Sunday, August 18th, 2019


Cautious outlook for Malaysian economy despite stronger Q2 growth

KUALA LUMPUR: Malaysia’s gross domestic product (GDP) growth in 2019, which may be lower by 0.1 percentage point (ppt) if there is a further escalation in the US-China trade war, will still be “manageable”, said Socio-Economic Research Centre (SERC) executive director Lee Heng Guie.

He said despite the economy growing 4.7% in the first half of 2019, Bank Negara Malaysia (BNM) still wants to maintain its cautiousness.

“There are still a lot of risks ahead, and this trade war effect could have more impact, also possibly lag effect, going into next year. It’s good to be cautious in the assessment of the economy, at least the government can be well prepared for the risks,” he told SunBiz.

BNM sees lower downside risks for Malaysia this year in its latest assessment of the US-China trade war due mainly to the delay in the implementation of selected tariffs.

“Should the trade dispute escalate further, global growth is expected to be lower by 0.1ppt. Consequently, Malaysia’s GDP growth will be lowered by 0.1ppt in 2019 due to lower trade income and investment activity,” BNM governor Datuk Nor Shamsiah Mohd Yunus said when announcing Malaysia’s second quarter (Q2’19) GDP growth figures last Friday.

Further escalation of trade tensions will weigh on growth outlook, with the central bank also estimating that Malaysia’s exports may be lower by 0.2ppt this year, as global trade is projected to shrink by 0.1ppt.

In its Q318 Quarterly Bulletin, BNM warned that Malaysia’s 2019 GDP could be much lower by 0.9 to 1.1ppt, while exports could be lower by 1.2 to 1.7ppt.

However, BNM is maintaining its projection for the Malaysian economy to grow between 4.3% and 4.8% this year.

“Going into second half 2019, we believe that growth will still be challenging and SERC is keeping our full-year GDP growth estimate of 4.5-4.7%. We’re not expecting a global recession but global growth will still be a key risk for next year,” said Lee.

Malaysia’s economy grew at a stronger pace of 4.9% in Q2’19, from 4.5% in the first quarter, supported, by higher household spending and private investment.

Meanwhile, UOB also remained cautious given escalating external risks. Key risks to its growth outlook include a more pronounced global slowdown, breakdown in US-China trade talks with further tariffs and retaliatory actions, and a no-deal Brexit. It is maintaining its GDP growth forecast of 4.6% for 2019.

“We think BNM is less likely to pursue another rate cut in the upcoming MPC meeting des-pite the recent synchronised rate reductions by four Asia-Pacific central banks last week. BNM has already made one pre-emptive 25bps cut in May and is likely to wait for the outcome of US Fed rate deci-sion, US-China talks, and Malaysia’s Budget announce-ment,” UOB added.

Separately, RAM Ratings maintained its Malaysian GDP growth forecast at 4.6% for 2019 although external headwinds prevail. It said ongoing expectations of weaker economic prospects are envisaged to hamper capacity-building activities. Hence, its expectation for private investment activity this year stands at a moderate 2.2% (2018: 4.8%).

Going forward, it expects the policy stance to stay supportive of growth, with potentially looser monetary policy and fiscal buffers at the ready. Potential moves on the Overnight Policy Rate (OPR) are anticipated to be largely data-dependent, in response to signs of significant downside risks to growth.

“Accordingly, we have maintained our expectation of the OPR ending the year at 3.00%, albeit also of the view that there is scope for further loosening if required. Another factor that may support further easing is benign inflationary pressure that has prevailed.”

Bank Negara eases foreign exchange administration rules

KUALA LUMPUR: Bank Negara Malaysia (BNM) has announced further liberalisation of the foreign exchange administration (FEA) policy with new measures effective Aug 30, 2019 aimed at providing greater flexibility and efficiency for businesses to manage their foreign exchange risk and conduct their daily operations.

Firstly, residents can hedge their foreign currency current account obligations up to their underlying tenure, compared with up to 12 months previously.

Secondly, resident treasury centres can hedge on behalf of their related entities, while non-resident treasury centres can hedge on behalf of their related entities upon a one-time registration with BNM, compared with required approval previously.

‌Thirdly, non-residents can hedge on anticipatory basis, compared with required approval previously.

Fourthly, BNM has revised the definition of domestic ringgit borrowing by exempting credit facilities for miscellaneous expenses.

On another note, governor Datuk Nor Shamsiah Mohd Yunus said BNM has had “positive engagements” with global index provider FTSE Russell.

“They (FTSE Russell) were appreciative of the measures we’ve put in place to deepen the onshore market,“ she told reporters after announcing the second quarter’s gross domestic product growth last Friday.

She said the new measures seek to deepen the onshore foreign exchange market to provide investors the flexibility to undertake hedging.

In April, FTSE Russell said it may drop Malaysian debt from the FTSE World Government Bond Index due to concern about market liquidity. The review is due in September.

Gain your share of wealth on the stock market


EVERYONE has a financial goal. Aside from savings and/or fixed deposits, insurance-linked investments or unit trusts and property, one of the best options is still the stock market – for better returns in a shorter timeframe. Is it risky, hard to learn, and too expensive? Not really, if you understand the fundamentals of what you’re doing.

What kind of investor should you be?

Generally, there are two extremes – on one end, there are investors who depend on technical readings and technology to trade frequently, and then there are those who buy and hold shares for the long term. Both methods can be profitable, and many investors are a mix of both.

You don’t need a lot of money to begin.

Low Chern Hong, head of operations and certified trainer of 8VIC Malaysia Sdn Bhd, adds, “You can start with only RM100. The secret formula is Time + Savings + ROI (return on investment). Before you invest, do your research; go online and read books and articles on finance; understand it thoroughly.”

You need to open a CDS account, and any registered broker can help you. At first, it is natural to want to spend every minute watching the market – like an active trader who buys and sells with every movement. Although they can generate high returns quickly, always remember this truism – the higher the potential returns, the higher the risk.

What if you’re not a full-time investor?

If you don’t have the time, or the appetite for such risk, consider the “Value Investing” strategy – as used by famous investors such as Warren Buffet, Charlie Munger, Walter Schloss and Sir John Templeton. Essentially, they look to invest in three things – a great business model, a company with good management and a good price.

It is slower and less exciting, but their gains can be outstanding. According to Benjamin Graham, a famous value investor, “The real money is made from dividends, and from long-term increases in value.”

So many choices. Which companies should you invest in?

Do your research. Read their annual reports, understand their business models and environment, and look at their track record of dividends and share price history.

You can start with Bursa Malaysia’s top 30 stocks – companies in the banking, oil and gas, property and telecommunications sectors. They are “blue-chip” stocks that pay regular dividends, and can deliver strong gains if you buy them at a good price.

Or you can start with Exchange Traded Funds (ETFs). An ETF is a basket of stocks that represents a sector of the market. If the market goes up, so does the ETF and vice versa. There are various types of ETFs for you to choose from. Real Estate Investment Trusts or REITS are similar – except that they represent the business per-formance of a group of properties.

Once you’re more advanced, you can look at Bursa Malaysia’s Derivatives Market for products that can potentially deliver gains no matter which way the market is moving. Although riskier, they offer better potential gains.

As always, you should balance your investment portfolio. We recommend diversifying – spreading your capital over a variety of investment options and sectors to protect yourself.

Bursa Malaysia can help.

It’s important to always keep learning. Billionaire investor Warren Buffet spends many hours a day reading. He says, “Risk comes from not knowing what you are doing.” Rather than trade on emotion, tips or rumours – do your own objective research, understand the risk involved and stay within your risk profile.

At Bursa Malaysia, we provide access to tools and the knowledge to help you. Beyond your capital, the real investment lies in your efforts to educate yourself, and to develop the patience and tenacity that it takes to be a successful investor.

For further information, visit or download the BursaMktPlc app, a one-stop investment portal for market knowledge, insights, trading ideas and to improve your financial literacy. There’s also a full schedule of the investment seminars and workshops – do join us.

Part of a series of articles by Bursa Malaysia to educate, develop and empower everyday investors.

Empire Resorts deal to suppress sentiment on GenM further

PETALING JAYA: Despite Genting Malaysia Bhd’s (GenM) share price having plunged 15% since the acquisition of the controversial Empire Resorts Inc, Kenanga Research believes that the deal will suppress the stock sentiment further, hence downgrading it to “market perform”.

Citing that GenM’s valuation is still not attractive enough, it has revised downward GenM’s target price to RM3.20 from RM4.30.

This comes after GenM responded to a query on Bursa Malaysia, stating that the purchase of Empire shares from Kien Huat Realty III Ltd (KH) and a 51:49 joint venture between KH and GenM to privatise Empire should be able to resolve Empire’s present liquidity challenges.

The research house said although Empire is unlikely to be liquidated, GenM is paying a hefty price for the related party transaction acquisition, which saw its market capitalisation plunge by RM3.2 billion.

“In addition, the proposed acquisition is not merely on equity stake but involves capital injection for debt restructuring.”

Empire has said it may pursue a voluntary chapter 11 bankruptcy proceeding, if measures such as the joint venture privatisation bid are unsuccessful.

Under the deal, Kenanga has estimated that GenM will pay US$128.6 million (RM538.8 million) for 13.2 million Empire shares at US$9.74 per share and eventually, the joint venture will have to pay about US$53.6 million to take the company private.

“In all, this deal is viewed as vital to Empire which needs fresh capital injection to restructure its borrowings given its poor cash flow generating ability being loss-making for the past 20 years.

The research house highlighted Empire’s latest 1H19 results showed a net loss of US$73.7 million against a net loss of US$155.4 million in FY18 along with a total payment commitment of US$112 million over the next 12 months or US$827 million over the next five years.

“Therefore, GenM’s commitment is not capped at only circa RM538.8 million.”

Based on Empire’s latest filing, its biggest outstanding debt is a US$520 million (RM2.17 billion) building term loans for the development of Resorts World Catskills which commenced operations in February 2018.

As of Q2 19, Empire has an outstanding term loan of US$504.7 million or US$688.5 million including interest payment for the next five years.

Assuming GenM has to bear 49% of this term loans, Kenanga said it may need to inject US$247 million for the debt restructuring.

The research house calculated that it will cost RM1.69 billion for GenM to own a 49% stake in Empire, eventually which includes the initial acquisition cost and the privatisation cost.

It said that GenM has no problems financing the acquisition given its cash position of RM5.56 billion as at Q1’19.

“However, the negative earnings impact in the near term could be significant as the 49% stake in US$155.4 million net loss, which accounts to RM320 million, 17% of GenM’s FY18 core earnings,” it said.

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