Weekly Economic Analysis by Manokaran Mottain

By MANOKARAN MOTTAIN

MARKET 17-21 Jan 2022

Unsurprisingly, the KLCI succumbed to profit taking activities after last week’s outperformance against the broader market.  The KLCI fell by 28.27points or (1.81%) to end the week at 1,527.06 points.

Most of the stock markets across the region also ended the week lower due to profit taking – especially in the technology and financial sectors as concerns are rising over the rising number of Covid cases due to the Omicron variant which may trigger weaker-than-expected economic and earnings data.

PricewaterhouseCoopers (PwC) released the results of their 25th Annual Global CEO Survey — Asia Pacific, which polled 4,446 global CEOs during the period between October - November 2021.

They found that optimism is on the rise in most Asia Pacific countries, with 76% of respondents expecting stronger economic growth in the coming year.

PWC also revealed that about 92% of Malaysian CEOs are feeling optimistic on 2022’s global economic growth.

However, they view macroeconomic volatility (76%) as the top threat to their businesses in 2022 due to the risks of financial market volatility and adjustments in monetary policy in major economies, followed by health risks (69%) and cyber risks (67%).

ECONOMY

The Department of Statistics Malaysia (DOSM) revealed that Malaysia's Consumer Price Index (CPI) in December 2021 increased by 3.2% to 124.5 against 120.6 in December 2020 due to the rise in food and fuels prices.

Chief statistician Datuk Seri Mohd Uzir Mahidin said the increase also surpassed the average inflation for the period between 2011 to 2021 at 1.9%. He also pointed out that annual inflation rate in 2021 came in at 2.5% as compared to -1.2% contraction in 2020.

The key segments that contributed to the rise were the food and non-alcoholic beverages sector (3.2%), transportation sector (9.5%), the housing, water, electricity, gas and other fuels sector (3.4%), the furnishings, household equipment and routine household maintenance sector (2.7%).  

The increase of food and non-alcoholic beverages group price index was due to higher prices of raw materials for the preparation of cooking at home, such as meat (8.3%); milk, cheese and eggs (5.5%); vegetables (5.0%); oils and fats (4.4%) and fish and seafood (4.2%).

The price of chicken increased 13.6% and had an average price of RM9.54 per kilogramme against RM8.40 in December 2020 while the price of eggs jumped by 13.5%.

However, Mohd Uzir said the implementation of Skim Harga Maksimum Keluarga Malaysia by the government from 7-31st December 2021 had helped to ease the inflationary pressures of the food staples.

Meanwhile, core inflation rose 1.1% y-o-y in December 2021, caused by the rise in the furnishings, household equipment and routine household maintenance group (2.7%). Inflation (excluding fuel) rose 2.0% in December 2021 to 115.1 from 112.8 in the same month of the preceding year.

Bank Negara Malaysia (BNM) maintained its overnight policy rate (OPR) at 1.75% following the first monetary policy committee (MPC) meeting for the year. As expected, BNM kept its benchmark interest rate unchanged at a record low since 7 July 2020 to support economic recovery.

The central bank has forecasted that the economy will grow by between 5.5% and 6.5% as compared with an estimated 3-4% in 2021. However, risks to their outlook would come from a weaker-than-expected global growth, a worsening in supply chain disruptions, and the emergence of new severe and vaccine-resistant COVID-19 variants. I expect BNM to hold the rates at this level for the time being in order to buy time for the economy recovery to build up more momentum across all sectors.  

Minister in the Prime Minister’s Department (Economy) Datuk Seri Mustapa Mohamed announced that the Economic Planning Unit (EPU) will lead a discussion session at the technical level to refine the proposed implementation of the Melaka Waterfront Economic Zone (M-WEZ) under the 12th Malaysia Plan (12MP) as the Melaka state government had requested that attention be given to the M-WEZ proposal which has already been presented to the National Physical Planning Council (MPFN).  

Apart from the M-WEZ, the Melaka state government had also requested the federal government to consider the construction of a 52km coastal highway in the state through the 12MP.

Deputy Minister of Domestic Trade and Consumer Affairs (KPDNHEP) Datuk Rosol Wahid said food traders are allowed to increase their selling prices to offset the rising prices of raw materials as long as they do not resort to excessive profiteering. He added that the Ministry want traders to do business ethically and not deceive consumers.

Minister in the Prime Minister’s Department (Economy) Datuk Seri Mustapa Mohamed said the losses incurred by the country following the devastating flooding totalled between RM5.3 billion to RM6.5 billion based on a study carried out by the Department of Statistics of Malaysia.

The bulk of the losses were contributed by damages to public assets & infrastructure (RM2.0 billion), residences (RM1.4 billion), vehicles (RM1.3 billion), manufacturing industry (RM1.0 billion) and business premises (RM0.6 billion).   

CURRENCY

The Ringgit was generally range bound against the US Dollar throughout the week. The Ringgit closed at RM4. 1792 / USD1.00 as compared to RM4.1765 in the previous week. It also weakened against the Singapore Dollar, Euro and British Pound during the week.

I expect the Ringgit to continue trading in a tight range of between RM4.15 to RM4.20 in the coming week in the absence of any near term major catalysts in the market.

POLITICS

Sultan Ibrahim Sultan Iskandar of Johor had given his royal assent to dissolve the 14th Johor State Assembly following a meeting with Johor Menteri Besar Datuk Hasni Mohammad last Saturday evening. This paved the way for an early state election which is to be held within the next 60 days.

In addition, this will also be the first election following the implementation of Undi18 which saw the new young voters being registered into the master electoral roll on 14 January 2022.

Speculation of an early state election first started shortly after the passing of Bersatu’s Kempas assemblyman Datuk Osman Sapian on 21 December 2021. His death left the current Johor state government led by Datuk Hasni Mohammad, with just a razor thin one-seat majority in the legislative house.

The Perikatan Nasional coalition state government currently has 28 seats (BN with 16 seats, Bersatu with 11 seats and PAS with a single seat), while the Opposition Pakatan Harapan coalition controls the remaining 27 seats.

MCA President Datuk Seri Wee Ka Siong has disclosed that the party is already preparing for the coming 15th General Elections which is expected to be held within the next 18 months and is ready to mobilize its election machinery for the early state election.  – 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