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Weekly Economic Analysis by Manokaran Mottain

The announcement of the resumption of the Mass Rapid Transit 3 or MRT Circle Line project also provided a boost to the construction stocks.  - Photo by nik radzi 

By MANOKARAN MOTTAIN

 

 

MARKET 21-25 march 2022

The KLCI rebounded back to end the week at 1,591.25 points (+23.04 points or 1.46%) as investors and traders took the opportunity to bargain hunt after last week’s sell off. In addition, foreign investors were also steadily buying the big caps on dips.

 

The announcement of the resumption of the Mass Rapid Transit 3 or MRT Circle Line project also provided a boost to the construction stocks.  

 

I continue to maintain my view that the market direction will continue to be determined by news flow and that the 1,600-point level will continue to be a consolidating point for the KLCI Index until a peaceful resolution is found for the Russian-Ukraine conflict and the cooling off of inflationary pressures.

 

However, the recent resurgence of COVID-19 infections may prove to be a stumbling block for a smooth economic recovery as the number of infections have been rising steadily to record levels following the relaxation of movement control restrictions across the world last month.

 

We can expect continued supply chain disruptions due to the strict Covid lockdowns in China and the sanctions imposed by the US and its allies on Russia’s oil, liquefied natural gas and coal.

 

Bottlenecks in the transportation sector are also expected to cause rates to rise as air freight is adversely affected due to the closures of critical air space in Europe and Russia which forces airlines to fly workaround routes that are much longer and consume more time and fuel.

 

Meanwhile container lines are also facing congestion at European ports due to suspension of port calls in Russia and Ukraine as well as sailing longer routes to avoid the Black Sea area.     

 

The fact that the market has been bouncing between 1,550 points and 1.600 points indicates that a lot of the negative news has already been priced in by investors and the market is only waiting for the right time to rally higher.


 

manokaran mottain
                                             MANOKARAN MOTTAIN

 


ECONOMY

Prime Minister Datuk Seri Ismail Sabri announced that the Federal Government has agreed to allow a special withdrawal of up to RM10,000 by contributors from their Employees Provident Fund (EPF) accounts to meet urgent financial needs due to the COVID-19 pandemic.

 

This will be the fourth EPF withdrawal scheme allowed since the start of the Covid-19 pandemic in 2020. In the previous three schemes (i-Lestari, i-Sinar and i-Citra), 7.34 million EPF contributors withdrew a total of RM101 billion from their accounts.

 

Meanwhile, EPF announced that its members can start applying for the special withdrawal facility from 1 April 2022 with payouts commencing on 20 April 2022. The quantum of withdrawal is between RM50 (minimum) to RM10,000 (maximum) and members must fully utilize their balance in Account 2 before accessing their Account 1.

 

The Asian Development Bank disclosed that the COVID-19 pandemic has caused the loss of 9.3 million jobs in the South East Asian region and pushed 4.7 million into the extreme poverty category (living on less than US$1.90 (RM8.00) per day).

 

Unfortunately, the lockdowns also exacerbated the inequality for those working in the retail, hospitality, tourism and informal sectors where women, young persons and unskilled workers are typically employed.

 

However, with the ASEAN economies all set to recover this year, it will be important to start equipping small businesses with digital tools and reskilling or upskilling displaced workers to ensure that this segment of society are not left behind in the “new normal” of work going forward.    


 

Mass Rapid Transit 3

 

The Federal Government has agreed to resume plans to build the Mass Rapid Transit 3 or MRT Circle Line. The estimated cost for the 51km rail circle line is expected to be around RM39 billion (RM31 billion for construction and RM8 billion for land acquisition) with the actual cost to be determined after the open tender process is completed.

 

Nevertheless, the Ministry of Finance has committed up to RM50 billion in financing for the project through the issuance of government guaranteed Islamic bonds with the remaining RM11 billion to be set aside of payment of interest on the sukuk and other costs. Tenders are expected to be called in May 2002 and awarded by end of 2022. This is expected to keep the construction industry companies involved busy for the next eight years till 2030. 

 

Minister of Plantation Industries and Commodities Datuk Zuraida Kamaruddin said the federal government is expected to collect more than RM1 billion from the windfall profit tax levy in 2022 based on the projected average crude palm oil price of RM4,250 per tonne and a production of 19 million tons.

 

In addition, the palm oil industry is also expected to contribute another RM2 billion worth of tax revenue from the export tax this year.

 

CURRENCY

The Ringgit was relatively stable throughout the week and closed marginally higher at RM4.1910 / USD1.00.

 

I believe the Ringgit has already priced in the interest hike as it remained stable after the US Federal Reserve raised interest rates by 25 basis points following the conclusion of its Federal Open Market Committee on Wednesday.

 

This was the first interest rate hike by the US Federal Reserve in three years.


 

manokaran mottain

 


However, the Ringgit may face some weaknesses down the road later this year as the US Federal Reserve has indicated that its rate would hit between 1,75% to 2.00% by the end of 2022. 

 

However, the Ringgit weakened against other major currencies during the week with the exception of the Japanese Yen which continued to fall to a 4-year low against the Ringgit at RM3.5210 / JPY100.

 

The Ringgit closed against the Euro at RM4.6348 / EUR1.00, the Singapore Dollar at RM3.0922 / SGD1.00 and the British Pound at RM5.5096 / GBP1.00. 

 

In the coming week, I expect the Ringgit to stabilize around the current level in the absence of any major developments.

 

Continued inflows from foreign investors will lend support to the local currency.  As such, the Ringgit’s trading band will remain unchanged between RM4.17 to RM4.22.  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