of Perak Sultan Nazrin Shah called on Malaysian corporations to establish and maintain a corporate sustainability open data (CSOD) online platform that consists of relevant data on all sustainability-related issues, which is accessible to the public. Transparent provision of credible and comprehensive sustainability data should become an essential aspect of environmental, social, and governance (ESG) commitments by corporations. It should be undertaken voluntarily by companies, going beyond the mandatory sustainability reporting schemes that most corporations are already subject to. Sultan Nazrin was speaking in a royal address at the GO ESG Asean Summit 2022. His Royal Highness added that the CSODs should also provide information on the companies’ future sustainability goals, so that the public can keep track of their implementation and progress.  

A good example of a CSOD already in operation is ESGenome, which was launched by the Singapore Exchange. This portal facilitates the reporting of ESG data in a structured and efficient manner. The data made available on ESGenome can be freely accessed by investors and other stakeholders, thereby helping them to make informed decisions relating to their investments and corporate evaluations. The corporate sector is urged to make significant contributions to the achievement of the Sustainable Development Goals (SDGs) by acting more responsibly and harnessing its own resources, including human capital, technology, and innovation. Companies and government departments across Asean must be able to demonstrate convincingly to their populations that all policies being developed to address the climate crisis are fully justified by the data. They must also be able to show that they are following through these policies in practice, and meeting the targets that have been set. All of this is only possible through the use of credible, transparent, and longitudinal sources of data. His Royal Highness stressed the importance of data gathering and dissemination — a process sometimes termed “data curation” — noting that data modalities that have been used traditionally must be diversified to address the deficit of quality data on sustainability-related matters.  

Dissemination of such enhanced and expanded data sets would also help create greater awareness of the climate crisis and all its complexities, beyond the realm of sustainability and development specialists. This could displace the repetition of rhetorical pleas, and help to secure buy-in to the sustainability agenda from a broader range of stakeholders, including government agencies, corporates, non-governmental organisations, and the general public. The one-day GO ESG Asean Summit 2022 aims to highlight the key role of ESG data in accelerating the region’s sustainability agenda. The theme was Data Driven Sustainability: Accelerating ESG Impact for Asean.  

Executives, non-executives’ salaries expected to increase by 5.4pc in 2023 – MEF 

According to a survey by the Malaysian Employers Federation, salaries for executives and non-executives in Malaysia are expected to increase by 5.44 per cent and 5.43 per cent, respectively, in 2023. President Syed Hussain Husman, told reporters after officiating the 28th edition of the MEF Salary Surveys for Executives and Non-Executives on Wednesday (Nov 23). He said approximately 90 per cent of companies surveyed attributed employees’ performance as the main criteria for determining executive and non-executive salary increases. The business respondents seemed to be positive that Malaysia’s economy is generally going to be stable next year despite the expectation of a global recession. This was on the back of positive recovery of most businesses since the reopening of the economy after the (Covid-19) pandemic. He added the survey also indicated that 93 per cent of employers granted salary increases to executive and non-executive employees in 2022, which was a significant increase from 65.2 per cent and 66.4 per cent, respectively, in 2021. 

Syed Hussain said the survey showed that the average salary increases for executives and non-executives in 2022 was 5.26 per cent and 5.35 per cent, respectively, with more than 80 per cent of the responding companies granting bonuses. The forecast for bonuses in 2023 is 2.18 and 2.06 monthly salary for executives and non-executives, respectively, which was higher than the actual bonus in 2022 of 2.06 months and 1.77 months, respectively.  

The MEF president said the survey also covered the implementation of the Minimum Wages Order 2022, which increased the minimum wage to RM1,500 per month and impacted 70.3 per cent of the companies surveyed. He said those companies not affected by the new minimum wage cited that the main reason was that their employees’ salaries had already surpassed the minimum level. He added 53.4 per cent of the respondent companies also anticipated an increase in their overall salary or wage costs following the implementation of the new minimum wage. He said 59.7 per cent of the respondent companies planned to reduce their operating expenses to mitigate the impact of the new minimum wage while another 48.8 per cent cited an increase in the price of their products or services as their adopted measure. Another 43.8 per cent of respondent companies intend to implement cost-cutting measures in other areas of production while 36.8 per cent intend to shift from labour-intensive to technology-intensive production. 

Commenting on the current shortage of employees in the country, executive director Datuk Shamsuddin Bardan said the situation needed to be addressed quickly as Malaysia is now competing with other countries to get foreign workers. Employers cannot totally depend on the government to resolve this problem. They must also step up efforts to modernise their operations by adopting new technologies to attract local workers. 

The MEF Salary Survey for Executives saw 252 companies responding from the manufacturing and non-manufacturing sectors while 250 member companies participated in the Salary Survey for Non-Executives. Apart from the salary surveys, the MEF also launched the MEF Fringe Benefits Survey 2022 and the Analysis of Collective Agreements and Awards on Terms and Conditions of Employment 2021. 

Eye On The Markets 

This week, on Friday (25Nov), the Ringgit opened at 4.4780 against the USD from 4.5825 on Monday (21Nov). Meanwhile, the Ringgit was 3.2535 to the Sing Dollar on Friday (25Nov). On Monday (21Nov), the FBM KLCI opened at 1434.55. As at Friday (25Nov) 10:00am, the FBM KLCI is up 50.53 points for the week at 1485.08. Over in US, markets were closed for the Thanksgiving holiday. 

Bursa Malaysia inks MOU with the Companies Commission of Malaysia

Inve$t | Market Sentiments | 17 November 2022

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Bursa Malaysia Berhad and the Companies Commission of Malaysia (SSM) today signed a Memorandum of Understanding to undertake a 3-year collaboration with three core initiatives to benefit SME in the Malaysia economy. The framework of the MoU includes: 

  • to jointly explore commercial opportunities for both Bursa Malaysia and SSM that support corporate Malaysia’s digital economy growth aspiration, as guided by the Malaysia Digital Economy Blueprint;  
  • Data-sharing between Bursa Malaysia and SSM for in-depth analytics that provide greater strategic decision-making insights for businesses as encouraged by the National Data Sharing Policy; and  
  • Driving the Environmental, Social and Governance agenda for Malaysian business ecosystem with impactful programmes. 

The new collaboration will be to leverage the combined potential of Bursa Malaysia’s and SSM’s datasets to build a first-of-its-kind data ecosystem that supports Malaysia’s socio-economic development agenda. The platform, comprising datasets of corporate Malaysia from both small-medium enterprises and public listed companies, will facilitate the development of in-depth meaningful analytics and solutions for the fund-raising community in the capital market, as well as the business community at large. 

Driving the ESG agenda, Bursa Malaysia and SSM will work together to encourage corporate Malaysia to focus on improving disclosures and access to capital through ESG best practices in respective industries. Public listed companies, from financial institutions to manufacturing businesses, can act as catalysts of the Malaysia’s economy to improve data and transparency in their supply chain. 

According to Datuk Muhamad Umar Swift, Chief Executive Officer of Bursa Malaysia, the MoU between Bursa Malaysia and SSM today provides the Exchange a trusted partner both in terms of improving our combined data capacity, as well as the opportunity in empowering the local business community through data and information sharing. In addition to building a centralised data system that connects businesses with the funding agencies, this collaboration will allow smaller businesses to learn from best practises from larger corporations. 

Meanwhile Datuk Nor Azimah Abdul Aziz, SSM Chief Executive Officer, said that SSM has a comprehensive data bank consisting of details on information relating to company and other business entities’ profiles, share capital, directors, officers, shareholders, charges and financial information. Through this MoU, information derived from this meaningful collaboration would be further analysed to create a holistic, inclusive, and conducive data ecosystem that supports the overall Malaysia’s socio-economic development agenda, especially the SMEs that comprised 99% of the corporate and business entities in SSM’s registries.  

Malaysia IPO market still strong – Deloitte 

According to Deloitte, Malaysia’s initial public offering (IPO) market has emerged from the Covid-19 pandemic with a 102% increase in the proceeds raised at US$681mil (RM3.12bil) compared to 2021, driven by investor demand for good business fundamental companies. The global provider of audit and assurance, consulting, financial advisory, risk advisory, tax and legal company also said that the number of ACE Market listings had doubled from 11 in 2021 to 22 this year. It said the interest rate hike would potentially encourage more companies with good business fundamentals to seek a listing, as they can leverage the equity market for a diversified and cheaper funding base.  

According to Deloitte Malaysia disruptive events advisory leader Wong Kar Choon, at the Deloitte virtual press conference titled 2022 SEA IPO Market Performance and Outlook, there remained a steady pipeline of companies looking to tap the capital markets. He added, the strong performance in 2022, against a backdrop of global inflation, rising interest rates and the threat of a recession, is proof of the resilience of the Malaysian capital market.  

Meanwhile Deloitte South-East Asia and Singapore disruptive events advisory leader Tay Hwee Ling said that prior to the Covid-19 pandemic, the IPO activity moved in tandem with the economy and gross domestic product growth, but the inverse had happened in the last two years. The reopening of the world economies and borders have fuelled a rise in global inflation from 4.7% in 2021 to 8.8% in 2022, and consequently an increase in the Federal Reserve interest rate of almost 4% over the course of the year in a bid to tame the surging inflation. In the face of these macroeconomic factors, the South-East Asia IPO market has held up considerably well, while we continue to see the growth potential in our economies. 

Eye On The Markets 

This week, on Thursday (17Nov), the Ringgit opened at 4.5470 against the USD from 4.6195 on Monday (14Nov). Meanwhile, the Ringgit was 3.3181 to the Sing Dollar on Thursday (17Nov). On Monday (14Nov), the FBM KLCI opened at 1447.40. As at Thursday (17Nov) 10:00am, the FBM KLCI is down 21.59 points for the week at 1468.99. Over in US, the overnight Dow Jones Industrial Average closed down 39.09 points (-0.12%) to 33,553.83 whilst the NASDAQ shed 174.75 points (-1.54%) to 11,183.66. 

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Malaysia will avert technical recession – RHB IB

Inve$t | Market Sentiments | 11 November 2022

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According to RHB Investment Bank Bhd (RHB IB) group chief economist and head of market research Dr Sailesh K Jha and associate research analyst Wong Xian Yong, their third quarter of 2022 (3Q2022) GDP estimate is 10-12% year-on-year (y-o-y). In a note on Wednesday (Nov9), the two economists revised their 2022 GDP growth estimate to 7% y-o-y from 6% on the back of stronger-than-anticipated consumer spending in 3Q2022 and resiliency of the consumer in 4Q2022. The balance of risks is tilted towards Bank Negara Malaysia hiking the overnight policy rate (OPR) at every MPC (Monetary Policy Committee) meeting in 1H2023 to 3.5%. 

Jha and Wong said despite all the “doom and gloom” prevalent in global financial market sentiment as it pertains to the outlook for US and global growth, with fears of a deep and prolonged recession in place, they are firmly in the camp that Malaysia’s business cycle is headed for a cyclical slowdown from 4Q2022 to 2Q2023 to trend or slightly below trend, on average. They don’t anticipate a technical recession on the horizon. They estimate for Malaysia’s trend GDP (gross domestic product) growth at around 5% y-o-y. In 2H2023, they expect a recovery in Malaysia’s GDP growth led by the consumer.  

The economists said Malaysia’s business cycle peaked in 3Q2022. The leading indicator for GDP (LEI) suggests that the 3Q2022 print could be in the 10-12% y-o-y range and 4Q2022 could print around 2.30-5.83% versus the 1H2022 print of 7%. These forecasts have taken into consideration that the LEI has underestimated GDP growth by 1-2 percentage points, on average, historically. Hence, these are the forecasts generated from a top down perspective. From a bottoms up perspective, for 3Q2022 GDP we obtain an estimate of around 11% and for 4Q2022 GDP it’s around 4%. 

Jha and Wong also said they forecast that a technical recession is unlikely in 2023. The Malaysian stock market is in a sustained bear market on an annualised basis for more than two quarters. Consumer sentiment as measured by the Malaysian Institute of Economic Research Consumer Sentiment Index (MIER CSI) drops well below the 80-85 range. Quarterly real exports of electrical and electronic products exhibit contractions on a year-on-year basis. 

Bursa Malaysia completes retail CX analytics PoC 

Bursa Malaysia Berhad, in a statement (8Nov) announced the successful completion of its Retail Customer Experience (CX) Analytics Proof-of-Concept (PoC), a data-driven analytics project piloted on the exchange’s cloud and artificial intelligence (AI) platform. Bursa Malaysia said the PoC was undertaken in collaboration with four participating organisations (POs), namely Hong Leong Investment Bank Bhd, CGS-CIMB Securities Sdn Bhd, Malacca Securities Sdn Bhd and RHB Investment Bank Bhd, with the aim of advancing the development of the capital market’s investor base. 

It said leveraging its in-depth industry-wide datasets, the Exchange developed a machine learning model built on its AI and cloud platform while also tapping into participating POs’ deeper understanding of their retail customer segments and distinct behaviours. A hyper-personalisation approach was applied to aid in the design of customised initiatives to cater to distinct retailers’ needs with the aim of bridging information gaps and improving retailers’ financial literacy. It added, this cloud-enabled model facilitates multi-party collaboration in an efficient and cost effective manner while driving a ‘single-source-of-truth’ perspective in the metrics used to identify trends and insights. 

Chief executive officer Datuk Muhamad Umar Swift said the exchange would invest in accelerating its digital transformation journey in new technology and data analytics for successful customer outcomes in an effort to better understand the increasingly complex and changing investor behaviour. This collaboration served as a platform for Bursa Malaysia and participating POs to explore and co-create more solutions on areas that are impactful to the industry, capitalising on data-driven and digital capabilities. He said, the exchange is committed to investing in advanced technology that will improve the data solutions and CX experience we provide to our stakeholders. 

Meanwhile, head of bursa data business Wong Chiun Chiek said in addition to the PoC, Bursa Malaysia has established a Minimum Viable Product (MVP) that included a decision-making framework. This is in line with Bursa Malaysia’s strategic intent to offer new and innovative services to the industry using data and digital technologies. The Exchange added that with the completion of the PoC, it is moving closer to turning the MVP into a market-ready product and Bursa Malaysia would work closely with participating POs in order to continuously improve and refine the solution.  

HEINEKEN Malaysia Reports 3QFY22 Results 

Heineken Malaysia Berhad announced its financial results for the third quarter and nine months ended 30 September 2022, once again reporting an improved performance against pre-pandemic levels. The results demonstrated the brewer’s continued efforts in driving sustainable growth amidst the improving external environment post-pandemic. Compared to the same period in 2019, HEINEKEN Malaysia’s revenue and net profit increased by 26% and 39% respectively in the first nine months of 2022. 

Compared to the same quarter in 2021, Group revenue in Q3 grew by 85% to RM720.5 million, mainly due to strong post-COVID recovery following the reopening of international borders, increased on-trade consumption as well as positive mix impact from the Group’s premium portfolio growth. Net profit in Q3 grew significantly by 113% to RM108.7 million. The growth was driven by revenue growth as highlighted above as well as driving efficiency through cost and value initiatives whilst the Group continued to invest behind its brands and capabilities in line with its EverGreen strategy. 

For the nine-month period, Group revenue and net profit increased by 60% and 106% respectively versus the nine months ended 30 September 2021, mainly driven by low volume last year as the brewery was closed due to the Movement Control Order. In addition, the Group’s performance was enhanced by a strong Chinese New Year festive period, steady recovery for the on-trade business, better revenue and cost management. 

Commenting on the results, Roland Bala, Managing Director of HEINEKEN Malaysia, said, “Our performance for Q3 2022 was commendable as the economy continues to open up, on-trade business and tourism sectors continue to recover compared to a weaker Q3 2021 due to widespread MCO. We are truly grateful for the strong support of our consumers, customers and trade partners for our brands. We thank our team at HEINEKEN Malaysia for their passions and courage in transforming our operations and quickly adapt to the new business challenges. We will continue to focus on executing our EverGreen Strategy to drive sustainable growth.” 

Eye On The Markets 

This week, on Friday (11Nov), the Ringgit opened at 4.6375 against the USD from 4.7450 on Monday (7Nov). Meanwhile, the Ringgit was 3.3527 to the Sing Dollar on Friday (11Nov). On Monday (7Nov), the FBM KLCI opened at 1441.18. As at Friday (11Nov) 10:00am, the FBM KLCI is up 19.21 points for the week at 1460.39. Over in US, the overnight Dow Jones Industrial Average closed up 1201.43 points (+3.70%) to 33,715.37 whilst the NASDAQ gained 760.97 points (+7.35%) to 11,114.15. 

Bank Negara hikes OPR by 25bps to 2.75%

Inve$t | Market Sentiments | 4 November 2022

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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. 

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.