Ringgit will get a boost once Khazanah converts its USD proceeds into local currency - Manokaran | DagangNews Skip to main content

Ringgit will get a boost once Khazanah converts its USD proceeds into local currency - Manokaran

WEEKLY MARKET ANALYSIS BY MANOKARAN MOTTAIN

 

 

 

THE fall in the local stock market last week was sharper than expected exacerbated by multiple factors involved.

 

Even the resolution of the debt ceiling issue in the US did not aid the local market. At the current level, it is close to its previous 12-month low of 1,373.36 points.

 

After falling past the 1,400 point level, I expect the KLCI to trade between the 1,375 -1,400 points range in the coming week. If it falls below the 1,375 point support level, the next major support for the market would be 1,350 points and 1,300 points respectively.        

 

In contrast, the performance of the bond market was within my expectations and the UST yields and volatility both declined following the resolution of the US debt ceiling.

 

Although the negative carry of the MGS bonds against the UST 10-year bonds continued, I believe it won’t last for long as market forces will eventually make the appropriate adjustments to the comparative yields.

 

With no major developments due in the near term, I predict the local bond market could be trading at a narrow range of between +/- 10 basis points in the coming week.   

 

The Ringgit’s movements last week was also within my expectations and with the debt ceiling issue in the US being finally resolved and the US Federal Reserve close to reaching its terminal rate level, I have high expectations that the Ringgit would stabilize and consolidate around the RM4.40 – RM4.50 level in the coming weeks.

 

An immediate catalyst for the Ringgit is the potential utilisation of the USD proceeds raised by Khazanah Nasional Berhad’s (Khazanah) US$15 billon (RM69.2 billion) medium term notes (MTN) through its subsidiaries – Khazanah Capital Ltd (US$10 billion) and Khazanah Global Sukuk Bhd (US$5 billion).

 

I believe that the Ringgit will get a boost once Khazanah converts its USD proceeds into local currency for their working capital and investment needs.   

 

 

MANOKARAN MOTTAIN
                                MANOKARAN MOTTAIN

 

 

MARKET

The local stock market continues to slide lower on weaker sentiment and comparatively weak corporate results for 1Q2023. Earnings from a lot of listed companies fell markedly in 1Q2023 on a year-on-year basis and made it hard to inspire confidence in investors and traders alike.

 

Consequently, the benchmark KLCI Index ended the week lower at 1,381.26 points (-21.72 points or -1.55%). Trading value vastly improved by 42% on a week-on-week basis to RM2.58 billion per day from RM1.81 billion per day last week thanks to a spike in trading activities last Wednesday.

 

This was attributed to the half yearly portfolio rebalancing activities for index linked funds as FTSE Russell and Bursa Malaysia reviews and adjusts the constituents of all the FTSE Bursa Malaysia Indices every six (6) months in June and December respectively.

 

The major change in the KLCI Index this review is the replacement of Inari Amertron Berhad with Westports Holdings Berhad. The portfolio rebalancing process also caused the overall trading value for the week to rise a hefty 29% above the past 100-day average daily trading value of RM2.00 billion per day.

 

In the bond market, US bond yields fell back after last week’s surge but the decline was only marginal after payrolls grew at a much stronger rate than economists predicted in May 2023 despite multiple headwinds.

 

Payrolls in the public and private sector increased by 339,000 for the month, better than the 190,000 consensus estimate and was the 29th straight month of positive job growth.

 

However, this was balanced by an increase in the unemployment rate which rose to 3.7% in May 2023 which was higher than the consensus estimate of 3.5%, even though the labour force participation rate was unchanged.

 

The jobless rate was the highest since October 2022. Average hourly earnings, a key inflation indicator, rose 0.3% for May 2023 and was in line with market expectations. On an annual basis, wages increased 4.3% while the average workweek fell by 0.1 hour to 34.3 hours.

 

Meanwhile, the ISM Manufacturing Survey, which represents the percentage of businesses reporting an expansion in activities, came in at 46.9% for May 2023, which was in-line with market forecasts.

 

 

parafrasa

 

 

The 10-year US Treasury (UST) yields fell by 11 basis points to 3.70% from 3.81% in the previous week and the total yield gains over the past 52 weeks narrowed to 74 basis points.   

 

The UST 2-year yields declined by a smaller margin of six (6) basis points to 4.51% from last Friday’s close of 4.57%. This continues the yield curve inversion between the UST 2-year and 10-year notes into its 47th consecutive week with the yield spreads widening to -81 basis points from -76 basis points last week.  

 

The 10-year MGS bond yield fell by seven (7) basis points last week to 3.69% last Friday from 3.76% in the previous week. The yield spreads between both countries’ 10-year bonds remains in negative territory for the second consecutive week at minus one (-1) basis points from (-5) basis points last week.  

 

ECONOMICS

China's factory activity unexpectedly contracted in May 2023 due to weakening demand. The National Bureau of Statistics disclosed that the manufacturing purchasing managers' index (PMI) fell to 48.8 from 49.2 in April 2023, the lowest in five months.

 

Economists had been forecasting for a marginal increase to 49.4 points. Non-manufacturing activity also grew at the slowest pace in four months in May 2023, with the official services PMI falling to 54.5 from 56.4 in April 2023.

 

The Ministry of Investment, Trade and Industry (MITI) had successfully secured a total of RM23.07 billion worth of potential investment and RM2.1 billion in potential exports of products and services to Japan.  

 

MITI Minister Datuk Seri Tengku Zafrul Abdul Aziz led a delegation from MITI to secure the potential investments and exports from various Japanese companies including Fuji Electric, NHK Spring, CKD Corporation, Itochu Corporation, Sumitomo Corporation, Mitsui & Co Ltd, Denso Corporation, Japan Petroleum Exploration Co Ltd. (JAPEX), Panasonic Housing Solutions Co Ltd, D-ACT, Omron Relay and Devices Corporation and Daiwa House Industry Co Ltd. He said MITI will work quickly to realise these potential investments.

 

 

parafrasa

 

 

CURRENCY

The Ringgit was generally mixed over the week as the risk off sentiments ebbed following the resolution of the US debt ceiling.

 

The local currency regained some ground against most currencies with the exception of the British Pound which appreciated slightly to RM5.6960 / GBP1.00 (+1.40sen) while the Japanese Yen remained unchanged at RM3.30 / JPY100.

 

The local currency rose against the US Dollar at RM4.5750 / USD1.00 (-2.20sen), the Singapore Dollar at RM3.3890 / SGD1.00 (-1.30sen) and the Euro at RM4.8990 / EUR1.00 (-3.40sen).  – DagangNews.com

 

Manokaran Mottain has been an economist with a number of financial institutions and is now managing his own firm, Rising Success Consultancy Sdn Bhd and has been writing his economic analysis on a weekly basis in DagangNews.com since 2022      

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DAG