Weekly Economic Analysis by Manokaran Mottain

MARKET 14-18 Feb 2022

As expected, the stock market continued to march higher during the week on the back of sustained foreign fund inflows. Consequently, the benchmark KLCI ended the week at 1,603.05 points, gaining a further 24.16 points or (1.53%) on a weekly basis pushing its two week total gains to 5.21% which is really encouraging given the rising COVID-19 cases in the country.

Plantation stocks were the main gainers this week as they reported stellar earnings for 4Q2021 which was boosted by higher realized crude palm oil and palm kernel prices as well as higher oil extraction rates.

These factors more than compensated for the lower production of fresh fruit bunches. Crude Palm Oil prices are expected to remain high in the coming months due to the weak production outlook for corn and soybean in South America.      

Given the recent sizable gains, I expect the market to consolidate at the psychological 1,600 point barrier for a while before making a move. Further upside from here will greatly be dependent on further fund flows from foreign investors, the extent of the Covid infection wave and the outlook for corporate earnings going forward.   

ECONOMY

Prime Minister Datuk Seri Ismail Sabri said the Cabinet has given the Ministry of Health two to three weeks to present their proposals and standard operating procedures (SOP) for the reopening of the country’s borders. He said the government needs to strike a balance between the economy and protecting the public.

In a separate development, he said the federal government will not interfere with any decision taken by the Election Commission (EC) regarding the Johor State Elections. He disclosed that the EC is an independent body and it is up to them to determine and announce the SOP for the State Elections.

The Ministry of International Trade and Industry (MITI) said Malaysia’s trade in January 2022 expanded by 24.8% on a year-on-year basis from January 2021 to RM203.05 billion. Exports grew by 23.5% to RM110.73 billion, which is also the sixth consecutive month of double-digit expansion of exports since August 2021. Meanwhile imports increased by 26.4% to RM92.32 billion resulting in an increased trade surplus of RM18.4 billion.

MITI attributed the expansion to higher global demand for electrical and electronics products and palm oil & palm oil based agriculture products. The key markets remain ASEAN, China, Japan, United States of America and European Union.

CURRENCY

The Ringgit remained range bound against the US Dollar throughout the past three weeks. The Ringgit ended the week marginally higher at RM4.1840 / USD1.00 as compared to RM4.1880 in the previous week.

Nevertheless, the Ringgit weakened against all of the major currencies - the Singapore Dollar, Euro Yen and British Pound during the week. I continue to maintain my view that the Ringgit to trade at a tight range of between RM4.16 to RM4.21 with a downside bias in the coming week.  

Expectations of a faster than expected interest rate hikes by the US Federal Reserve will continue to put pressure on the Ringgit especially when inflationary pressures remain elevated well above historical averages.

The market has already started to price in a 50 basis point hike by the US Federal Reserve at its upcoming Federal Open Market Committee (FOMC) meeting on 15-16 March 2022.     

POLITICS

The upcoming Johor State Election will definitely be a heated and closely contested one ahead of its nomination day on 26 February 2022 given the entrants of new parties to the elections.

Parti Warisan Sabah is targeting to contest in two state seats within the Pasir Gudang parliamentary constituency – Johor Jaya and Permas.  Warisan President Datuk Seri Shafie Apdal said seat discussions are ongoing and he hopes to make an announcement as soon as possible.  

Separately, Parti Bangsa Malaysia (PBM) also announced that it will be contesting in at least two state seats but it will only make its official announcement on 25 February 2022 (one day before the nomination day).

PBM President Larry Sng Wei Shien said the two seats identified so far will be located in the urban areas while the candidates to be selected are seasoned service-oriented individuals.

MUDA President Syed Saddiq Syed Abdul Rahman disclosed that official seat negotiations between MUDA and Parti Keadilan Rakyat (PKR) for the state election had ended following PKR’s decision to field candidates in 20 seats.

Gerakan President Senator Datuk Dominic Lau Hoe Chai said the Perikatan Nasional coalition will be officially announcing its candidates for the state election on 23 February 2022.

Parti Amanah Negara President Mohamad Sabu has officially announced all of its 16 candidates that will be contesting in the polls.

The candidates are evenly split between existing veterans and new faces as Amanah is opting for a mix of men and women with a combination of various ages to attract votes.   – 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