Weekly Economic Analysis by Manokaran Mottain

By MANOKARAN MOTTAIN

MARKET 3-8 JANUARY 2022

As expected, the local stock market started the year on its back foot as follow through buying was absent following the series of window dressing activities prior to the year end. The KLCI Index ended the first week of 2022 at 1,543.11 points or -1.55% (24.42 points lower).

Of concern is the average daily trading value for the entire stock market, which remained below RM2.0 billion per day. Increasingly, it seems like a pre-Chinese New Year rally may not materialize this year.

In addition, we should also take note of the January Effect which essentially provides an indicator as to the performance of the market for the rest of the year. Hence, the coming weeks’ performance of the market will be critical for the outlook for the rest of the year. 

In a separate development, the Law Library of Congress reported that as of November 2021, a total of 51 countries across the world have implemented steps to either outright ban or heavily regulate cryptocurrencies.

A total of nine (9) countries – Algeria, Bangladesh, China, Egypt, Iraq, Morocco, Nepal, Qatar and Tunisia have all unilaterally banned exchanges and services related to cryptocurrencies.

The other 41 countries have also implemented regulations which prevent banks, lenders and other financial institutions from offering services that involve or are related to cryptocurrencies to their customers. 

It was also distressing to hear news that bondholders holding at least 75% of the nominal value of Mex II Sdn Bhd’s RM1.3 billion sukuk declared a default immediately after the issuer failed to meet its payment obligations on 31 December 2021.

Mex II is the highway concessionaire for the 18km long Putrajaya-KLIA Highway which is supposed to be a three lane dual carriageway that connects the KLIA Highway to Maju Expressway at it’s Putrajaya Interchange.    

The bondholders also rejected the restructuring proposal by the issuer to restructure the sukuk and raise additional funding to complete the construction of the highway through the issuance of a new sukuk.

ECONOMY

The Works Ministry expects the cost to repair damaged infrastructure like roads, bridges and slopes across the nation due to the recent floods to reach up to RM1.0 billion. It added that the repair work needs to be carried out urgently to restore access and connectivity to areas that were worst hit by the flooding.  

Bank Negara Malaysia’s international reserves as at 31 December 2021 rose marginally to US$116.9 billion as compared to US$116.3 billion as at 15 December 2021. The reserves position is sufficient to finance 7.7 months of retained imports and is 1.2 times the total short term external debt.

Malaysian Institute of Economic Research (MIER) has raised its concern that Malaysia is just nine (9) years away from being an aged nation in 2030 and further withdrawals by the members of the Employees Provident Fund (EPF) would put additional pressure on the future cost of healthcare, income security and risk the post retirement well being of its members.

This is because the three previous EPF withdrawal schemes had resulted in 6.1 million EPF members having a balance of less than RM10,000 in their EPF accounts with 3.6 million members having less than RM1,000. 

As such, MIER strongly urged the Federal Government to consider other policy measures and contingency plans that can ensure social protection in the face of unexpected calamities and other crises.  

Meanwhile, Moody’s Analytics expectations that Malaysia’s economic growth would return to pre-pandemic levels by the middle of 2022 led by the export sector.

However, the downside risks for their forecast were the threats to the global supply chains due to new lockdowns caused by the Covid Omicron and other possible variants in the future as well as extreme weather conditions.  

Another interesting development is the news on Fieldman EV Sdn Bhd (FEV), who is set to invest around RM1.0 billion to build an electric car assembly plant in Melaka. The plant is to be built on a 200-hectare piece of land at the Elkay Lipat Kajang Industrial Area in Jasin.

FEV disclosed that they had obtained exclusive rights to distribute right hand drive electric vehicles from Changan Automobile Corp for the Malaysian and the South East Asian market.

CURRENCY

The Ringgit succumbed to profit taking against the US Dollar after two weeks of solid gains. The Ringgit ended the week at RM4.2080 / USD1.00 as compared to RM4.1503 last week.

A massive spike in Covid-19 infections in the US and Europe also triggered a flight to safety and the US Dollar is traditionally seen as a safe haven currency.

In addition, the Ringgit also retreated against other major currencies such as the Singapore Dollar, British Pound and Euro. I expect the Ringgit to be trading in a lower range of between RM4.18 to RM4.25 in the coming week.   - 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