Businesses positive on 2Q prospects but remain cautious – DOSM

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According to the Department of Statistics Malaysia’s (DOSM) chief statistician Datuk Seri Dr Mohd Uzir Mahidin, businesses remain positive about their prospects for the second quarter of 2022 (2Q22) as well as for the six-month period to September 2022. Going into 2Q22, businesses are positive albeit at a slower pace, with a confidence indicator of +3.5% for the quarter against +7.6% in 1Q22. Despite the reopening of Malaysia’s international borders, which is anticipated to spur economic activities, businesses stay cautious about their prospects amid inflation pressure, supply chain and labour shortage issues. Except for construction, all sectors surveyed anticipated better business conditions in 2Q22. The wholesale and retail trade sector is the most optimistic on its business outlook. The sector’s confidence indicator has increased for three quarters in a row, with +15.5% in 2Q22 from +4% in the preceding quarter. Based on the quarterly business tendency survey, brighter sentiment in both the wholesale trade sub-sector as well as the retail trade sub-sector led to this improvement. Meanwhile, the services sector predicted the business situation to improve at a moderate rate, posting a confidence indicator of +5.6% compared with +11.1% in 1Q22. As for the industry sector, it expects its business performance to grow at a slower pace in 2Q22 with an indicator of +0.8% compared with +12.2% in the preceding quarter. The agriculture and mining sub-sectors, in particular, anticipated unfavourable business conditions in 2Q22. Meanwhile, the construction sector remained pessimistic but its confidence indicator improved to -23.2% compared with -40.4% in 1Q22. He added that 45.2% of the survey respondents predicted that their gross revenue would rise in 2Q22, while 19% expect a reduction, leading to a net balance of +26.2%. The rest of the respondents (35.8%) anticipated gross revenue to stagnate. For the same quarter, 72.2% of the businesses expect their manpower to stay the same despite showing a net balance of +10.8%. Of the businesses, 19.3% intend to hire more manpower in 2Q22, while 8.5% have planned a reduction. On expectations of business performance for the upcoming six months (April to September 2022), businesses also remained optimistic about their outlook with a net balance of +25%, up slightly from the +18.9% recorded previously. This was attributed to better sentiments in the wholesale and retail trade, industry and services sectors. 

Sub Title: Businesses need tech-enabled shopping experiences to woo Malaysian consumers, some of the most discerning in the world – ADYEN 

According to Priyanka Gargav, ADYEN’s Head of Commercial, Southeast Asia & Hong Kong, despite challenges posed by the pandemic, the Malaysian retail industry proved its resilience in 2021, with 71% of Malaysian businesses across the retail, food and beverage, and hospitality sectors growing their revenue by 20%. Malaysian companies that outperform competition are those reaping the benefits of investing in digital transformation – an opportunity now worth MYR 334 billion. The Adyen Malaysia Retail Report 2022, commissioned by Adyen and sponsored by KPMG, interviewed over 40,000 consumers across 26 markets, including 1,000 from Malaysia, to understand how they feel about the state of retail. It also surveyed 11,500 businesses across 23 countries, including 500 from Malaysia, to learn about their concerns, aspirations, strategies, and investments for 2022 and beyond. 

One key finding from the report was that over 1 in 4 businesses connected payment systems to other parts of the organization, such as inventory management and supply chain, to improve operations and break down silos in backend processes. As a result, 60% of businesses are now in a better position. This is 11% above the global average and the highest in APAC. Specifically, companies that connect payment systems with other sections of their business grow 18% more than those that do not. This shift has given Malaysian consumers a real taste for technology. 80% of consumers believe retailers used technology well to make their products available during the pandemic. The majority believe that retailers should deliver the same cross-channel flexibility they provided during the pandemic (77%) and use technology to improve loyalty/rewards schemes (90%). These figures are both 16% above the APAC average. Falling short of these expectations could spell trouble, as 81% of consumers will not shop with businesses that have a bad shopping experience, either online or in store, 11% above the global average. 

Businesses intend on continuing to ride the digital wave, with 97% planning to invest in business improvement over the next year. The acceleration of digital transformation will contribute an additional 5.6% to the total growth of Malaysia’s retail sector over the next five years. Malaysian businesses have proven their resilience and adaptability during the pandemic, and their future is bright. Malaysian consumers’ love for tech-enabled, seamless shopping experiences stands out on a global level and the time is ripe for retailers to capitalize on the MYR 334 billion opportunity in digital transformation. Many retail players have unlocked the promise of unified commerce as a strategic growth driver and its exciting to see the retail industry in Malaysia reach greater heights in 2022.  

Physical stores will stay — but the role of the store is changing  

More than any other market surveyed, Malaysian consumers believe online shopping is about convenience, but physical stores are for shopping for pleasure (76%). One way to meet their expectations is through melding online and offline realms to create new customer experiences. In fact, 87% of consumers are more likely to shop with retailers that use technology to enhance the customer experience, 32% above the global average. The report also uncovered an area for growth: 74% of consumers would be more loyal to retailers that enabled them to buy things online and return them in store, though only 30% offer this service. While Malaysia is ahead of the global and APAC averages in offering this functionality, there is room for improvement. 

The untapped potential in real time payments data 



In line with Malaysians’ preference for digitized shopping experiences, they are above the average in wanting more tailored and personalized interactions. 67% prefer retailers who remember preferences and previous shopping behaviors to create a more tailored shopping experience and 66% like personalized adverts or suggestions. This is 20% and 21% above the global average respectively. Fortunately, Malaysian businesses are among the best at using data to inform decision making and engage customers. Currently, 39% of businesses use payments data to build a better picture of their customers, 12% above the global average.  
When doing so, businesses must prioritize safeguards to protect customer data and address consumer concerns around privacy. Half of Malaysian consumers will only allow their data to be stored and used by retailers if there are assurances around security and privacy, while almost half of them (45%) believe retailers shouldn’t be able to use their data/purchase behaviour information unless they give permission. With more businesses looking to embrace digitalization and Malaysian consumers’ preference for technology to permeate the in-store experience, businesses in 2022 are optimistic about the future. The impressive resilience and adaptability of Malaysia’s retail industry will likely be key themes even beyond the pandemic 

Eye On The Markets 

This week, on Friday (27May), the Ringgit opened at 4.3925 against the USD from 4.3893 on Monday (23May). Meanwhile, the Ringgit was 3.1993 to the Sing Dollar on Friday (27May). On Monday (23May), the FBM KLCI opened at 1553.15. As at Friday (27May) 10:00am, the FBM KLCI is down 15.67 points for the week at 1537.48. Over in US, the overnight Dow Jones Industrial Average closed up 516.91 points (+1.61%) to 32,637.19 whilst the NASDAQ added 305.91 points (+2.68%) to 11,740.65. 

Foreigners bought RM56.9m on Bursa last week – MIDF Research

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According to MIDF Research, foreign investors turned net buyers again after a week of net selling the week before, with net inflows summed up to RM56.9 million last week. Local retailers remained net buyers for the fifth consecutive week at RM234.8 million while local institutions turned net sellers after a week of net buying with a net selling position of RM291.8 million last week. To date, international funds have been net buyers for 15 out of the 19 weeks of 2022, with a total net inflow of RM6.98 billion. They were net sellers on Wednesday and Thursday, at RM2.08 million and RM145.2 million, respectively. Local institutions were net sellers on all the trading days last week, except on Thursday where they were net buyers to the tune of RM41.38 million. The highest net selling was recorded on Tuesday at RM200.67million, and the smallest net selling on Wednesday at RM40.44 million. They have been net sellers for 16 out of 19 weeks this year. To date, they have sold RM8.1 billion of equities. Local retailers were net buyers on all trading days of the week with the highest net buying on Thursday at RM103.83 million, and smallest net buying on Tuesday, at RM21.34 million. In terms of participation, foreign investors saw a decrease in the average daily trade value by 24.76%. Local retailers saw a decline of 6.9% while local institutions saw an increase of 9.49%. 

OPR decision due to inflation pressures – Moody’s 

According to Moody’s Analytics, Bank Negara’s surprise decision to increase its overnight policy rate (OPR) by 25 basis points to 2% from 1.75% came on the back of rising inflation pressures. The Russian invasion of Ukraine, together with China’s zero-Covid policy, has caused supply-chain disruptions and an uptick in global commodity prices. Several central banks are expected to adjust monetary policy settings ‘at a faster pace’, hinting at concerns over capital outflows and the weakening ringgit. Given that the country’s borders had fully reopened on April 1, Bank Negara now expects the economy to strengthen. Domestic Covid-19 restrictions have also largely been lifted, allowing consumer and investor spending to pick up. Inflation remains relatively subdued, and this renders the central bank’s move largely pre-emptive. Higher food and fuel prices pushed the consumer price index to 2.2% year-on-year (y-o-y) in March. In comparison, consumer prices in neighbouring Singapore, Thailand and the Philippines rose between 4.5% and 5.5% in April. Being a net exporter of oil, Malaysia could afford to subsidise its domestic prices to ward off price increases due to the high oil price. Nonetheless, the country is subjected to rising food prices, which has been exacerbated by the Russian invasion of Ukraine. The price of food and non-alcoholic beverages had soared 4% y-o-y in March, on par with the rest of the Asia-Pacific region. Malaysia’s gross domestic product for the first quarter of 2022 came in stronger than expected at 5% compared to its previous quarter’s performance – the fourth quarter of 2021 – which was 3.6% y-o-y. Industrial production grew 5.1% y-o-y in March, compared with a 4% increase in February. 

Malaysia not at risk of recession – Finance Minister 

According to Finance Minister Tengku Datuk Seri Zafrul Abdul Aziz, Malaysia is not at risk of recession and is on track to meet forecast economic growth targets of between 5.3% and 6.3% this year. The country’s economic growth would be supported by the government’s expansionary fiscal policy as well as accommodative monetary policy. The current talk of a global recession was premature and unwarranted, and Malaysia would see further growth momentum in the second quarter after recording a strong first-quarter gross domestic product growth of 5%. However, he remains wary of potential downside. There is a potential risk due to the war in Ukraine, high commodity prices and global monetary policy tightening. As a result, the government will need to ensure adequate fiscal flexibility in the future to manage such risks. This is why he intends to gradually reduce the fiscal deficit from 6.4% in 2021 to 6% in 2022 and also rationalise the subsidies to be more targeted. Failure to meet debt obligations was a major risk for countries in the event of a global recession but it was not a risk for Malaysia, as the risk was mitigated due to its low exposure to external debt, with less than 3% in foreign currencies. Malaysia had ample liquidity to finance the government and private sector borrowing needs. 

Eye On The Markets 

This week, on Friday (20May), the Ringgit opened at 4.3965 against the USD from 4.3950 on Tuesday (17May). Meanwhile, the Ringgit was 3.1839 to the Sing Dollar on Friday (20May). On Tuesday (17May), the FBM KLCI opened at 1555.68. As at Friday (20May) 10:00am, the FBM KLCI is up 0.85 points for the week at 1556.53. Over in US, the overnight Dow Jones Industrial Average closed down 236.94 points (-0.75%) to 31,253.13 whilst the NASDAQ shed 29.66 points (-0.26%) to 11,388.50. 

BETTER RISK-REWARD IN SMALL AND MID-CAPS – RHB RESEARCH

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According to RHB Research analyst Lee Meng Horng, it is time to be nimble in small and mid-caps on Bursa Malaysia given the better risk-reward ratio on current forward price to earnings (P/E). Both the FBM 70 and FBM SC are trading below their five-year means, and at about two times P/E discounts to that of the FBM KLCI — based on RHB’s stock coverage universe. In addition, the valuation of the MSCI Malaysia Small Cap Index is on par with the MSCI benchmark index, reversing the trend of the outperformance of small-cap indices in the past two years. This came as investors refocused on value-oriented big caps amid rising interest rates and greater market volatility. It is time to go long in this current sell-down with the expectation of a range-bound market amid a volatile backdrop and below-mean valuation. The investor’s strategy should be two-pronged — rotational play on sectors and bottom-up stock-picking — while continuing to look for ideas based on unique turnarounds, event-driven catalysts, exporters and politically linked thematic plays. The research house has a preference for the consumer discretionary, technology, logistics, oil and gas, and plantation sectors. The outperformance of the FBM SC (+5.3% year to date) continues in 2022, despite the market being range-bound overall in the absence of major positive catalysts, while uncertainties from external events linger. The FBM SC’s stronger performance has been underpinned by commodity-related stocks that benefited from the surge in various commodity prices. On the other hand, the FBM 70 (-5.8% year to date) has underperformed the FBM KLCI (-0.2% year to date) so far this year, as heavyweights that consist of mainly technology sector-related stocks took a beating amid high inflation and rising interest rates. The return of foreign fund inflows has supported the FBM KLCI so far, thanks to the Malaysian market’s defensive attributes, while the spike in commodity prices has been a boon. The market liquidity has declined, with the cautious tone from local institutions and a lack of participation from retail investors — further exacerbated by the risk-averse sentiment casting a further pall on the market. These factors were partially cushioned by the return of foreign fund inflows. Compounded by the resumption of intra-day short selling (IDSS), the market has witnessed a rather volatile market in the first quarter of 2022, especially for the small-mid cap space. In fact, year-to-date traded value for the FBM 70 and FBM SC declined by 32% and 61% respectively. Against the backdrop of a full-blown economic recovery in 2022, and supported by in-house gross domestic product (GDP) growth forecast of 5.5% year on year, certainly there are companies that are expected to perform well and record growth. However market volatility is expected to remain high for a large part of 2022, no thanks to the fluid situation and prevailing uncertainties. The upside is capped, as the expectation of a broad-based economic recovery seems priced in, while the downside continues to be supported by bottom-fishing activities. A ‘buy’ at the support level and ‘sell’ at the resistance level approach could thrive.  

BNM raises OPR to 2% from record low of 1.75% 

Bank Negara Malaysia’s (BNM) Monetary Policy Committee (MPC) on Wednesday (May 11) increased the overnight policy rate (OPR) by 25 basis points to 2% from a record low of 1.75% as global inflationary pressures have increased sharply and after taking into account that the sustained reopening of global economy and improvement in labour markets continue to support the recovery of economic activity from the impact of Covid-19-driven movement restrictions. The ceiling and floor rates of the OPR’s corridor are correspondingly increased to 2.25% and 1.75% respectively. Inflationary pressures have increased sharply due to a rise in commodity prices, strained supply chains and strong demand conditions, particularly in the US. For the Malaysian economy, latest indicators show that growth is on a firmer footing, driven by strengthening domestic demand amid sustained export growth. The OPR at 1.75% was the lowest dating back to 2004. The sustained reopening of the global economy and improvement in labour market conditions continue to support the recovery of economic activity. The global growth outlook will continue to be affected by the developments surrounding the conflict in Ukraine, Covid-19, global supply chain conditions, commodity price shocks, and financial market volatility. On the Malaysian economy, the latest indicators show that the country’s economic growth is on a firmer footing, driven by strengthening domestic demand amid sustained export growth. The labour market is further lifted by a lower unemployment rate, higher labour participation and better income prospects. The transition to endemicity on April 1, 2022 is expected to strengthen economic activity, in line with further easing of restrictions and the reopening of international borders. Investment activity and prospects have also improved, underpinned by the realisation of multi-year projects and positive growth outlook. However, risks to growth remain, which include a weaker-than-expected global growth, further escalation of geopolitical conflicts, worsening supply chain disruptions, and adverse developments surrounding Covid-19. Malaysia’s headline inflation, as measured by the consumer price index, is projected to average between 2.2% and 3.2% in 2022. Given the improvement in economic activity amid lingering cost pressures, the country’s underlying inflation, as measured by core inflation, is expected to trend higher to average between 2% and 3% in 2022. Nevertheless, upward pressure on prices would be partly contained by existing price controls and the continued spare capacity in the economy. The inflation outlook continues to be subject to global commodity price developments, arising mainly from the ongoing military conflict in Ukraine and prolonged supply-related disruptions, as well as domestic policy measures on administered prices. Looking back over the course of the Covid-19 crisis, the OPR was reduced by a cumulative 125 basis points to a historic low of 1.75% to provide support to the Malaysian economy. The unprecedented conditions that necessitated such monetary actions have since abated. With the domestic [economic] growth on a firmer footing, the MPC decided to begin reducing the degree of monetary accommodation. This will be done in a measured and gradual manner, ensuring that monetary policy remains accommodative to support a sustainable economic growth in an environment of price stability. 

Eye On The Markets 

This week, on Friday (13May), the Ringgit opened at 4.3930 against the USD from 4.3760 on Monday (9May). Meanwhile, the Ringgit was 3.1476 to the Sing Dollar on Friday (13May). On Monday (9May), the FBM KLCI opened at 1563.80. As at Friday (13May) 10:00am, the FBM KLCI is down 19.22 points for the week at 1544.58. Over in US, the overnight Dow Jones Industrial Average closed down 103.81 points (-0.33%) to 31,730.30 whilst the NASDAQ added 6.73 points (+0.06%) to 11,370.96. 

Immediate increase in minimum wage may reverse business recovery – FMM

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According to President of The Federation of Malaysian Manufacturers (FMM) Tan Sri Soh Thian Lai, FMM has raised concerns that the immediate jump to RM1,500 for minimum wage from May 1 may result in a steep cost increase and reverse the otherwise optimistic business recovery for 2022. The increase from the current RM1,200/RM1,100 to RM1,500 represents an immediate increase of 25-36% on the basic salary which will have a tremendous knock-on effect on the overall payroll cost and have a spiralling impact on business cost that could potentially derail the economic recovery. The industry has repeatedly affirmed that it is supportive of a review of the minimum wages but based on the current economic factors where the business environment continues to be fragile, a progressive adjustment with a RM150 increase in 2022 and a further increase of RM150 in 2023 to reach the RM1,500 minimum wage would be more manageable for the industry. The small and medium enterprises (SMEs), especially those in the suburban areas would be most impacted by this sharp rise in wage cost given that only the micro-enterprises will be exempted for a period of eight months until December 2022. The economy would also see an immediate monthly outflow of close to RM500 million with the repatriation of funds by foreign workers (based on 1.6 million legal foreign workers) with no direct positive impact on the local economy. As it is, the industry is facing an influx of cost increases as businesses continue to rebuild their performance to the pre-pandemic levels, including raw materials cost, logistics cost, and higher energy prices due to the rising commodity prices. Ultimately, the increase in minimum wages is going to further push cost of production and lead to greater inflationary pressures. 

Near-term economic growth momentum to ease based on February’s Leading Index – DOSM 

According to Department of Statistics Malaysia (DOSM) chief statistician Datuk Seri Dr Mohd Uzir Mahidin, Malaysia’s Leading Index (LI) recorded a healthier month-on-month (m-o-m) trend in February 2022, increasing to 110.8 points from 110.1 points in the preceding month. However, the annual LI showed a slower performance at negative 0.5%, signifying that near-term growth momentum would ease amid continued economic recovery. This was influenced by cautious investor sentiment in the stock market which was reflected by the downtrend in the Bursa Malaysia Industrial Index, backed by the healthcare and utilities indices during the month. On the m-o-m LI increase of 0.5% in the reference month, this was mainly contributed by growth in real imports of other basic precious and other non-ferrous metals (0.6%), real imports of semiconductors (0.4%) and Bursa Malaysia Industrial Index (0.2%). The LI is a predictive tool used to anticipate economic upturns and downturns in an average of four to six months ahead. The ongoing international crises have exerted further pressure on global economic growth through trade, inflation and financial markets, which in turn could disrupt the growth prospects of the Malaysian economy. Pertaining to current economic perspective, the Coincident Index sustained its growth by expanding 6.4% to 120.4 points in February 2022, from 113.2 points a year earlier. 

Bursa Q1 net profit falls 44% as revenue slides from pandemic high 

Bursa Malaysia Bhd’s net profit fell 44% to RM67.97 million in the first quarter ended March 31, 2022 from RM121.39 million reported in the same quarter of the previous year, attributed to a lower operating revenue due to a decline in securities trading revenue. Revenue for the quarter stood at RM165.3 million, a 29.4% drop from RM232.28 million reported previously. The securities market segment saw a 40.2% decline in profit to RM104.4 million in Q1’22 from RM174.6 million Q1’21 due to lower revenue, while its derivatives market segment posted a RM12.9 million profit for the quarter from RM11.6 million reported previously on the back of higher revenue. In addition, Bursa’s exchange holding company saw a lower loss of RM4.3 million for the quarter against RM5.1 million reported previously due to lower corporate social responsibility expenses and its others segment saw a 22% hike in profit of RM2.1 million from RM1.7 million. Its overhead rose by 12.3% to RM22.5 million from RM20 million in Q1’21 mainly due to higher depreciation and amortisation of assets. 

According to Bursa CEO Datuk Umar Swift on the results, he pointed out that the average daily trading value of securities continued to normalise to pre-pandemic levels which contributed to the decline in profit for the quarter. However, profit after tax is 4.6% higher than the fourth quarter ended Dec 31, 2021 of RM65million, mainly contributed by a 2.8% higher average daily trading value registered this quarter. However, with the reopening of the economy and international borders, Bank Negara Malaysia expects Malaysia’s growth forecast to be between 5.3% to 6.3%. As such, better economic growth can be expected as the nation moves towards the endemic phase, and we anticipate more trading opportunities for investors due to movements in CPO prices, interest rate policies and the FBM KLCI. To sustain the interest of global investors, the bourse will continue to enhance the attractiveness of listed issuers through initiatives such as the Public Listed Companies Transformation programme launched earlier this year. Further, and in line with the Sustainable and Responsible Investment and environmental social governance agendas, the exchange will continue to deliver new product and service offerings as well as the new voluntary carbon trading platform, which will enhance the breadth and depth of the ecosystem. 

Eye On The Markets 

This week, on Friday (29Apr), the Ringgit opened at 4.3630 against the USD from 4.3335 on Monday (25Apr). Meanwhile, the Ringgit was 3.1500 to the Sing Dollar on Friday (29Apr). On Monday (25Apr), the FBM KLCI opened at 1599.38. As at Friday (29Apr) 10:00am, the FBM KLCI is down 1.85 points for the week at 1597.53. Over in US, the overnight Dow Jones Industrial Average closed up 614.46 points (+1.85%) to 33,916.39 whilst the NASDAQ added 382.60 points (+3.06%) to 12,871.53. 

 

Capital market stakeholders should align focus, assess impact to best cater to needs – SC 

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According to Securities Commission Malaysia (SC) executive director (Islamic capital market development) Sharifatul Hanizah Said Ali, while the Malaysian capital market is set to benefit from the projected domestic economic recovery, it is essential for the stakeholders to align focus and assess the impact to deploy different approaches and initiatives that best cater to the market’s needs. The SC has produced the Capital Market Master Plan 3 (CMP3), a five-year strategic plan for the growth of Malaysia’s capital market. The strategic initiatives over the next five years will be guided by key development and regulatory priorities. These strategic thrusts focus on catalysing competitive growth, empowering investors for a better future, and shaping a stakeholder economy, whilst embedding shared accountability, prioritising efficiency, and outcomes, as well as embracing technology. She said this in her keynote address at the ninth Malaysian Financial Planning Council e-Conference. The SC aims to facilitate a conducive environment to support investor empowerment and elevate financial literacy in line with the CMP3. The Malaysian capital market has remained resilient with a 3.0 per cent growth to RM3.5 trillion in 2021 from RM3.4 trillion in 2020. Notwithstanding the various challenges brought by the fluctuating economic conditions, the capital market continued to play its critical roles in financing the economy with a notable increase in fundraising activities and encouraging the growth of the overall fund management industry. Total funds raised in the capital market remained robust, rising to RM130.9 billion in 2021 — above the five-year pre-pandemic average of RM121.4 billion. It is imperative to raise the bar on professional standards and conduct requirements to enhance professionalism in the financial planning industry. The SC issued Guidelines on Conduct for Capital Market Intermediaries on April 1, which also applies to licensed financial planners to foster good business conduct and a good corporate culture that is centred on the fair treatment of clients and to promote trust in all intermediaries. While regulation can play a role to promote the right culture, the industry must also continue to shape the right behaviours within their own organisations. To this end, it is commendable to see the industry’s harmonisation and elevation of the code of ethics and best practice standards by the relevant certification associations. 

Malaysia’s total trade soars to new high of RM236.6bln in March : DOSM 

According to the Department of Statistics Malaysia (DOSM) chief statistician Datuk Seri Dr Mohd Uzir Mahidin, Malaysia’s total trade recorded a double digit growth of 27.3 per cent year-on-year (y-o-y) in March 2022 to reach a new high of RM236.6 billion. Export and import values in March once again broke the record for all-time highs at RM131.6 billion and RM104.9 billion, respectively. Malaysia’s imports surpassed the RM100 billion mark for the first time ever, in line with the surge in intermediate goods, signifying a positive sign of domestic economic activity. Trade surplus widened by 10.3 per cent from RM24.2 billion in the preceding year to RM26.7 billion, marking 23 consecutive months of trade surplus since May 2020. Malaysia’s exports accelerated by 25.4 per cent from RM105.0 billion to RM131.6 billion, surpassing the RM100 billion mark for the seventh consecutive month since September 2021. Export value growth in March 2022 was supported by both domestic exports and re-exports. Domestic exports were valued at RM106.9 billion, contributing 81.2 per cent to total exports, picking up strongly by 22.8 per cent y-o-y. Meanwhile, re-exports amounted to RM24.7 billion, expanded by 38.0 per cent compared to March 2021. Along with the export performance, imports also registered a strong growth of 29.9 per cent from RM80.8 billion to RM104.9 billion. In comparison to February 2022, the performance of total trade, exports, imports and trade surplus showed the increases of 28.1 per cent, 28.7 per cent, 27.3 per cent, and 34.8 per cent, respectively. An outstanding annual growth in exports was portrayed in 166 out of 255 commodity groups, showing increases compared to the same month of the previous year, led by thermionic valves and tubes. As for imports, 186 of 259 groups posted a positive growth. The rise in exports was attributable mainly to higher exports to Singapore (+RM5.1 billion), followed by Japan (+RM2.1 billion), South Korea (+RM1.8 billion), the European Union (+RM1.8 billion), China (+RM1.7 billion), Taiwan (+RM1.4 billion), Thailand (+RM1.4 billion), Indonesia (+RM1.4 billion), and the United States (+RM1.3 billion). On top of that, China was a key contributor to the increase in imports, which increased by RM3.4 billion, followed by Saudi Arabia (+RM2.9 billion), Taiwan (+RM2.8 billion), Indonesia (+RM2.5 billion), Singapore (+RM2.3 billion), the United States (+RM1.4 billion), and Thailand (+RM1.2 billion). The expansion of export was driven by electrical and electronics products (+RM13.0 billion); petroleum products (+RM4.6 billion); palm oil and palm oil-based agriculture products (+RM3.1 billion); liquefied natural gas (+RM2.5 billion); crude petroleum (+RM1.6 billion); and palm oil-based manufactured products (+RM1.1 billion). Meanwhile, the rise in imports were noted for electrical and electronics products (+RM7.1 billion); crude petroleum (+RM6.1 billion); petroleum products (+RM3.0 billion); chemical and chemical products (+RM2.2 billion); machinery, equipment and parts (+RM1.6 billion); metalliferous ores and metal scrap (+RM1.2 billion); and coal (+RM1.2 billion). On the performance for the first quarter of 2022, the total trade, exports, imports, and trade surplus continued to record strong double-digit growth. The total trade went up by 23.6 per cent, supported by the expansion in exports (+22.2 per cent), as well as imports (+25.2 per cent). Consequently, trade surplus recorded a higher value of RM65.1 billion. 

Local bourse market cap down slightly in March as investors booked profit – Bursa 

According to Bursa Malaysia, the total market capitalisation of the local bourse slightly moderated to RM1.795 trillion in March this year compared with RM1.81 trillion reported in the previous corresponding month. The reduction was due to investors booking their profit in the plantation and energy sectors, subsequent to the record high commodity prices last month. Meanwhile, foreign inflows further accelerated to RM3.29 billion in March as foreign investors turned net buyers in financial services, industrial and plantation sectors. However, foreign investors emerged as net sellers in the technology, telecoms and utility sectors. In March, total average daily volume further escalated to RM2.96 billion, with strengthened trading activities among foreign and local institutional investors. In terms of stocks, counters that saw the biggest foreign inflows were Petronas Chemicals Group Bhd (RM1.1 billion), Public Bank Bhd (RM935 million), Malayan Banking Bhd (RM348 million), Kuala Lumpur Kepong Bhd (KLK) (RM345 million) and Hong Seng Consolidated Bhd (RM174 million). Foreign investors further increased their stakes in plantation stocks with a total of RM962 million inflow in March, despite the moderation in crude palm oil price after hitting its peak last month. Meanwhile, local institutions sold RM692 million worth of plantation stocks, while local retailers offloaded RM181 million in the same month. The stock exchange also highlighted selected plantation stocks, such as KLK, which saw a RM345 million inflow by foreign investors, while local institutions took profit, resulting in an outflow of RM342 million. 

Eye On The Markets 

This week, on Friday (22Apr), the Ringgit opened at 4.3060 against the USD from 4.2390 on Monday (18Apr). Meanwhile, the Ringgit was 3.1554 to the Sing Dollar on Friday (22Apr). On Monday (18Apr), the FBM KLCI opened at 1591.64. As at Friday (22Apr) 10:00am, the FBM KLCI is down 4.70 points for the week at 1596.34. Over in US, the overnight Dow Jones Industrial Average closed down 368.03 points (-1.05%) to 34,792.76 whilst the NASDAQ shed 278.41 points (-2.07%) to 13,174.65.  

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Malaysia’s economic recovery on track but risks abound – SERC 

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According to Socio Economic Research Centre Malaysia (SERC) executive director Lee Heng Guie, Malaysia’s economic recovery remains on track with a 5.2% growth forecast, but it could be dampened by prolonged supply chain disruption, persistent high inflation, and sharp slowdown in China with global stagflation pressures now a serious risk. The supply chain disruption is worsened by Russia’s invasion of Ukraine, which has induced massive negative supply and price shocks. Persistent high inflation and high oil price shock represent a double blow to the world economy that could impact growth momentum. The sharp slowdown in China and the lockdown in its major cities could have further impact on the regional supply chain and hence on Malaysia. He was speaking during SERC’s first-quarter 2022 (Q1’22) economy tracker briefing. The country’s economic recovery rides on the back of a stronger revival in domestic demand and a rebound in the services and the construction sectors. Services such as tourism, retail, transport, and aviation will see faster growth (6.1%) on border reopening and pent-up demand amid increased operating costs and other risks including climate change, stagflation and geopolitical tension. The construction sector is estimated to see 6.5% growth due to ongoing large infrastructure projects and small-scale projects. Private consumption is estimated to see a 6.5% growth due to Employee Provident Fund withdrawals as well as a recovery in income and employment, but inflation and living cost concerns will dampen consumer sentiment. The labour market is gradually recovering with the unemployment rate in February 2022 at 4.2% compared with 5.3% in May 2020. Private investment (5.0% growth) continues to remain in cautious mode while public investment is forecast to see 9.4% growth. Exports are estimated to grow moderately (4.4%) on continued external demand from key trade partners, strong global demand for electrical and electronic products and improvement in commodity production. However, external demand will slow if the global economy tanks, with higher freight and container rate and logistic costs, supply chain disruptions, as well as workers’ shortage and higher cost of doing business. Imports are estimated to expand at a 4.9% rate on the continued expansion of manufactured exports and improved domestic demand. Although trade with Russia is only at 0.4% (Ukraine at 0.1%) of Malaysia’s total trade, the war has caused prices of wheat, corn and chemical fertiliser to rise, which means costlier feed, fertiliser, pesticides and other raw materials. But the European Union may purchase more palm oil as a result of shortages in rapeseed and sunflower oil supply from Ukraine. Besides, Malaysia benefits from higher crude oil-related revenue, although it would be offset by bloated fuel subsidies and other subsidies. The financial market can expect volatility due to the war and the situation in the commodity market. There will be a flight to quality as investors lighten their portfolios. To reform the economy beyond the pandemic, the country must be prepared to withstand any future shocks, whether financial, economic, or non-economic. Now there’s a reserve coming from oil and from commodity prices, the surplus of which should be saved for future shocks. The ringgit is also expected to remain weak for the rest of the year. 

Banks expected to see higher earnings this year – Moody’s 

According to Moody’s Investors Service, the pre-tax profitability of banks is expected to see an improvement this year on bigger net interest margins (NIMs) and lower loan-loss provisions. This is supported by an anticipated increase in interest rates in the later part of the year and quicker loan growth, which will then lend support to an increase in NIMs. Banks may continue to take precaution against potential credit losses from loans that are under the repayment assistance programme. This would see loan-loss provision declining but remaining higher than pre-pandemic levels. It expects impaired loans to increase in 2022, but only moderately because the economic recovery and continued aid from the government will support borrowers’ repayment capacity. Regulatory measures such as the targeted repayment assistance programme for vulnerable borrowers affected by the pandemic helped banks maintain stable asset quality. The asset-weighted average of the six largest Malaysian banks’ impaired loan ratios decreased modestly to 1.8% as of Sept 30, 2021 from 2% a year earlier, although about 28% of total loans at the banks were under the repayment assistance scheme, some of which can become impaired. Meanwhile, an earlier announced one-off prosperity tax will see some impact to sector-wide net profitability of the banks, but its impact will be partially offset by the strong pre-tax earnings growth. It expects banks’ capital ratios to be broadly stable at high levels in 2022 because internal capital generation will keep pace with increases in capital consumption due to faster loan growth. Prudent dividend policies and dividend reinvestment plans will help banks preserve capital to fund an acceleration of credit growth. The industry’s common equity tier 1 ratio was at a strong level and stood at 14.6% at the end of last year. The research house is also expecting industry-wide loan growth to strengthen to 6%-7% in 2022 from 4.5% last year, supported by recovering credit demand from the retail and corporate segments. Loan growth will be supported by the country’s real gross domestic product (GDP) growth, which would accelerate to around 6% in 2022 from 3.1% in 2021. It would be driven by increases in domestic consumption amid an improving labour market and export growth. The government has set its expansionary budget to RM332bil for this year from the previous year, and this will further support economic recovery. On another matter, the debt servicing capacity of corporates and households will remain strong and support banks’ asset quality. 

Foreign inflows positive – MIDF 

According to MIDF Research data, the foreign inflow to Bursa Malaysia continued last week, with net buying of RM312.4mil. The positive trend was in line with Asean markets, which has continued to see net inflows albeit at a slower pace. Cumulatively for the week, Indonesia, Malaysia and Thailand registered a total net inflow of US$421.3mil (RM1.7bil), which was slightly more than half the net inflow recorded in the previous week. On the Malaysian market, foreign investors have been net buyers for 12 of the first 14 weeks of 2022, recording a net purchase of RM6.97bil of local equity so far this year. The most favoured sectors by foreign investors last week continued to be financial services, industrial product and services, and plantation. These saw net inflows of RM329.9mil, RM57.3mil and RM45.1mil respectively. Meanwhile, local institutions remained net sellers on Bursa Malaysia with RM303.19mil in net equities sold over the past week. Retailers also adopted a net selling position with RM9.21mil net of equities sold over the last five trading sessions. Year-to-date, local institutions are net sellers to the tune of RM7.38bil while local retailers are net buyers with a RM410mil surplus in equities. In terms of market participation, foreign investors saw a 10.39% decline in average daily traded value over the past week while local institutions and retailers saw an increase of 13.5% and 13.66% respectively. 

Malaysia records highest IPO proceeds among Asean members in Q1 2022 – EY 

According to Ernst & Young (EY), Malaysia led other Asean countries in initial public offering (IPO) proceeds during the first quarter (Q1) of 2022 as exchanges in the bloc recorded a year-on-year      (y-o-y) decline of 57 per cent in total proceeds for the period. Asean’s exchanges saw a higher number of IPOs ― 29 IPOs in Q1 2022 versus 22 a year earlier ― but proceeds fell to US$1 billion (RM4.23 billion) from US$2.4 billion previously. During this quarter, the Indonesia Stock Exchange (IDX) was most active by deal numbers (12 IPOs raising US$219 million), while Malaysia’s exchanges led by proceeds (US$362 million via five IPOs). ET attributed the marked decline in Asean’s IPO proceeds to the lack of a mega IPO being posted in Q1 2022, compared to one mega IPO a year ago.  

According to Max Loh, Ernst & Young LLP’s Singapore and Brunei managing partner and EY Asean IPO leader, geopolitical tensions, the ongoing Covid-19 situation, supply chain woes, tightening of monetary policy and escalating costs were a few factors weighing down economic and IPO activity in Asean. The IPO market remains receptive to quality high-growth companies, but volatility, uncertainty and valuation expectations will need to be tempered before a resurgence in IPO activity can happen. Meanwhile, the global IPO market also witnessed a weaker performance in Q1 2022, with 321 deals raising US$54.4 billion in proceeds ― a decrease of 37 per cent and 51 per cent y-o-y, respectively. In contrast, the Asia-Pacific region surpassed its Q1 2021 IPO proceeds performance ― when it raised the highest Q1 proceeds in 21 years ― by recording 188 IPOs raising US$42.7 billion (19 per cent higher proceeds) in the quarter under review. The region accounted for 78 per cent of global IPO proceeds due to the listing of four mega IPOs.  

According to EY global IPO leader Paul Go, a decrease in IPO activity was not unexpected when compared with Q1 2021 as the latter was the most active quarter in the last 21 years. However, the market shock from geopolitical tensions and other economic concerns in the second half of the quarter created volatility and impacted the capital markets. The global IPO market would remain volatile in Q2 2022 amid many uncertainties, with a backlog of IPO candidates, and pipelines would continue to build up. With the prevailing headwinds arising from geopolitical tensions and conflicts, inflation and interest rate hikes, it will be imperative for IPO-bound companies to take a fresh look at how these challenges will affect their markets, customers and suppliers to their business. 

Eye On The Markets 

This week, on Friday (15Apr), the Ringgit opened at 4.2335 against the USD from 4.2280 on Monday (11Apr). Meanwhile, the Ringgit was 3.1195 to the Sing Dollar on Friday (15Apr). On Monday (11Apr), the FBM KLCI opened at 1607.95. As at Friday (15Apr) 10:00am, the FBM KLCI is down 13.27 points for the week at 1594.68. Over in US, the overnight Dow Jones Industrial Average closed down 113.36 points (-0.33%) to 34,451.23 whilst the NASDAQ shed 292.51 points (-2.14%) to 13,351.08. 

Moody’s: Malaysia to record 6.0pc economic growth in 2022 

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According to Moody’s Investors Service assistant vice-president/analyst Nishad Majmudar, Malaysia’s economy is likely to grow 6.0 per cent this year, driven by the reopening of international borders, high vaccination rates, and as the country enters the transition to the endemic phase. The reopening of international borders would bolster the tourism-related services sector. As for the transition into the endemic phase, over time, he expects that it would support greater economic activity and private consumption in the country. Another factor is the expected weaker growth in key export markets like the European Union, which accounts for about 10 per cent of exports. Nevertheless, Malaysia is exporting quite a diverse basket of goods whereby demand remains in the strong part of the cycle, such as electronics and oil and gas sector, which should perform well with the high prices. He was speaking at Moody’s virtual media roundtable titled “Inside Asean: Malaysia”. However, there were several downside risks, including the Ukraine-Russia conflict, as well as the potential of a surge in inflation to prompt Bank Negara Malaysia (BNM) to react more quickly in terms of policy rate normalisation. The Ukraine-Russia conflict is the biggest downside risk for growth. Moody’s has already marked down the forecast for a number of G20 economies, mostly in Europe but also in Asia Pacific and that BNM is expected to raise its policy rate in the second half of 2022. Another round of border closures due to a new variant threat would be another potential risk but the Malaysian government had indicated its interest to keep the economy open and treat Covid-19 as an endemic. Additionally, a volatile political environment would undermine Malaysia’s credibility and effectiveness of institutions, as well as threaten the stability of capital flows and investment, which could be another potential downside risk for Malaysia. In his assessment over the last few years, some of the political noises have not affected the functioning of key economic institutions such as the Finance Ministry, Bank Negara, and securities regulators. However, the uncertainties around the election timing and the relatively thin majority in Parliament, have constrained the fiscal reform process most notably and made it difficult for any of the governments over the last three years, to focus on some of these reforms. If the general elections were to come soon, it could potentially lead to a more volatile political environment and political noises, but would not affect the functioning of the key institutions overall. Meanwhile, Brent crude price is expected to remain above US$100 per barrel this year. According to Moody’s analyst Hui Ting Sim, the rating agency expects Petroliam Nasional Bhd (Petronas) to spend more of its capital spending this year, which could benefit the exploration and production contractors and oilfield services companies. In terms of top-line, they are quite positive as there will be more business for the players in the oilfield service industry. The outlook for earnings and cashflows potentially could be less positive because these companies will incur higher operating costs this year because of the inflationary pressure that leads to higher utility, equipment, and labour costs. Profitability of these companies will depend on their ability to pass through the increase in costs to oil and gas producers. 

MIDF Research: Foreign investors remain net buyers last week with inflow of RM536.5m 

According to MIDF Research, foreign investors were the only net buyers for the week ended April 1, with the net inflows amounting to RM536.5 million. In its equity strategy report, the investment bank said international funds have been net buyers on Bursa Malaysia for 11 out of the first 13 weeks of 2022, with a net inflow of RM6.66 billion year-to-date. Foreign investors were net buyers in all the trading days last week, with the largest amount recorded on Friday at RM194.8 million and the smallest on Tuesday at RM30.7 million. Financial services, plantation and industrial products and services continue to be the most favoured sectors by foreign investors last week, with net inflows of RM335.6 million, RM100.4 million and RM54.6 million, respectively. As for local retailers, the research house said the local retailer movements were rather mixed last week with three days of net selling and two days of net buying, culminating with a net selling position at -RM72.74 million for the week. They were net sellers on Wednesday (RM36.12 million), Thursday (RM30.56 million) and Friday (RM80.96 million), and were net buyers on Monday (RM17.39 million) and Tuesday (RM57.51 million). Local institutions remained as net sellers with the largest selling recorded on Monday at       -RM138.2 million and the smallest amount on Wednesday at -RM51.4 million. Local institutions’ net buys were in the healthcare and construction sectors at RM62.8 million and RM4.0 million, respectively. Overall, local institutions were net sellers at -RM463.75 million. On a year-to-date basis, local institutions are net sellers to the tune of RM7.08 billion, while local retailers and foreign investors have been net buyers at RM0.42 billion and RM6.7 billion, respectively. In terms of participation, only foreign investors recorded an increase in average daily trade value at 5.95 per cent, while local institutions and local retailers recorded declines of 20.47 per cent and 13.49 per cent, respectively. 

Govt remains country’s top bond issuer 

According to Bond Pricing Agency Malaysia Sdn Bhd’s (BPAM), the Malaysian government has been named the overall top bond issuer for the first quarter (1Q) of 2022, with a total issuance of RM50bil. The government also issued the top traded bond overall for the quarter under review at RM205.06bil. The government had also been the top bond issuer overall and issued the top traded bond in the fourth quarter of last year. National mortgage corporation Cagamas Bhd was the top corporate bond issuer (RM1.88bil) for 1Q this year and also issued the top traded corporate bond (RM590mil). Maybank Islamic Bank Bhd was the top sukuk issuer (RM4bil) in the quarter, while DanaInfra Nasional Bhd issued the top traded sukuk (RM2.8bil). Malaysian Trustees Bhd emerged as the top bond trustee overall both by value (RM9.48bil) and issuance (101 issues) for the quarter under review. It was also the top sukuk trustee by value (RM7.68bil). PB Trustees Services Bhd was the top conventional bond trustee by value (RM2.4bil). These quarterly reports highlight the Malaysian bond market performance and rankings of key bond market players in the given period. BPAM is the only registered bond pricing agency accredited by the Securities Commission. 

Eye On The Markets 

This week, on Friday (8Apr), the Ringgit opened at 4.2205 against the USD from 4.2140 on Monday (4Apr). Meanwhile, the Ringgit was 3.0982 to the Sing Dollar on Friday (8Apr). On Monday (4Apr), the FBM KLCI opened at 1602.03. As at Friday (1Apr) 10:00am, the FBM KLCI is down 0.97 points for the week at 1601.06. Over in US, the overnight Dow Jones Industrial Average closed up 87.06 points (+0.25%) to 34,583.57 whilst the NASDAQ added 8.48 points (+0.06%) to 13,897.30. 

BNM: Malaysia’s diversified economic structure will mitigate disruption risk caused by Russia-Ukraine conflict 

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According to Bank Negara Malaysia (BNM) governor Tan Sri Nor Shamsiah Mohd Yunus, although Malaysia as a small and open economy will be affected by disruptions caused by the Russia-Ukraine conflict, the impact on growth will be mitigated by a highly diversified economic structure, which has always been the country’s source of strength. The ongoing military conflict in Ukraine is expected to weigh on growth prospects via several channels, including disruptions from the trade and financial sanctions, higher commodity prices and volatile financial markets. But having said that, she also highlighted that Malaysia has a diversified economy with various sources of growth and an export structure, which underpins its economic resilience. For instance, being a net commodity exporter, Malaysia would gain from the surge in crude oil and crude palm oil prices. The higher export proceeds would widen Malaysia’s trade surplus and benefit firms and workers in the commodities industry. However, the conflict situation in Ukraine remains highly fluid. Things can change very quickly, and how it affects the Malaysian economy will ultimately depend on the length of the conflict, the extent of the countermeasures and the resulting disruptions to global supply chains. The central bank will continue to monitor this closely and update the assessments accordingly. The conflict in Ukraine had already affected global growth and trade activity. The central bank’s baseline forecasts assume that global growth will still remain above the long-term average of between 3.8% and 4.3%. It is also projecting that the Brent crude oil price will range between US$100 (about RM420.50) and US$120 per barrel and that the bank had also built in the supply chain disruptions, especially in commodities and auto related industries. The central bank has projected Malaysia’s economy to grow by between 5.3% and 6.3% in 2022 amid the reopening of the economy and international borders. 

Sub-Title: Bursa launches new programme to raise velocity 

According to Bursa Malaysia CEO Datuk Muhamad Umar Swift, Bursa Malaysia has launched Bursa Research Incentive Scheme (Bursa RISE) with the objective to improve the trading velocity and corporate profile of participating public-listed companies (PLCs) through research coverage and marketing activities. The new programme would be carried out by licensed research houses to create better appreciation of the PLC’s fundamentals, leading to better value recognition for the companies. Bursa RISE is an initiative in line with the evolving capital market landscape where investors seek greater stakeholder engagement and more transparent communication. With the increasing emphasis on sustainable practices, Bursa RISE will help participating PLCs raise the bar in corporate governance, transparency and disclosure through more frequent and meaningful stakeholder engagements. The programme would also include the Investor Relations (IR) and Public Relations (PR) Incentive Programme, that provides IR and PR support to participating PLCs to enable better engagement with their stakeholders, shareholders, the investment community, the media and the public more effectively. Bursa RISE will complement and support the PLC Transformation Programme which has the objective of encouraging PLCs to be more transparent in their performance, allowing investors to gain better insight to facilitate informed investment decision making. Further data based on a study of a past research programme has shown that velocity for participating PLCs had improved as a result of increased research and profiling. With greater engagement and marketing efforts, investors are expected to pay more attention to the participating PLCs. All these programmes that have been put in place are expected to improve corporate accessibility for participating PLCs, while generating positive outcomes for PLCs, and greater opportunities for investors and stakeholders. A total of 60 participating PLCs were selected based on a set of quantitative and qualitative criteria. The research reports produced under Bursa RISE will be available at https://www.bursamarketplace.com. 

Malaysia’s currency in circulation up 15.1% to RM150.1b in 2021, strongest growth in two decades 

According to Bank Negara Malaysia (BNM) in its 2021 Annual Report, Malaysia’s currency in circulation (CIC) grew by 15.1% year-on-year to RM150.1 billion as of end-2021 from RM130.4 billion a year ago, the strongest annual growth in the last two decades. Businesses and households preferred to hold extra cash in hand for precautionary reasons amid the prolonged Covid-19 pandemic, and a similar trend was observed across many other countries globally. There was also sufficient availability of cash during the unexpected severe floods that affected several parts of the country at the end of 2021. Despite growing demand for cash, the share of coins in CIC fell from 5.1% in the pre-pandemic year of 2019 to 4.3% in 2021 as coins do not command the same status as banknotes as a store of value and a medium of exchange. Through various efforts, in particular deployment of coin deposit machines by financial institutions at selected branches, 60.4 million pieces of coins, equivalent to 7.6% of total coins issued in 2021, were recirculated. To maintain the high quality of CIC, BNM shredded 24.6% of the total volume of banknotes processed, the highest rate in the last five years. In prioritising the issuance of fit banknotes, 57% out of 2.72 billion pieces of banknotes issued in 2021 were fit banknotes as this was not only more cost-effective but also reduced the carbon footprint (given that banknote printing is both water- and energy-intensive). Overall, currency operations nationwide remained uninterrupted last year despite challenges associated with the prolonged Covid-19 pandemic. The availability and accessibility of cash by businesses and households was sustained while maintaining the high quality of CIC and a comparatively low counterfeit rate. 

Eye On The Markets 

This week, on Friday (1Apr), the Ringgit opened at 4 2120 against the USD from 4.2090 on Monday (28Mar). Meanwhile, the Ringgit was 3.1049 to the Sing Dollar on Friday (1Apr). On Monday (28Mar), the FBM KLCI opened at 1606.14. As at Friday (1Apr) 10:00am, the FBM KLCI is down 13.29 points for the week at 1592.85. Over in US, the overnight Dow Jones Industrial Average closed down 550.46 points (-1.56%) to 34,678.35 whilst the NASDAQ shed 221.76 points (-1.54%) to 14,220.52. 

BNM evaluating potential of central bank digital currency 

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According to Deputy Finance Minister I Datuk Mohd Shahar Abdullah, Bank Negara Malaysia (BNM) is actively evaluating the potential of a central bank digital currency (CBDC) driven by the growing technology and payment landscape. He was speaking during a winding-up debate on the motion of thanks for the Royal Address for his ministry in the Dewan Negara. The CBDC is different from a cryptocurrency in that the former would be a digital currency issued by the central bank to achieve public policy objectives, such as increasing efficiencies of cross-border payments and progressing financial inclusion. As an example, BNM has recently cooperated with the central banks of Australia, Singapore and South Africa through the Dunbar project to develop a shared platform prototype which enables international settlements using various CBDCs by reducing dependency on intermediaries. This prototype platform has the potential to reduce the cost and time taken to carry out cross-border transactions. The outcome of the project would be used by BNM and the other central banks to develop a more efficient next-generation payment infrastructure. In line with the government’s stand, cryptocurrencies such as Bitcoin are not suitable for use as payment instruments due to various obstacles, including price fluctuations, exposure to cyberthreats, lack of scalability and negative impact on the environment. Hence, such currencies are not recognised as legal tenders in Malaysia. 

Sustainability theme key to recovery, ESG a driving force for upcycle phase – CGS-CIMB Research 

According to CGS-CIMB Research, a new recovery theme for the local construction sector could likely come from sustainability practices. The rising adoption of sustainable construction will emerge as a longer-term sector recovery theme. This will happen on the back of new macro policy measures and the reactivation of the RM31bil MRT 3 project. These would mitigate short-to-medium term sector risks, such as weak visibility in other new mega jobs, limitations in the government’s fiscal space and uncertainties surrounding mega contracts due to the political landscape. Malaysia’s construction sector has been one of the biggest casualties of the Covid-19 pandemic, with much work and projects experiencing severe slowdowns or even coming to a complete halt as a result of the movement control orders and stringent standard operating procedures. The industry is now struggling to get back on its feet as new jobs dry up largely due to cutbacks in government spending. A sustainability theme may provide better visibility and an alternative view in terms of resetting the government’s strategy in rolling out new contracts and better positioning for contractors in tendering for upcoming new mega projects. It will also provide investors with a better perspective on the potential longer-term winners and beneficiaries of the rollout of new contracts that are more aligned to the sustainability agenda. While historically sector-wide sustainability strategies and plans were somewhat fragmented, the government has placed greater emphasis on the domestic construction sector’s pathway to higher sustainability standards, as seen in the 12th Malaysia Plan (12MP). These sustainability initiatives will cause Malaysia’s construction industry to enter into a “transformation phase” this year as the research house was seeing a shift towards climate action and sustainable mega projects. Water, flood mitigation and transport projects are key potential beneficiaries of this theme, which bodes well for Gamuda Bhd, IJM Corp Bhd and HSS Engineers Bhd. The construction sector accounts for 6% of global gross domestic product which implies that development activities will always be an integral part of economic activity and growth. This is particularly so for developing countries like Malaysia. Also the construction sector is the largest global consumer of building materials and accounts for 25% to 40% of global carbon emissions. This directly relates to the building material supply chain and the manner in which main building materials are produced. Cement and steel historically make up 30% to 40% of total construction input. Construction activities have been linked to up to 50% of climate change, 40% of global energy usage and 50% of landfill waste. This also extends to air, water and noise pollution and the destruction of natural habitats. The research house’s assessment of the sustainability theme on the overall local construction sector’s environmental, social and governance (ESG) spectrum points to opportunities to further transform and revamp the sector in its post-Covid-19 pandemic recovery phase in 2022 and potentially back to its upcycle phase over the longer-run. If policy and implementation of the various sustainability initiatives under the 12MP and the National Construction Policy 2030 gain greater traction in the later part of the 12MP period (2021 to 2025). This, and with proper planning and execution, could translate into several positives, mainly a revival in private and public sector job flows coupled with the emergence of new infrastructure project proposals beyond the legacy contracts. Other positives include a revisit of other legacy mega developments such as the estimated RM50bil to RM100bil gross development value Bandar Malaysia, the emergence of new growth areas such as those proposed under the RM5bil Penang South Islands project and the rollout of backlog water infrastructure projects. Issues like labour shortage and a continuous rise in raw material prices will continue to impact earnings for some time. 

According to World Bank’s East Asia and Pacific regional vice president Manuela V Ferro, Malaysia needs an underlying structural economic transformation to increase productivity growth. While the country has done relatively well compared to its regional peers, it has lagged its global aspirational peers that have nearly three times the productivity levels. Further, there are significant variations in productivity levels among firms within Malaysia. Pre-pandemic estimates suggest that smaller firms generally lag significantly behind their larger counterparts. Firms in the top 25% of the productivity distribution are nearly 12 times more productive than those in the bottom 25%. The pandemic has further exacerbated these differences. In recent years, spending on research and development (R&D) activities in Malaysia has decreased after a steady increase until 2016. Gross public expenditure on R&D has dropped from 1.4% of gross domestic product (GDP) in 2016 to 1.0% of GDP in 2018. This falls short of Malaysia’s envisaged goal of 2.0% of GDP and the Organisation for Economic Co-operation and Development (OECD) average of 2.6%. The World Bank also found that Malaysian firms are also less likely to spend on R&D compared to their regional peers. Its engagement with the government has provided opportunities to look at relevant policy areas to assist in charting a path forward. One aspect of this which it focussed on in its recent work relates to increasing small and medium enterprises’ (SMEs) contribution to Malaysia’s economic growth. Based on analysis undertaken in the ‘SME Program Review’, Malaysia could consider realigning its public support for SMEs to not only enable a private sector-led recovery from the pandemic but also support firm-level innovation. Another World Bank study titled ‘Assessment of the Malaysian Start-Up Financing Ecosystem’ revealed that Malaysia’s venture capital activities are relatively low compared to the region, in relation to its level of economic development. Thus funding activities are performing below potential, affecting investible deal flow down the line. As public support is concentrated on the more advanced stages of innovative activities, she called for a possible need to rebalance this to earlier and hence the riskier stages of the innovation cycle. Meanwhile, the assessments on the effectiveness of public research institutions found that while the linkages between academia and industry have increased over time, it broadly remains weak, hence affecting commercialisation of research outputs. It has been encouraging to see that in response to the report’s recommendations, the government established a Research Management Unit to reorient its technology transfer and commercialisation programmes to be more responsive to industry needs. Based on the reports, the World Bank recommended the government to enhance evidence-based policymaking for SME development by increasing monitoring and evaluation of government programmes and coordination among agencies, to recalibrate SME programmes to support needs on digitalisation and skills upgrading, and to rebalance the policy mix towards the ideation stage with programmes that crowd in private investments. 

SC registers two initial exchange offering operators 

The Securities Commission Malaysia (SC) has registered two initial exchange offering (IEO) operators to promote responsible innovation in the digital space. The two IEO operators are Kapital DX Sdn Bhd and Pitch Platforms Sdn Bhd. The registered IEO operators will provide an alternative avenue for eligible companies to raise funds via the issuance of digital tokens in Malaysia. An issuer may raise funds up to RM100 million from retail, sophisticated, as well as angel investors, subject to the investment limits provided in the SC’s Guidelines on Digital Assets. These new operators will be required to carry out the necessary assessments, among others, to verify the issuer’s digital value proposition, review the issuer’s proposal and disclosures in its whitepaper, and undertake a comprehensive due diligence on the issuer and its token offering, prior to hosting the issuer’s digital token on their platform. In addition, they will be given up to nine months to comply with all the regulatory requirements before commencing operations, and these include putting in place a robust and effective Anti-Money Laundering/Combating the Financing of Terrorism (AML/CFT) process to mitigate Money Laundering and Terrorism Financing (ML/TF) risks. Furthermore, the SC reminded members of the public that they are not permitted to offer, issue or distribute any digital assets — which have been prescribed as securities in Malaysia — without obtaining a registration or authorisation from the SC. In this regard, a person convicted may be liable to a fine not exceeding RM10 million or imprisonment for a term not exceeding 10 years or both. Members of the public are also advised to be mindful of the risks related to investing in digital assets, including risks of investing on platforms not registered with the SC. 

Eye On The Markets 

This week, on Friday (25Mar), the Ringgit opened at 4.2225 against the USD from 4.1975 on Monday (21Mar). Meanwhile, the Ringgit was 3.1112 to the Sing Dollar on Friday (25Mar). On Monday (21Mar), the FBM KLCI opened at 1588.07. As at Friday (25Mar) 10:00am, the FBM KLCI is up 11.88 points for the week at 1599.95. Over in US, the overnight Dow Jones Industrial Average closed up 349.44 points (+1.02%) to 34,707.94 whilst the NASDAQ added 269.23 points (+1.93%) to 14,191.84.  

Resilient rental income & increase in footfall a boost to REITs performance – Maybank Research 

INVE$T | Market Sentiments

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According to Maybank Research, there are expectations of an eventual earnings recovery for retail and hospitality real estate investment trusts (REITs) in Malaysia this year. This will be driven by lower rental assistance and the soon re-opening of international border gates. It remains selectively positive on the REITs with industrial properties, prime malls and office with long-term tenants where earnings will be supported by resilient rental income and sustained occupancy rates. The recent Q42021 results showed the REITs were mostly performing above expectations. The average core net profit growth seen were to the tune of 31% year-on-year (y-o-y) and 99% quarter-on-quarter. Growth was mainly supported by the retail assets due to easing of movement restrictions and also long-term office tenants. However, there is limited rental growth potential over the short-to-medium term for retail malls and offices. Given the expectations, it has maintained its “neutral” call on the sector. Its selective buy calls are on Axis REIT, Sentral REIT, Pavilion REIT and KLCC REIT. The sector offers 2022 and forecast 2023 average net dividend per unit yields of 5.5% and 6.7% respectively. Their top buy pick is Axis REIT which offers a 5.6% forecast net yield for 2022. Sentral REIT, Pavilion REIT and KLCC REIT offers 7.6%, 5.2% and 4.9% forecast yields respectively. Also there was a recovery seen in the retail footfall levels with the easing of pandemic restrictions. The retail segment saw encouraging recovery in retail footfalls and retail sales, with prime malls recording almost pre-pandemic levels, boosted by the festive seasons. Core net profit for REITs with shopping malls saw a jump of up to 41% y-o-y quarterly earnings, mainly due to lower rental rebates. The research house expects a progressive recovery for the retail sub-segment this year from a reduction in rental assistance. However, outlook for rental reversion remains muted. Meanwhile, any overnight policy rate which may rise at the end of this year would marginally nudge lower selected REITs bottom lines by an average of 1%. As at end-2021, their coverage’s debt base was at a circa 47% comprised of floating rate debt, with average interest cost in 2021 having ranged between 2.8% to 4.3%. 

Listed companies’ market cap climbed to RM1.81 trillion – Bursa Research  

According to Bursa Malaysia Bhd’s research arm Bursa Digital Research, the total market capitalisation of companies listed on the bourse climbed 4.4% to RM1.81 trillion as at Feb 28, 2022 from a month earlier due to buying in the energy and plantation sectors as crude oil price topped US$100 per barrel while crude palm oil breached RM7,000 a tonne. In its latest trade performance and fund flow report, it states that in February 2022, average daily trading volume (ADV) across Bursa rose 36.8% to RM2.77 billion, with growth recorded across all investor segments. Foreign investors accelerated the buying with an inflow of RM2.84 billion (+RM2,843 million) compared with +RM332 million in January. 

MOF, BNM, SC to formulate framework on consumer credit regulation 

According to Deputy Finance Minister II Yamani Hafez Musa, the Ministry of Finance (MoF), Bank Negara Malaysia (BNM) and the Securities Commission (SC) are spearheading collaborations with relevant agencies to formulate a comprehensive legal framework to regulate all consumer credit activities, including the “Buy Now Pay Later” (BNPL) scheme. The framework would be set in place with the enactment of the Consumer Credit Act (CCA) this year. With the CCA, all credit and BNPL providers will be subject to relevant regulations that also encompass risk control and consumer protection as well as the appropriate Shariah-compliance rules in performing BNPL activities. The government expects to see more new innovations in line with the digital acceleration but these innovations would need to be well regulated. He said this during the Dewan Rakyat sitting in reply to a question from Lukanisman Awang Sauni (Sibuti-GPS) on the BNPL purchasing method on the online trading platforms, stressing that currently, BNPL activities are not being regulated by any agency. As such, consumers are advised to understand the BNPL’s terms and conditions, ensure that instalment payments are made in full and on time, and monitor their BNPL commitments to ensure that their personal debts remain manageable.  

Eye On The Markets 

This week, on Friday (18Mar), the Ringgit opened at 4.1955 against the USD from 4.1970 on Monday (14Mar). Meanwhile, the Ringgit was 3.0994 to the Sing Dollar on Friday (18Mar). On Monday (14Mar), the FBM KLCI opened at 1570.70. As at Friday (18Mar) 10:00am, the FBM KLCI is up 14.40 points for the week at 1585.10. Over in US, the overnight Dow Jones Industrial Average closed up 417.66 points (+1.23%) to 34,480.76 whilst the NASDAQ added 178.23 points (+1.33%) to 13,614.78.