Weekly economic analysis by Manokaran Mottain

By MANOKARAN MOTTAIN

MARKET

The local stock market ended the week on a positive note with the KLCI Index closing higher at +0.88% (+ 13.13 points) at 1,502.01 points.

However, the gains in the market only occurred towards the end of the market session on Friday – indicating that it is likely due to a portfolio rebalancing exercise by large funds. Hence the gains can be lost quickly if no follow through buying action by other funds or investors occurs in the coming week.

Either than that, investors generally remain risk adverse due to the uncertainties in the economic outlook for 2022 due to the rapid spread of the COVID-19 Omicron variant and continued inflationary pressures. The Health Ministry reported that it has detected 11 Omicron variant cases as at Saturday (18/12/21).  However, all of them were imported cases.

Another development to note is that the Intra Day Short Selling (IDSS) and Intra-day short selling by Proprietary Day Traders will resume on 1 January 2022 with enhanced control measures to ensure stability and orderly trading. 
 

ECONOMY

The US Federal Reserve will start to cease buying further Treasuries and Mortgage-backed securities by mid-March 2022, around three months earlier than the previous announcement of its tapering plans as inflationary pressures remained well over their targeted annual rate of 2% while the US job market remains robust.

This has prompted the US Federal Reserve to consider raising its interest rates up to three times next year to contain inflation as it believes the economy no longer needs increasing amounts of policy support.

Currently the US Federal Reserve holds around US$8.2 trillion worth of Treasuries and Mortgage-backed securities.

This has caused the yields in the local 10-year MGS to spike to 3.55% which an increase of close to 100 basis points since the start of 2020 as they have started to price in potential interest rate hikes by the US Federal Reserve.

As such I believe it will be another challenging year for the fixed income market in 2021 as the US Federal Reserve may continue its rate hike well into 2023 to bring it to around the 1.50% - 1.75%. 

On the local front, a total of 500,257 persons have managed to secure employment through 27 initiatives implemented by the government through the Penjana Kerjaya and The Malaysia Short-Term Employment Programme (MySTEP) as of 3 December 2021. 

Penjana Kerjaya is managed by the Social Security Organisation (SOCSO) which provides salary incentives to employers as well as skills training programmes to employees worth up to RM7,000. Meanwhile the MYSTEP is a RM700m government initiative to create 50,000 jobs this year on a contract basis for at least six (6) months in various government ministries, agencies and government linked companies.  

The Malaysian Palm Oil Association has launched its responsible employment charter to affirm the commitment of its member to respect labour rights, adopt responsible recruitment practices and provide good working and living conditions for their workers.

CURRENCY

The Ringgit weakened slightly against the US Dollar during the week at RM4.2170 vs RM4.2100 / USD1.00 due to fund outflows as fund managers start their portfolio rebalancing exercises ahead of 2022.   

Nevertheless, I expect the Ringgit to trade in a range of between RM4.20 to RM4.25 in the coming week as the Ringgit/USD exchange should be stabilize in the near term in the absence of any major developments.  

POLITICS

There were plenty of developments in the political arena during week.

As expected, Gabungan Parti Sarawak (GPS) swept to another decisive victory at the 12th Sarawak General Election by winning 76 out of the 82 state seats contested. The remaining six (6) seats were won by Parti Sarawak Bersatu (PSB) and Democratic Action Party (DAP) with four and two seats respectively. This was an even better result than the previous state election where the then incumbent Sarawak Barisan Nasional coalition won 72 seats.

GPS’s crushing victory was a devastating body blow to the opposition parties especially the Pakatan Harapan coalition which won 10 seats in the previous state elections in 2016. The huge mandate given to GPS by the rakyat is a very clear sign that they want a strong and stable government who is able to deliver on its election manifesto.

At its 75th Annual General Assembly, MIC has disclosed that it is fine if the Barisan Nasional coalition gives seats in the upcoming GE15 to parties friendly to the coalition as long as those seats are not traditional seats of MIC’s.

The parliament has also passed the Bill to amend the Federal Constitution on the 1963 Malaysia Agreement (MA63) which will place MA63 placed on par with the Federation of Malaya Agreement 1948 and the Federation of Malaya Independence Act 1957. This will give recognition to the claims and special status of Sabah and Sarawak when they joined Malaya to form the Federation of Malaysia.

Meanwhile, Parti Warisan Sabah has launched its national chapter in Kuala Lumpur last Friday in a bid to become a national based party instead of just a Sabah based party. Warisan President Datuk Seri Shafie Apdal said it is aiming to unite all the people in Malaysia to build a nation that is fair, progressive and inclusive.

At the launch, he also disclosed that Warisan will be co-operating with the Malaysian United Democratic Alliance (MUDA) for GE15. He also left the door open for co-operation with other parties. – 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