Tuesday, May 14th, 2019

 

Ringgit slips to 4.17 to dollar as US-China tariff war hots up

PETALING JAYA: US-China trade tensions continued to take a toll on the ringgit, which sank as much as 0.15% to 4.1722 against US dollar, the lowest in more than four months.

As at 5pm today, the local unit was trading at 4.1705.

Having lost 0.9% year-to-date, the ringgit has been on a downtrend since late March amid domestic and external headwinds.

World Bank lead economist for Malaysia Richard Record said as an open economy in terms of both trade and financial flows, Malaysia’s economy is susceptible to external pressures, including exchange rate movements. This is particularly so during periods of market turbulence and uncertainty, such as that relating to current US-China trade tensions.

However, he said Malaysia’s economic fundamentals remain strong. These include a diversified economy with balance between domestic and external demand, and economic activity across a wide range of sectors from manufacturing to commodities.

“Malaysia’s challenge is to remain focused on strengthening the underlying determinants of economic competitiveness that will support growth and job creation over the medium term, including sound macroeconomic management, low costs of doing business, and the wide adoption of digital technologies to unlock a future driver of growth,” Record told SunBiz.

In a note today, UOB Research said the broad US dollar strength and cautious mood amid escalation of US-China trade tensions will weigh on the ringgit. The highest level reached in recent months was 4.2020 at end-November last year.

“The renminbi leads the retreat in Asian currencies, which in turn led to the pullback in other emerging market currencies. Given global risk-off sentiment, it will be challenging for emerging market currencies including the ringgit to stay firm,” it said.

China on Monday announced it would impose higher tariffs on US$60 billion (RM250 billion) of US goods after Washington’s decision last week to hike its own levies on US$200 billion of Chinese imports.

The tariff escalation has rattled global markets even as China and the US have agreed to keep talks going over their trade dispute. US President Donald Trump said he thought recent discussions in Beijing would be successful.

“Despite a more uncertain outlook, we maintain our base case expectation (albeit a lower 60% probability against the previous 65%) that the trade negotiation will be long-drawn, well into the second half of this year, before a resolution. We see the probability of an all-out trade war at 30% vs previous 25%,” said UOB.

At home, Bank Negara Malaysia (BNM) cut the Overnight Policy Rate by 25 basis points to 3.00% last week, citing downside risks to economic growth.

The central bank kept a cautious tone amid lingering downside risks to growth and signs of tightening of financial conditions. It said latest developments suggest slower activity in first quarter 2019 (Q1 19), reaffirming that gross domestic growth is off to a slower start this year. First quarter growth figures will be released tomorrow.

RHB Research said the escalating US-China trade war is expected to put further downward pressure on already-declining global economic growth, particularly in 2020.

“If the situation persists and worsens, this may derail our expectation of a rebound in global and Asean-5’s (Malaysia, Indonesia, the Philippines, Singapore and Thailand) economic growth in 2020, offsetting the benefit of a rate pause by the US and policy easing by other major economies. We expect the major eco-nomies to ease their policies further to support growth, which may prevent the global economy from sliding into a recession in 2020.”

On Bursa Malaysia, the FBM KLCI fell 1.90 points to close at 1,599.19 today, off a high of 1,603.72 and a low of 1,572.03.


China-based Sany Group to train locals on IBS, tech transfer

KUALA LUMPUR, May 14 — China-based heavy equipment manufacturer Sany Group has pledged to give Industrialised Building System (IBS) training and technology transfer to local players. In a press statement today, local housing developer LBS Bina…


Poll: Malaysia’s economic growth likely to have slowed in Q1

KUALA LUMPUR: Malaysia’s economic growth pace likely slowed in the first quarter, due to tepid consumption and softer global demand as a result of the US-China trade war, a Reuters poll showed.

The poll of 13 economists predicted the economy will grow at a median rate of 4.3% in January-March, slower than the 4.7% pace of the fourth quarter.

Individual forecasts ranged from 4.2% to 4.5%.

Exports from Southeast Asia’s third-largest economy contracted in February and March, and will likely face sustained pressure in the coming months as the United States pursues another round of tariff increases on Chinese goods, Capital Economics said in a research note.

“Malaysia is one of the most vulnerable countries to a drop in US demand for Chinese goods, as a large exporter of intermediate goods to China,” Capital Economics said in a note on Friday.

China on Monday announced it would impose higher tariffs on US$60 billion (RM250 billion) of US goods following Washington’s decision last week to increase its own levies on US$200 billion in Chinese imports.

Malaysia’s 2018 full-year growth came in at 4.7%, just below the government’s forecast of 4.8% but far short of the 5.9% pace set a year earlier.

The fourth quarter’s better-than-expected 4.7% rate snapped a four-quarter streak of slowing growth, but Bank Negara Malaysia (BNM) has since said it expects expansion to moderate this year.

In March, the central bank cut its 2019 growth forecast to 4.3-4.8% from an earlier projection of 4.9%, on expectations of a significant drop in export demand.

Private consumption would have remained the biggest contributor to growth in the first quarter, but likely slowed as consumer sentiment deteriorated, HSBC said.

Malaysia’s consumer prices rose for the first time this year in March, gaining 0.2% from a year earlier. Analysts expect cost pressures to remain benign for the rest of 2019.

Standard Chartered said its softer growth forecast was also partly due to a higher base the previous year, especially when compared with the 5.4% pace set in the first quarter of 2018.

BNM cut its policy rate last week for the first time since 2016 to support the economy on heightening concerns about global growth, which Standard Chartered said would provide some support to growth.

“We expect Malaysia’s growth to have bottomed out in Q1 and see it picking up towards H2 as global growth momentum stabilises,” Standard Chartered said in a note on Friday.


ringgitweaken

PETALING JAYA: US-China trade tensions continued to take a toll on the ringgit, which sank as much as 0.15% to 4.1722 against US dollar, the lowest in more than four months.

As at 5pm today, the local unit was trading at 4.1705.

Having lost 0.9% year-to-date, the ringgit has been on a downtrend since late March amid domestic and external headwinds.

World Bank lead economist for Malaysia Richard Record said as an open economy in terms of both trade and financial flows, Malaysia’s economy is susceptible to external pressures, including exchange rate movements. This is particularly so during periods of market turbulence and uncertainty, such as that relating to current US-China trade tensions.

However, he said Malaysia’s economic fundamentals remain strong. These include a diversified economy with balance between domestic and external demand, and economic activity across a wide range of sectors from manufacturing to commodities.

“Malaysia’s challenge is to remain focused on strengthening the underlying determinants of economic competitiveness that will support growth and job creation over the medium term, including sound macroeconomic management, low costs of doing business, and the wide adoption of digital technologies to unlock a future driver of growth,” Record told SunBiz.

In a note today, UOB Research said the broad US dollar strength and cautious mood amid escalation of US-China trade tensions will weigh on the ringgit. The highest level reached in recent months was 4.2020 at end-November last year.

“The renminbi leads the retreat in Asian currencies, which in turn led to the pullback in other emerging market currencies. Given global risk-off sentiment, it will be challenging for emerging market currencies including the ringgit to stay firm,” it said.

China on Monday announced it would impose higher tariffs on US$60 billion (RM250 billion) of US goods after Washington’s decision last week to hike its own levies on US$200 billion of Chinese imports.

The tariff escalation has rattled global markets even as China and the US have agreed to keep talks going over their trade dispute. US President Donald Trump said he thought recent discussions in Beijing would be successful.

“Despite a more uncertain outlook, we maintain our base case expectation (albeit a lower 60% probability against the previous 65%) that the trade negotiation will be long-drawn, well into the second half of this year, before a resolution. We see the probability of an all-out trade war at 30% vs previous 25%,” said UOB.

At home, Bank Negara Malaysia (BNM) cut the Overnight Policy Rate by 25 basis points to 3.00% last week, citing downside risks to economic growth.

The central bank kept a cautious tone amid lingering downside risks to growth and signs of tightening of financial conditions. It said latest developments suggest slower activity in first quarter 2019 (Q1 19), reaffirming that gross domestic growth is off to a slower start this year. First quarter growth figures will be released tomorrow.

RHB Research said the escalating US-China trade war is expected to put further downward pressure on already-declining global economic growth, particularly in 2020.

“If the situation persists and worsens, this may derail our expectation of a rebound in global and Asean-5’s (Malaysia, Indonesia, the Philippines, Singapore and Thailand) economic growth in 2020, offsetting the benefit of a rate pause by the US and policy easing by other major economies. We expect the major eco-nomies to ease their policies further to support growth, which may prevent the global economy from sliding into a recession in 2020.”

On Bursa Malaysia, the FBM KLCI fell 1.90 points to close at 1,599.19 today, off a high of 1,603.72 and a low of 1,572.03.


AirAsia challenges Mavcom in court

PETALING JAYA: AirAsia X Bhd (AAX) and its affiliate AirAsia Bhd (AAB) have filed a judicial review application against the Malaysian Aviation Commission (Mavcom) and Malaysia Airports (Sepang) Sdn Bhd (MASSB) to challenge Mavcom for declining to decide on the disputes with regard to passenger service charge (PSC) and the poor level of service at klia2.

“AAB and our company have taken steps to engage MASSB and Mavcom to have the disputes resolved through the statutory dispute resolution structure provided under the Malaysian Aviation Commission Act 2015 (Mavcom Act) but to no avail,” the low-cost airline group told Bursa Malaysia today.

AAB and AAX said under the Mavcom Act, Mavcom has a statutory duty to commence to decide on the said disputes once mediation between the parties have failed, or is deemed to have failed.

“The refusal on Mavcom’s part to decide on the said disputes is therefore contrary to Sections 74 to 78 of the Mavcom Act.”

AAB and AAX are also asking, as part of the judicial review application, for a mandamus to compel Mavcom to adjudicate the disputes between AAB, AAX and MASSB in accordance with its statutory duty under the Mavcom Act.

To recap, there are several court actions that have been filed by MASSB against AAB and AAX for payment of outstanding PSC.

Both AAB and AAX have disputed MASSB’s claims and have applied to strike out the actions as they are filed in breach of Sections 74 to 78 of the Mavcom Act.

AAB and AAX also have a claim against MASSB for damages incurred as a result of the poor level of service at klia2 amounting to RM479.78 million.

AAB and AAX maintained that the increased PSC is arbitrary, burdens the travelling public and is unjustified as the levels of service at klia2 are inferior to that of KLIA where passengers pay the same charges.


UK unemployment rate hits 45-year low

LONDON, May 14 — British unemployment has fallen to a 45-year low, official data showed today, with the economy holding up despite prolonged Brexit uncertainty. The unemployment rate eased to 3.8 per cent in the three months to March — the…


China says US has agreed to keep talking over trade war

WASHINGTON, May 14 — China and the United States have agreed to keep talking about their trade dispute, the Chinese government said today, as US President Donald Trump said he thought recent discussions in Beijing would be successful. The slightly…


Bursa Malaysia rebounds, but settles below 1,600 psychological level

KUALA LUMPUR: The FTSE Bursa Malaysia KLCI (FBM KLCI) rebounded from earlier losses to finish the day just a whisker below the 1,600 psychological level, on fresh hopes over the US-China trade deal after US President Donald Trump said he will meet President Xi Jinping at the G20 Summit in June.

At 5pm, the FTSE Bursa Malaysia KLCI (FBM KLCI) eased 1.90 points to 1,599.19, the lowest since September 2015 after opening 20.24 points lower at 1,580.85.

The benchmark index moved between a low of 1,572.03 and a high of 1,603.72 during the day.

Losers outnumbered gainers 488 to 386 with 381 counters unchanged, 654 untraded and 24 others suspended.

Turnover increased to 2.82 billion shares valued at RM2.46 billion from 2.48 billion shares worth RM1.65 billion yesterday.

Inter-Pacific Securities Sdn Bhd head of research Pong Teng Siew said Trump’s prediction that the trade talks would be successful had eased concerns over a full-blown trade war after China raised tariffs on U$60 billion in US exports in retaliation for the US president’s move to impose tariff on another US$200 billion in Chinese goods.

Following the rebound in the local market, Pong said the market is expected to be on a positive trend for a few months.

Meanwhile, Bank Islam Malaysia Bhd chief economist Dr Mohd Afzanizam Abdul Rashid said some institutional investors may have entered and supported the market.

“It remains to be seen whether the rebound can be sustained as the US is contemplating to raise tariff on another US$300 billion (in Chinese) goods involving tech-related products,“ he said, adding that support level is currently seen at 1,596 points.

He said investors could be watching closely the forms of retaliation by China going forward, whether it will involve non-tariff measures such as currency devaluation, selling off US Treasury bonds holdings and introducing measures or regulations that will impede international trade between the two countries.

Among the heavyweights, Maybank dropped two sen to RM8.96, while Public Bank rose 14 sen to RM22.46, Tenaga added six sen to RM11.80 and CIMB up four sen to RM5.16.

Of the actively-traded stocks, Bumi Armada and Impiana were unchanged at 19 sen and four sen, respectively.

Ekovest inched up 1.5 sen to 85.5 sen and Lambo was one sen higher at eight sen.

The FBM Emas Index declined 15.81 points to 11,258.73, the FBMT 100 dipped 18.84 points to 11,096.71 and the FBM 70 lost 46.42 points to 13,816.45.

The FBM Emas Syariah Index erased 32.20 points to 11,376.90 and the FBM Ace Index down 23.45 points to 4,395.15.

Sector-wise, the Financial Services Index rose 21.47 points to 16,538.20, the Plantation Index fell 101.12 points to 6,913.29 and the Industrial Products and Services Index was 0.86 of-a-point lower at 163.91.

Main Market volume rose to 1.81 billion shares worth RM2.30 billion from 1.56 billion shares valued at RM1.57 billion yesterday.

Warrants turnover increased to 390.11 million units worth RM97.75 million from 181.85 million units worth RM22.63 million.

Volume on the ACE Market decreased to 618.18 million shares worth RM61.04 million from 740 million shares valued at RM57.29 million previously.

Consumer products and services accounted for 305.44 million shares traded on the Main Market, industrial products and services (198.12 million), construction (358.35 million), technology (116.38 million), SPAC (nil), financial services (63.20 million), property (180.34 million), plantation (36.45 million), REITs (10.45 million), closed/fund (nil), energy (399.52 million), healthcare (39.77 million), telecommunications and media (47.95 million), transportation and logistics (20.46 million), and utilities (33.79 million).

The physical price of gold as at 5pm stood at RM168.33 per gramme, up RM2.04 from RM166.29 at 5pm yesterday. — Bernama


DRB-Hicom lowered to ‘underweight’

PETALING JAYA: AmInvestment Bank has downgraded DRB-Hicom Bhd to “underweight” from “hold” with a lower fair value of RM1.74 due to potential negative sentiment arising from the arrest of the group’s executives by the Malaysian Anti-Corruption Commission (MACC).

There are also uncertainties in respect of the group’s ability to secure government contracts in the future following the scandal, the research said in its report today.

The stock slipped 1 sen or 0.5% to close at RM2 today with 6.13 million shares changing hands.

On Monday, DRB-Hicom confirmed that the MACC has remanded two top executives of its wholly owned subsidiary Defence Technologies Sdn Bhd (Deftech), in connection with a graft probe on a RM17 million defence contract.

The executives were alleged to have received hundreds of thousands of ringgit between 2014 and 2017 from several companies in relation to the award of the contract. The contract was to supply equipment for the Deftech AV8 Gempita and ACV-300 Adnan armoured combat vehicles to a defence agency.

“There may be questions if this is an isolated case or whether there is a need to relook the company’s procurement process. Also, it is uncertain if the incident will have any effect on the group’s standing in future government defence contracts. With that said, we believe that our increase in the sum-of-the-parts discount rate is justified based on the potential negative sentiment arising from the MACC probe,“ said AmInvestment Bank.

However, RHB Research maintained its “buy” call on DRB-Hicom with a higher target price of RM2.63 from RM2.30.

“With Proton X70 sales exceeding expectations and cost cutting measures showing some tangible results, we are more upbeat on Proton’s turnaround prospects than ever before. The exciting pipeline of new models in new market segments should help rehabilitate its branding. Establishing an assembly plant in Pakistan marks a major move to penetrate export markets.”

It is anticipating Proton to register significantly lower losses in the upcoming quarters, thanks to cost reduction initiatives and better-than-expected sales of the X70.

Proton’s management revealed that it managed to cut components cost by 10% last year after teaming up with Geely to make bulk purchase of raw materials. To achieve a further 20% reduction, Proton will need a consistent sales volume track record to further convince its vendors. Proton is also reducing its regional car parts warehouses to lower costs further.

“X70 is the best-selling sport utility vehicle. Sales of X70 exceeded expectations after 11,000 units were delivered since its launch in December 2018 (8,579 units was sold in Q1’19), and 70% of the sales is for the top Premium variant. The recent launch of the Proton Iriz and Proton Persona facelift models at significantly lower prices should help increase sales volume and bolster Proton’s currently underutilised capacity. The next new model is likely to be the SX11 (based on Geely Binyue), towards end-2019.”

RHB Research raised DRB-Hicom’s FY20-21 forecast by 14% and forecast a narrower loss for FY19 after imputing better-than-expected sales performance of the X70 and cost cutting measures. The key risk is Proton’s inability to maintain product quality when local assembly commences.


Beleaguered Sri Lanka gets long-delayed IMF cash

COLOMBO, May 14 — The International Monetary Fund today released a long-delayed loan instalment to Sri Lanka, providing financial relief to a government still reeling from the Easter Sunday bombings that claimed 258 lives. The Washington-based…