Weekly Economic Analysis by Manokaran Mottain

MARKET 21-25 Feb 2022

The local stock market experienced bouts of volatility throughout the week as Russia launched an attack on Ukraine. As a result, traders kept their trading time frames short and took profit on rebounds.

Unsurprisingly, the benchmark KLCI ended the week lower at1,591.72 points, slipping marginally by 11.33 points or (-0.71%) on a weekly basis.

The market had been able to remain resilient despite the negative news flow emanating externally as Malaysia is a key beneficiary of the spike in commodity prices being the second largest exporter of palm oil and a net exporter of petroleum.

Plantation stocks continued their rally as Crude Palm Oil prices soared ever higher to close the week at RM6,845.50 per metric ton after briefly passing the RM7,000 per ton during the week while the prices Brent Oil ended the week at US$98.63 per barrel.

Given the strength of the underlying market, I expect the market to consolidate around the psychological 1,600 point barrier for the meantime until a better outlook forms.

I believe that the market will only be able to rally further when a peaceful resolution is found for the Russia – Ukraine conflict, an abatement of the latest Covid wave of infections and the cooling off of inflationary pressures.   

ECONOMY

Prime Minister Datuk Seri Ismail Sabri said Malaysia & Thailand have agreed to boost cooperation under the Indonesia-Malaysia-Thailand Growth Triangle framework especially through the implementation of Physical Connectivity Projects.

To this, both governments will carry out a feasibility study for a potential High Speed Rail (HSR) line connecting Bangkok & Kuala Lumpur and expedite consultations on constructing a road linking Bukit Kayu Hitam Immigration, Customs, Quarantine and Security Complex with the Sadao Customs, Immigration and Quarantine Complex in Songkhla, Thailand. 

We have to take note of food price inflation in the coming weeks as both Russia and Ukraine are major suppliers of grain to a large number of countries in Asia, Africa and the Middle East region.

Both countries together account for over 25% of global trade of wheat, 20% of corn and 80% of sunflower oil. Wheat prices have spiked to multi year highs at US$9.3125 per bushel.

The price of fertilizers have also been rising due to the shortage of potash supplies while a drought in South America which is expected to adversely affect soybean production in the region has also pushed soybean & palm oil prices to record highs.   

CURRENCY

As expected, the Ringgit remained range bound against the US Dollar throughout the past four weeks although it weakened marginally last week amid the volatility and uncertainties thrown up by the Russia-Ukrainian conflict. The Ringgit ended the week 0.3% lower at RM4.1985 / USD1.00 as compared to RM4.1840 in the previous week.

The Ringgit gained marginally against the Singapore Dollar, British Pound and the Japanese Yen but weakened against the Euro. I continue to maintain my view that the Ringgit to trade at a tight range of between RM4.18 to RM4.23 with a downside bias in the coming week due to the uncertain geopolitical outlook 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 continued to be stoked by supply chain management issues and further boosted by the recent Russian-Ukrainian conflict.

The market has more or less priced 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.

But there is a rising possibility that the US Federal Reserve may start with a 25 basis point hike due to the economic uncertainties and potential fallout from the on-going Russian- Ukrainian conflict as the Western countries have started to impose sanctions on Russia targeting their financial institutions and certain corporate & political personalities.

POLITICS

Election Commission Chairman Datuk Abdul Ghani Salleh disclosed that a total of 239 candidates comprising of 202 men and 37 women have been cleared to contest in the upcoming Johor State Elections following the conclusion of the nomination process on 26 February 2022. There are 2.57 million registered voters for the state election which will involve 56 seats.

Barisan Nasional and Perikatan Nasional will be contesting in all 56 seats available, followed by Pejuang (42), Pakatan Harapan (30), Parti Keadilan Rakyat (20), Malaysian United Democratic Alliance (7), Parti Warisan (6), Parti Bangsa Malaysia (4), Parti Bumiputera Perkasa Malaysia (1) and Parti Sosialis Malaysia (1). 

Given the huge number of candidates, only four (4) out of the 56 seats are the straight fights between two parties while the remaining will be multi cornered fights. Undoubtedly, the Kempas and Tiram seats will be the most tightly contested as both seats each have seven (7) candidates vying for the position.

I also expect the Bukit Pasir, Maharani, Puteri Wangsa and Larkin seats to attract plenty of action and attention as well as these four seats are six cornered fights.   

The campaigning period will start from 27 February 2022 and ends on 11 March 2022. – 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