Weekly Economic Analysis by Manokaran Mottain

By MANOKARAN MOTTAIN

MARKET

The local stock market ended the holiday shortened week -0.69% lower at 1,501.74 points as investors adopted a risk off stance and continue to take money off the table due to uncertainties caused by the COVID Omicron variant and spiking inflationary pressures in goods.

The Federal Territories Minister declared that Friday (3rd of December 2021) would be a public holiday for the Federal Territories of Kuala Lumpur, Putrajaya and Labuan after the Kuala Lumpur Football Club (FC) upset Johor Darul Ta’zim FC 2-0 to win the Malaysia Cup after a 32-year hiatus.

Generally, banks reported better than expected results for 3Q2021 due to lower loan impairments despite a slight dip in revenue growth. We noticed that loan growth is driven by Corporate, Commercial and the SME segments rather than the retail / consumer segment.

ECONOMY

The Malaysian Cabinet has delayed its transition plans to the endemic phase due to the emergence of the Omicron COVID variant. In addition, the country’s first official case of the Omicron variant was detected on 2 December 2021.

The government will continue to closely monitor the developments regarding the Omicron variant especially on its transmission rates and virulency to prevent another wave of COVID-19 infections that can put the country’s economic recovery at serious risk.  

Malaysia has imposed temporary travel restrictions on countries deemed as high risk for the Omicron variant which include South Africa, Botswana, Eswatini, Lesotho, Mozambique, Namibia, Zimbabwe and Malawi.

In addition, the Cabinet will also discuss a fresh proposal to revive the High Speed Rail (HSR) project between Singapore and Malaysia following PM Datuk Seri Ismail Sabri’s discussions with Singapore Prime Minister Lee Hsien Loong on 29 November 2021.   

The Organisation for Economic Cooperation and Development (OECD) expects global growth to hit 5.6% this year before settling down to 4.5% in 2022 and 3.2% in 2023. The OECD believes that the sharp post pandemic rebound in consumer demand this year is transitory and will gradually normalize from 2022 onwards.

However, the OECD highlighted that the main risk to growth is inflationary pressures which continue to be surprisingly strong as the current surge in demand have caused bottlenecks in global supply chains causing prices of goods to rise.     

This is particularly felt by construction companies as price volatility for construction materials such as steel aggregates and cement whose prices have gone up by at least 15% and are only likely to stabilize after Chinese New Year. 

Steel bar prices were around RM2,800/MT during 2019 before the Covid pandemic hit the country and rose to a peak of RM4,000/MT before settling down to the RM3,300/MT level at the current moment.

Channel checks also showed that contractors as well as their sub-contractors are facing manpower shortage and difficulty in recruiting more workers in the current circumstances. The manpower shortage is most acute in the semi-skilled worker segment like plasterers which are being highly sought after in other ASEAN countries and in the Middle East region.

As a result, not many of the mid and smaller sized sub-contractors dare to bid or tender for large contracts that take up significant amounts of working capital as they are facing difficulty in pricing in tender bids due to the fluctuating prices and manpower shortage.

Furthermore, items like lifts which is mostly manufactured in Germany, Japan & Taiwan are also likely to experience price hikes in the coming months as raw material & transportation costs increase.    

IHS Markit Malaysia Manufacturing Purchasing Managers’ Index (PMI) rose marginally to 52.3 in November 2021 from 52.2 in October 2021. The latest reading indicated a very slight improvement in operating conditions for local manufacturing companies and also a more positive outlook in 2022.

CURRENCY

The Ringgit has weakened against the US Dollar as RM4.2290 / USD1.00 as investors continue rebalance their positions back to the US Dollar in reaction to the hawkish remarks from US Federal Reserve Chairman Jerome Powell that indicative that combating inflation will be the top priority for the Federal Reserve going forward.

This is in addition to the Federal Reserve reducing its bond buying by US$15 billion a month last week. This raises the likelihood that interest rates would be likely be increased faster than expected should inflationary pressures in the US persist.

The Ringgit is expected to trade in a range of between RM4.20 to RM4.25 in the coming week as we expect the exchange rate to stabilize for the moment. 

POLITICS

The nomination date for the upcoming Sarawak State Elections will be on 6 December 2021 while the polling date is on 18 December 2021.

The average price of flight ticket from KL to Kuching has been reduced to around RM360 on average between 11 – 31 December 2021 following an increase in flight frequency into Sarawak during that period.

This should help to increase the number of voters and meet the expected 70% voter turnout targeted by the Election Commission.   – 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