Market to continue at psychological level of 1,600 point - Manokaran

Weekly market analysis by Manokaran Mottain

MARKET

The local stock market ended the week on a lower note as profit taking took hold across the market following last week’s gains. The benchmark KLCI Index closed out the week at 1,589.01 points (-18.28 points or 1.13%) as the market continued to consolidate in the absence of any market moving catalysts and short term direction will be determined by specific industry or company news flow.  

Nevertheless, the movement of the market was well within my expectations and continue to maintain my view that the 1,600-point level will be the psychological level that the market will cling to for the time being as we head into a rising interest rate environment in the coming months as I don’t foresee inflationary pressures to go away anytime soon.    

ECONOMY

As of 14 April 2022, the Employees Provident Fund (EPF) had received a total of 5.3 million applications totaling RM40.1 billion under the Special Withdrawal facility. The application was opened to EPF members on 1 April 2022 and the number of applications received 44% of the total 11.95 million EPF members who are eligible to withdraw under the facility. Applications by wage groups represented 55% of eligible B40 members (monthly salary <RM1,700), 59% of M40 members (monthly salary RM1,701 – RM4,900) and 39% of T20 members (monthly salary > RM4,900).

Bumiputera Malays comprised of 63% of the applicants, Bumiputera Sabah & Sarawak and Non-Malaysians (17%), Chinese (12%) and Indians (7%). The reasons for applicants applying for the withdrawal scheme were: supplementing daily / monthly essential expenditure (40%), settling outstanding debts (26%), increasing emergency funds (8%), assisting affected family members (7%) with the remaining for other purposes like children’s education, investment and non-essential expenditure. EPF also disclosed that payments would be made in batches from 20 April 2022 onwards. The special withdrawal facility will be closed on 30 April 2022.

Human Resources Minister Datuk Seri M. Saravanan said the current job market in Malaysia is no longer set by employers as those looking for work have more access to better paying jobs than just settling for minimum paying jobs. He added that the government was working towards creating 600,000 job opportunities and wage increases are needed to stimulate the economy.

Flexibility will be granted to companies with fewer than five (5) workers and those in the tourism and hospitality industry that have suffered huge losses during the pandemic to implement the new RM1,500 minimum monthly wage which will be effective 1 May 2022. He clarified that he National Wages Consultative Council Act 2011 requires the minimum wage rate to be reviewed once every two years.

The Department of Statistics of Malaysia has started to conduct its annual economic survey from 15 April 2022 till 30 September 2022 involving 110,000 business establishments in Malaysia. The purpose of the survey is to gather information on growth, contribution, composition and distribution of output, value added, employment and other variables for five (5) main economic sectors which are agriculture, manufacturing, mining & quarrying, construction and services.

The Ministry of Housing and Local Government and the Ministry of Finance had launched the i-Biaya initiative to facilitate the issuance of housing loans to the M40 and B40 income groups. The initiatives under i-Biaya are the My First Home Scheme by Cagamas SRP Bhd, Housing Credit Guarantee Scheme under Syarikat Jaminan Kredit Perumahan Bhd and the PR1MA Rent-to-Own Scheme by PR1MA Corporation Malaysia.     

CURRENCY

The Ringgit continued to weaken throughout the week as the markets continue to price in the potential impact of future interest rate hikes by the US Federal Reserve. The local currency ended the week at RM4.2330 / USD1.00. As such I feel that the Ringgit will continue to be under pressure until the next Federal Open Market Committee meeting on 3-4 May 2022.

Current expectations are that the US Federal Reserve will be raising interest rates by 50 basis points given the strong inflation numbers in March 2022 but I believe there is a good chance that it will increase by 25 basis points at the upcoming meeting to avoid any kneejerk or unintended consequences to the economy and buy time for the market to adjust to a higher interest environment going forward.  

This will shortly be followed by Bank Negara’s Monetary Policy Committee (MPC) meeting on 10-11 May 2022. I maintain my view that BNM will not be raising rates at the coming meeting as the differential between the Federal Funds Rate (FFR) and the Overnight Policy Rate (OPR) is roughly 150 basis points and provides a reasonable buffer to absorb the major effects of another potential 25 basis points in the FFR.

As the decision of the MPC is data driven, I am of the opinion that BNM will delay a hike in the OPR till 2H2022 in order to buy time for the economic recovery to build momentum. With last week’s weakness, I am expecting the Ringgit trade between RM4.20 to RM4.25 in the coming week albeit with a negative bias.      

It was a mixed week for the Ringgit against the major currencies. It weakened against the British Pound, and Singapore Dollar at RM5.5303 / GBP1.00 and RM3.1220 / SGD1.00 respectively. The local currency continue to notch another fresh 6-year high against the Japanese Yen at RM3.3440 / JPY100 and gained against the Euro RM4.5763 / EUR1.00 as the fallout of the Russia-Ukraine conflict continues to stoke inflationary pressures in the Eurozone region.     

POLITICS

The UMNO Supreme Council has decided not to extend the current Memorandum of Understanding (MOU) on Transformation and Political Stability with Pakatan Harapan (PH). The MOU with PH ends on 31 July 2022.

The MOU covers six initiatives – administration transformation, parliamentary reforms, Malaysia Agreement MA63, judicial independence, initiatives to curb the Covid-19 pandemic and the establishment of a steering committee.    – DagangNews.com

Manokaran Mottain has been an economist with a number of financial institutions is now managing his own firm, Rising Success Consultancy Sdn Bhd