Weekly Economic Analysis by Manokaran Mottain

By MANOKARAN MOTTAIN

MARKET 28 Feb - 4 March 2022

As expected, the local stock market continued to trend higher towards the 1,600 points level amid bouts of volatility throughout the week on the back of rising commodity prices despite the on-going conflict between Russia and Ukraine.

The market was choppy as investors and traders kept their trading time frames short and took profit whenever the opportunity presents itself. The benchmark KLCI ended the week higher at 1,603.94 points, gaining 12.22 points or (+0.76%) on a weekly basis.

Stocks in the Plantation and Financial sectors continued their rally spurred on by the continued strength in Crude Palm Oil (CPO) prices and the prospects of a recovery in economic activities. CPO prices soared past RM7,000 per metric ton briefly before easing to RM6,277 per metric ton on concerns over demand destruction as buyers in India have started to cancel orders due to spiking prices and are looking to switch to cheaper alternatives.

Meanwhile the prices of Brent Crude Oil broke the US$100 per barrel psychological barrier convincingly to end the week at US$114.83 per barrel, a level not seen since 2012. The continued surge in commodity prices may see inflation stay longer than expected if demand remains steady.  

My view on the market near term is that it will consolidate around the current 1,600-point level until a peaceful resolution is found for the Russia-Ukraine conflict, an easing of the latest Covid wave of infections and the cooling off of inflationary pressures. However, with the federal government greenlighting the 50km Mass Rapid Transit 3 (MRT 3) circle line project, we have to start to relook at the construction sector as the MRT 3 project may serve as a catalyst to revive the sector which has been in the doldrums for the past few years.

ECONOMY

Bank Negara Malaysia (BNM) has maintained the Overnight Policy Rate (OPR) at 1.75% following the conclusion of its second Monetary Policy Committee (MPC) meeting of the year. The MPC considers the current stance of the monetary policy to be appropriate and accommodative with existing fiscal and financial measures able to provide adequate support for the country’s economic activity.  

BNM added that Malaysia’s overall recovery trajectory remains on track despite challenges posed by the latest wave of Covid-19 infections due to the Omicron variant. The outlook on global growth remains sanguine as more countries are expected to transition to the endemic phase of Covid-19 going forward and this will drive global demand and economic activities with international borders gradually reopening. Core inflation is expected to eventually normalize to its long term average as economic activities pick up with upside risks partly capped by the continued slack in the economy and labour market.

The Employees Provident Fund (EPF) declared a 6.10% dividend for its conventional savings holders and 5.65% dividend for its Shariah savings holders for 2021. The total payout to its members for 2021 was RM56.72 billion which is the all time high total payout, surpassing its previous record of RM48.13 billion in 2017. EPF Chairman Tan Sri Ahmad Badri Mohd Zahir said EPF had managed to keep its earnings steady due to its healthy and globally diversified portfolio. Equities continue to contribute the bulk of its earnings for 2021 at 58% (RM38.9 billion) followed by the fixed income portfolio which contributed 29% (RM19.5 billion).  

As at the end of 2021, EPF invested 45% of its assets into fixed income instruments, 44% into equities, 6% into real estate and 5% into money market instruments. Its overall investment assets grew marginally by 0.8% in 2021 to RM101 trillion with around 37% of the total across all asset classes were invested overseas.

EPF membership in 2021 grew by 2.0% to 15.2 million with 553,000 registered employers. The three special pandemic related withdrawal programmes (i-Lestari, i-Sinar and i-Citra) which totalled RM101 billion had benefitted 7.34 million members of 58% of the 12.6 million members under 55 years old. However, the withdrawal programmes had resulted in 6.1 million EPF members having less than RM10,000 in their accounts and EPF estimated that these members would need to work for an additional four to six years to rebuild their savings that were withdrawn during the pandemic.  Crediting of the dividends will be completed on 6 March 2022. Going forward, EPF will be looking to increase its investment in various domestic asset classes to help spur economic activities and leverage on opportunities that the economic recovery brings about.   

Khazanah Nasional Berhad reported that its net asset value for 2021 had increased by RM7 billion to RM86 billion and had deployed RM8.7 billion into new investments in 2021. However, its profit from operations of RM670 million in 2021 as compared to RM2.9 billion in 2020 as it had to support its aviation, tourism and hospitality companies such as Malaysia Airlines Berhad and Themed Attractions Resorts & Hotels to help them weather the operational headwinds brough about by the Covid-19 pandemic. Nevertheless, it managed to reduce its operating expenses by RM70 million for 2021 to RM420 million from RM490 million in 2020 and its realizable asset value over debt ratio remained at 2.8 times. Khazanah declared a dividend of RM2.0 billion to the government for 2021.

Sarawak Utilities and Communications Minister Datuk Julaihi Narawi said the the Kanowit Water Supply Project Phase 2 which is fully funded by the Sarawak State Government is expected to be completed by year end. The RM63.5m project is expected to alleviate water supply issues in Kanowit, Nibong Tada, Machan and Sibu Jaya.  

CURRENCY

The Ringgit rebounded strongly during the week to close at the higher end of my expectations at RM4.1760 / USD1.00 from RM4.1985 in the previous week. Steady inflows from foreign investors due to portfolio rebalancing exercises which favors commodity exporters helped the Ringgit significantly in the face of volatility and uncertainties in the international financial markets thrown up by the on-going Russia-Ukrainian conflict.  

As a result, the Ringgit gained against all of the major currencies during the week – especially against the Euro and British Pound. I adjust my view of the Ringgit for the coming week in light of the on-going commodity plays to a more sanguine range of between RM4.15 to RM4.21. – 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