Sunday, March 3rd, 2019
PARIS, March 3 — A three per cent tax on the French revenue of large internet companies could yield €500 million (RM2.3 billion) per year, French Finance Minister Bruno Le Maire said today. Le Maire told Le Parisien newspaper the tax is aimed at…
PETALING JAYA: The banking sector has always been a strong indicator of how the economy will move forward. With three banking giants recording their highest ever earnings last year, can we then expect a much stronger economy ahead?
Last week, Malayan Banking Bhd (Maybank), CIMB Group Holdings Bhd and RHB Bank Bhd announced record net profits of RM8.11 billion, RM3.72 billion and RM2.31 billion for the financial year ended Dec 31, 2018, respectively, boosted by, among others, loan growth, higher net fund-based income and lower provisions.
Despite their record performances, the banks maintained a conservative stance in their outlook for 2019.
Economists are uncertain if the stellar financial performances by banks will translate into strong economic expansion for Malaysia as looming external headwinds cannot be ignored.
An economist who declined to be named opined that the performance by the banks in 2018 was based on the scenario that year, so 2019 may not turn out to be the same due to many uncertainties.
“Economic growth will still be expanding, whether the momentum is sustained or not. At the moment, it’s not easy to say because we’re still waiting for the outcome of the US-China trade negotiation. That will determine a lot of things, whether the stock market and the currency market will rally or not; so we can’t see the visibility yet until the trade decision is out. The macro picture will translate into the micro picture, that’s how it goes.”
The economist said businesses are cautious now. Moreover, as it is the first year of the sales and service tax implementation, the cautiousness in the market is there.
The economist forecast gross domestic product (GDP) to grow at 4.9% this year, compared with the consensus 4.7%, driven by private consumption and the rebound in mining.
“We think the services sector is still going to be the driver, apart from manufacturing. We’re banking on manufacturing to remain steady in 2019 based on the positive expectation that the trade war will be over so you’ll see services and manufacturing continue to be the driver in 2019. We don’t foresee services to be going down anytime soon, at least on a base case scenario they will be performing in line with their long term historical average.”
Meanwhile, BIMB Securities economist Imran Nurginias Ibrahim agreed that the record performances by the banks signal that the economy is on a strong footing.
“It is considered positive for the economy. With banks showing profits, its shows that there is loan growth for the sector. For this year, despite expectation of gross domestic product to be slower compared to 2018, loan growth for 2019 will still be sustainable. That will help the economy as retail loan growth will be positive and will stimulate economic activities further,” he told SunBiz.
Loan growth moderated to 5.2% in 2018 and is expected to ease further to 5.0% in 2019, on the back of a slower global and domestic growth trend. He said the GDP growth of 4.7% last year was quite resilient and the activities seen in the first two months this year would indicate that GDP growth would remain healthy.
“From the supply side of the economy, the services sector is one of the major contributors to GDP growth. If the banking sector continues to show growth and profit, that will also contribute towards the GDP growth from the services sector side,” Imran added.
He expects GDP growth for 2019 to come in at 4.8%, on the back of supportive private consumption and investment activity in the demand side, as well as services and manufacturing in the supply side.
Imran believes Bank Negara Malaysia, to ensure capital market stability and ample liquidity and to remain supportive of growth, will hold the overnight policy rate steady at 3.25% this year with room to cut if the economic environment deteriorates.
Notwithstanding this, he cautioned on the external headwinds.
“So far it’s still early, we don’t know what’s going to happen to the US-China trade issue and how the Fed is moving forward. What we’re seeing now is that global growth is a bit slow, there is also the US-China trade war and other uncertainties so we have to look at the next few months to see how the activities in the economy are growing,” explained Imran.
PETALING JAYA: Banking sector loans kicked off 2019 with a 5.5% year-on-year growth in January, underpinned by sectors like manufacturing, retail, business services, construction and households (residential properties, personal use, credit cards).
With less than a month to go before the first quarter (Q1) comes to an end, AffinHwang Capital expects loan growth to be slow in the first three months of 2019, in tandem with slower business activities due to the seasonal effect of the Chinese New Year. It maintained its neutral sector stance, with Maybank and Aeon Credit Service (M) Bhd as its top picks.
“For 2019, we keep our loan growth target of 5% unchanged, noting that loan disbursements may gradually taper down due to a more cautious business and consumer outlook in 2019, largely dampened by external factors. The downside risks are largely supported by our strong economic fundamentals – resilient consumer spending, business growth and low unemployment rate, of which are holding up. Longer term, with new government policies after the Budget 2019 announcement, we expect consumer sentiment to gradually improve and drive consumption spending,” said AffinHwang Capital.
Macquarie Research is overweight on banks on resilient fundamentals and capital optimisation. It prefers corporate banks (Maybank, RHB, AMMB Holdings) over retail-centric Public Bank Bhd and Hong Leong Bank Bhd.
The banking sector accounts for about 32% of weightage in Bursa Malaysia’s benchmark FBM KLCI, hence the sector’s prospects would provide an indication of the performance for the index.
According to Bank Negara Malaysia, the local financial sector is envisioned to grow beyond its role as an enabler of growth to be a key driver and catalyst of economic growth, with growth in the financial system firmly anchored to growth in the real sector.
GEORGE TOWN, March 3 — The Penang government welcomes local and foreign investors who wish to promote their products in line with the state’s green and smart concept. Chief Minister Chow Kon Yeow said contribution from the private sector was…
PETALING JAYA: Malaysia Airlines Bhd (MAB) said the group ended 2018 on a marginally lower losses compared to a year ago, impacted by several factors including the crew shortages in the second half of 2018.
“The year also saw intense competition, with supply outstripping demand, as well as volatility in fuel and forex which also affected profitability,” it said in a statement last Friday.
Against the backdrop of challenging operating environment, MAB noted that encouraging improvements were seen in 2018 as compared with the previous year. Revenue average seat per kilometre saw a marginal increase of 2.0% due to improved pricing segmentation.
Its total revenue for 2018 was 1% higher than 2017, while overall load factor stood at 78%.
“The year was an extremely challenging one with the airline hampered by intense competition and volatility in fuel and forex,” said MAB CEO Izham Ismail.
PETALING JAYA: AmInvestment Bank kept its earnings forecast for Westports Holdings Bhd for the financial year 2019 to 2020 (FY19–20) unchanged, although the port operator is allowed to raise its container tariff by 13% from March 1 onwards.
In a note last Friday, AmInvestment said the hike generally only affects the “captive” gateway segment that makes up 25–35% of Westports’ total container throughput and it expects the group to maintain the effective rates for the transshipment segment given the stiff competition from local and regional transshipment ports.
The tariff hike, which is under the Port Klang Authority (Scale of Rates, Dues and Charges) (Amendment) By-Laws in 2015, was originally scheduled to take effect on Sept 1, 2018, but was deferred by the government to March 1, 2019.
AmInvestment said the government felt that it needed to “give more time for port users and other industry players to adapt and stabilise their businesses, following the implementation of the sales and services tax”.
This is the second part of a 30% hike allowed under the by-laws following the first hike of 17% on Nov 1, 2015.
“Ceteris paribus, the latest hike boosts our FY19–20 net profit forecasts by 6.3% and 7.9% respectively. However, as mentioned, we are keeping our FY19–20F forecasts relatively unchanged after reflecting higher depreciation charges and operating cost, to bring ourselves more in line with the numbers announced in the recent FY18 full year results.
“On one hand, we believe the port operator has weathered the negative impact from the global shipping alliances reshuffling in 2016. On the other hand, we are concerned about the slowing global economy and trade that will weigh down port operators worldwide,” it added.
However, AmInvestment said raised Westports’ fair value by 5.3% to RM3.94 from RM3.74 previously, as it rolled forward its valuation base year to FY20 from FY19.
“We value Westports at 21 times forward earnings, at about a 10% discount to its average five-year historical forward price-earnings (P/E) of 23 times. This is to reflect the subdued outlook for the port sector over the short to medium term on slowing global economy and potential headwinds from the US-China trade tension.”
The research house expects Wesports’ container throughput to moderate to 4% per annum in FY19–21, compared with the 5% it achieved in FY18.
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PARIS: US officials have said any trade deal with China will include a provision to prevent manipulation of the exchange rate to help exporters but Beijing’s currency regime reflects a complex reality.
US President Donald Trump, who has accused the Asian giant of artificially undervaluing its currency for competitive purposes, last week said “we have a deal” with China on the currency.
And White House economic adviser Larry Kudlow on Thursday said the draft documents would prohibit currency manipulation and oblige authorities in Beijing “to report any interventions in the market”.
But at the centre of the issue is a paradox: China does not necessarily want a weak currency, and the downward pressure on the yuan is in large part caused by US economic conditions, like rising interest rates.
Is the yuan undervalued?
The yuan or renminbi (RMB) is not freely convertible and the government limits its movement against the US dollar to a 2% range on either side of a central parity rate which the People’s Bank of China sets each day to reflect market trends.
That managed float system limits volatility: the currency has remained confined in the last five years between 6.2 yuan (RM3.8) and 6.8 yuan (RM4.1) to the dollar, a historically high level, compared to 8.28 (RM4.9) fixed rate in the 2000s.
While the RMB strengthened 6.3% in 2017, it depreciated by 5.7% last year, falling to its lowest level in a decade, which was enough to spur speculation Beijing was putting its foot on the currency scale again.
But the International Monetary Fund has said the RMB is not undervalued, and in a July report said it was “broadly stable against the basket of currencies … and broadly in line with fundamentals”.
Even the US Treasury has regularly acknowledged in a semi-annual report, most recently in October, that Beijing is not manipulating its currency.
Beijing, however, shook the markets in August 2015 with a one-time devaluation that weakened the yuan by about five percent in a week.
The decision led to massive capital flight out of China, which exacerbated the currency’s decline. Outflows amounted to nearly US$650 billion (RM2.6 trillion) in 2016.
Can Beijing control the currency?
The PBOC actively intervened in currency markets in 2015-2016 to counteract this depreciation, using its massive foreign reserves to buy yuan. Capital flight slowed as the RMB stabilised.
Analysts say more recent weakening of RMB is not due to manipulation but is the result of China’s economic slowdown, the trade war, and rising US interest rates that push up the value of the dollar against all currencies as investors search for higher yields.
But amid renewed optimism on the progress of trade negotiations with Washington, the yuan has rebounded by almost three percent since early January.
China certainly can use its colossal foreign reserves – US$3.1 trillion (RM12.63) at the end of January – to intervene if it chooses to prop up the RMB.
And after the experience in 2015 and 2016, anxious to halt the yuan’s plummet, the PBOC had drastically tightened capital controls to keep funds from flooding out of the country.
Does China want a weak yuan?
A weakened yuan makes Chinese exports cheaper and more competitive and can therefore partly offset the impact of US tariffs.
But economists dispute the Trump administration’s claim that Beijing has been keeping the currency artificially weak and in fact say it has been making an effort to keep it from falling too much.
And since August, the PBOC said it would use a “counter-cyclical factor” to calculate the daily exchange rate range, a move said to keep the RMB relatively stable.
That makes economists question the Trump administration’s demands, even though they acknowledge that China’s intervention from 2002-2010 helped to drive up the US trade deficit.
Adam Posen, head of the Washington-based Peterson Institute for International Economics, cautioned the Trump team against using 1950s era strategies to solve modern trade issues, which tariffs and exchange rates are less able to deal with.
Insisting on “a market-determined exchange rate for China … sounds nice but is nuts,“ Posen told AFP.
“If you start doing what the Trump team is doing and say the currency can’t ever go down, you’re just going to cause a mess.”
But Mark Sobel, a former US Treasury official, said if the US and Beijing focus on currency stability, conditions “are ripe” to achieve that: the US Federal Reserve has paused interest rate increases, and China’s stimulus efforts are showing signs of stabilizing a slowing economy. — AFP