Waiting For Godot - corporate results for 1Q2023: Manokaran

WEEKLY MARKET ANALISIS BY MANOKARAN MOTTAIN

AS expected, the overall market remained in consolidation mode with the benchmark KLCI Index managing to eke out a small gain for the week at 1,428.54 points (+5.62 points or +0.39%).

Nevertheless, this was achieved on the back of lower trading value which fell almost 7% on a week-on-week basis to RM1.63 billion per day from RM1.75 billion per day last week. The overall trading value is still low it is 17% below the past 100-day average daily trading value of RM1.96 billion per day.

In the bond market, US bond yields spiked as negotiations continue over the proposed increase to the US debt ceiling with the deadline of 1 June 2023 looming.

In the meantime, US Federal Reserve officials have indicated that upcoming economic reports on employment and inflation would be crucial to the Fed’s next rate decision. Retail sales for April 2023 rose 0.4%, which was lower than market consensus of an 0.8% increase. 

The 10-year US Treasury (UST) yields rose sharply by 22 basis points to 3.68% from 3.46% in the previous week and this widened the total yield gains over the past 52 weeks to 82 basis points.   

The UST 2-year yields also skyrocketed last week by 28 basis points to 4.27% from last Friday’s close of 3.99%. This continues the yield curve inversion between the UST 2-year and 10-year notes into its 45th consecutive week with the yield spreads widening further to -59 basis points from -53 basis points last week.  

The 10-year MGS bond yield also rebounded back by 12 basis points to 3.76% from 3.64% last Friday causing the yield spreads between both countries’ 10-year bonds to narrow to a razor thin 8 basis points from 18 basis points last week.  

ECONOMICS

BMI (a unit of Fitch Solutions) has increased the forecast for Malaysia’s Gross Domestic Product (GDP) growth for 2023 to 4.2% cent from its earlier estimate of 4.0% following the better-than-expected 5.6 per cent result in 1Q2023. It added that Malaysia’s 1Q2023 performance was well above consensus and its own expectations’ of 4.8% growth.

BMI also expects private consumption to grow by 5% per cent this year from 11.3% in 2022 due to a decline in household savings and tighter monetary conditions. BMI also revealed that the business tendency survey has remained below 2022 levels and suggests that sentiments among the business community remains weak. BMI’s global team is also expecting the global economic growth to slow to 2.1% in 2023 from 3.1% in 2022.

Malaysia’s trade growth fell by 14.5% y-o-y in April 2023 to RM198.0 billion due to global economic uncertainties with export values falling by 17.4% y-o-y to RM105.4 billion, while the import values contracted 11.1% y-o-y to RM92.6 billion.

The decline in Malaysia’s exports was due to a drop in domestic exports (which accounts for 76.3% of total exports) by 22.3% y-o-y to RM80.4 billion while imports in April 2023 also correspondingly fell 11.1% to RM92.6 billion.

The reduction in exports came from the European Union (-RM3.5 billion), China (-RM3.4 billion), United States (-RM3.1 billion), Taiwan (-RM1.9 billion), Japan (-RM1.6 billion), India (-RM1.5 billion), Vietnam (-RM1.4 billion) and Thailand (-RM1.3 billion).

On the other hand, there was a contraction in imports from Indonesia (-RM3.0 billion), Japan (-RM2.1 billion), China (-RM1.7 billion), Taiwan (-RM1.4 billion) and United States (-RM1.2 billion).

CURRENCY

It was a bad week for the Ringgit as it weakened against virtually all of the major currencies over the past week with the exception of the Japanese Yen which ended unchanged at RM3.30 / JPY100.

The local currency weakened against the Euro at RM4.9100 / EUR1.00 (+4.00sen), the British Pound at RM5.6560 / GBP1.00 (+6.00sen), the Singapore Dollar at RM3.3740 / SGD1.00 (+2.40sen) and the US Dollar at RM4.5360 / USD1.00 (+6.10sen) as foreign investors continued to rebalance their portfolios back to the US Dollar, Euro and the British Pound.    

MY OPINION

The local equities market performed according to my expectations and I am maintaining my view that view that the benchmark KLCI to continue consolidating within the 1,400 to 1,450 point range.

In the coming week, market participants will be looking at the corporate results for 1Q2023 for earnings guidance and business outlook for the rest of the year. In addition, they will also be keeping an eye on the US market for leads relating to the raising of the debt ceiling.     

Although the bond yields spiked unexpectedly last week, I expect the US bond markets to settle down and continue their consolidation phase only after the US government irons out an agreement on the debt ceiling before the deadline of 1 June 2023.

I expect negotiations to go right down to the last minute before an official agreement is finalized as it does not make sense for the US government to default it debt obligations due to internal disagreements. Nevertheless, the bond market participants are likely to hold their breath until the deadline and the direction of the local MGS yields will largely be influenced by the movement of the UST bonds.  

The currency market continues to surprise the participants especially in the past week as the Ringgit continues to be hit with weak sentiments. Given the sharp movements against the US Dollar, I am adjusting my view that the Ringgit is expected to trade between the RM4.48 - RM4.56 in the coming week.  - 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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