The Sun


Tech sector forecast to see slower growth ahead

PETALING JAYA: Hong Leong Investment Bank (HLIB) Research anticipates slower growth in the technology sector due to downside risks in the macro environment coupled with waning data trends.

However, it expects automotive and Internet of Things (IoT) to take the forefront while smartphone takes a backseat.

The research house said in a note today that for the first 11 months of 2018 (11M18) global semiconductor sales were outstanding after growing 16%, thanks to the explosive growth of memory followed by discrete and optoelectronics.

As for 2019, consensus is projecting 3% growth for that segment.

“However, we see further downside to this projection considering the US-China trade conflict, stagnant smartphone demand, industry-wide inventory adjustment and weaker memory prices,” HLIB said.

The automotive sector is expected to be the major growth driver for global technology industry supported by its development towards full autonomy.

The equipment industry remained solid with billings increasing 11% in 11M18, supported by heavy investments in all regions except Taiwan.

“However, year-on-year growth has been on a snail’s pace for the past five months, translating into a significant deceleration from past 20 consecutive months’ double-digit growth rates,” the research house explained.

According to SEMI, this reflected the near-term weakening demand for personal computers, mobile phones and servers as well as pulled back investments in response to recent softening of memory prices.

“This is in line with its expectation of expansion in capital spending not outpacing sales growth on the long run and potentially lead to industry-wide overcapacity,” said HLIB.

The research house also highlighted that local semiconductor players may experience strong demand to support the disrupted global supply chain should the procurement levy and technology transfer restriction from US take effect.

Note that China sources substantial fabrication equipment from US players for its expansionary semiconductor industry towards the “Make in China 2025” vision. Vice versa, US fabless semiconductor players outsource their product fabrication and some are produced in China.

With strong greenback, HLIB expects tech firms to be marginally boosted thanks to their US dollar-denominated sales while partly offset by the US dollar cost items.

It estimates the ringgit to be weaker in FY19 with at full-year average of RM4.20 against US dollar.

Nonetheless, pricier commodities, compounded by stronger US dollar projection, will exert pressures on margins for traditional packaging.

Maintaining a “neutral” call on the sector, HLIB displayed a cautious stance in the absence of near-term catalyst as it expects global sales and capital spending to grow moderately.

As for stock picks, it gave Frontken a “buy” call at a target price of RM1.05 on the back of bullish global semiconductor market outlook, robust fab investment, leading edge technology, oil and gas recovery and strong balance sheet.


Tax refunds to boost GDP this year: Economist

KUALA LUMPUR: Malaysia’s gross domestic product (GDP) is forecast to grow at 4.9% this year, boosted by a tax refund programme and continuous support from consumer demand, said an economist.

Standard Chartered Bank chief economist (Asean and South Asia) Edward Lee Wee Kok said the GDP growth would be higher than the 4.7% estimated for 2018.

He said the tax refund was worth 2.5% of the GDP and could provide a massive fiscal boost even in an economically cautious environment.

“Assuming half of it (the tax refund) goes to individuals and a very cautious amount of 10% to be taken out for consumption, that is still easily worth around 0.1% to 0.2% of GDP,” he told reporters at a briefing on 2019’s economic outlook today.

Lee said another factor that would contribute to better GDP growth this year would be the mining sector’s recovery.

“There was a disruption in the mining sector last year that took off about 0.2% growth,” he said.

Meanwhile, Lee said consumer demand remained GDP’s main growth pillar and would be supported by a healthy labour market, favourable tax changes and a minimum wage increase.

He said the reintroduction of the sales and service tax to replace the goods and services tax implied an estimated 0.5% to 1% of GDP worth of fiscal receipts returned to the government.

“A new standardised minimum wage of RM1,100 introduced on Jan 1, will also support consumer spending,” he said.

However, Lee said net external demand was projected to be less supportive this year amid slower growth in major economies and ongoing trade tensions between the US and China, adding that Malaysia as a small and open economy would be negatively affected by declining external demand.

Nevertheless, the economist said a prolonged US-China trade dispute could benefit Malaysia in the medium term from supply chain movement out of China.

“We (Malaysia and China) sell a lot of similar products to the US and countries that tend to benefit (from the supply chain movement) are those that are already exporting to the US because the supply chain is already in existence.

“So, I do expect more orders from the US to come as an indirect positive effect from the trade war,” he said.

Lee said Malaysia was the third most successful country after Vietnam and Mexico in terms of attracting supply chain movement away from China.

“However, it will take time before we see the positive impact as it involves investment decisions,” he added.


China to remain Malaysia’s largest trading partner: Miti

KUALA LUMPUR: China will likely remain as Malaysia’s largest trading partner, looking at the current trend, said Deputy International Trade and Industry Minister Dr Ong Kian Ming.

He said even with the spectre of the US-China trade war looming, Malaysia-China trade continued to grow at a higher rate compared with other trading partners.

In a statement today, Ong said from January to November 2018, Malaysia’s total trade rose 6.2% as compared with the same period in 2017, contributed by 6.9% growth in exports and 5.3% rise in imports.

During the period, Malaysia-China total trade expanded by 8.5%, with an 11.3% increase in exports and 6.3% growth in imports.

He said Malaysia was also poised to attract more investments and benefit from import substitution as a result of the US-China trade war.

Ong said there were about 300 out of the top 500 Chinese companies listed by Fortune Magazine which had yet to invest in Malaysia.

“These are the companies that we want to entice to Malaysia by showing off our natural and strategic advantages as an investment location,“ he said.

From January to September 2018, approved manufacturing foreign direct investment (FDI) from China had already reached RM15.62 billion.

“More than 50% of the approved manufacturing FDI from Chinese companies came after the 14th General Election (in May 2018), showing that companies from China continue to demonstrate confidence in the Malaysian economy under the new government,“ he added.

He said a recent study by Nomura Global Economics ranked Malaysia as the top country, based on its aggregated Nomura Import Substitution Index scores, that could benefit in particular from the exports of electronic integrated circuits, liquefied natural gas and communication apparatus.

Meanwhile, the Economist Intelligence Unit projected Malaysia to be a beneficiary in diverted production and investment in the automotive, as well as information and communications technology products.

“While a prolonged US-China trade war would not be welcomed by a small and open economy like Malaysia, there are mitigating factors that will somewhat cushion the impact for us,“ Ong added.


Bank Negara seen holding policy rate at 3.25%

KUALA LUMPUR: Malaysia’s central bank will likely keep its benchmark overnight interest rate unchanged at 3.25% at a policy review tomorrow, a Reuters poll showed.

All 11 economists surveyed foresaw Bank Negara Malaysia (BNM) keeping the policy rate on hold. The central bank’s last move was a year ago, when it raised the rate by 25 basis points.

Steady domestic growth, supported by strong consumer demand and sustained investments in automation, would likely keep the central bank from changing its key rate, according to a note by Standard Chartered.

“Our base case is that BNM will be comfortable remaining on hold if GDP growth is at 4.5-5%, as we expect,“ the bank said in its Friday note.

In November, BNM said growth “has bottomed and on upside going forward”, forecasting economic expansion of 4.8% in 2018 and 4.9% the following year.

Any increase in downside risks posed by the ongoing US-China trade war could persuade the central bank to ease monetary policy, said Julia Goh, a Malaysian-based analyst with UOB Bank.

“What we’re watching for is how much spillover this will have on our trade data, and how it will impact the domestic economy in terms of the labour market and consumption growth,“ Goh said.

“If the central bank emphasises more on downside risks from rising external headwinds and shows any inclination of dovishness, then the possibility of a cut rises.”

Malaysia last cut its policy rate in July 2016, when it was lowered to 3%.

Domestically, the government’s “marginally expansionary” fiscal policy, along with subdued inflation, should stave off a policy change this year, HSBC said in a research note on Friday.

Malaysia laid out an expanded budget for 2019, as Prime Minister Tun Dr Mahathir Mohamad’s government looked to boost revenue in a slowing economy while trying to clear large debts left by the previous government.

“We believe BNM’s next move is likely to be a cut in 2020 when fiscal policy turns more contractionary and as growth slows towards 4%,“ HSBC said.

Inflation has been subdued since Mahathir’s government removed an unpopular consumption tax in June and reinstated a narrower sales and service tax three months later.

Full-year 2018 inflation is seen coming in at 1.5-2.5%, before rising to a range of 2.5-3.5% in 2019.


Foreign buying on Bursa gathers steam

PETALING JAYA: International funds cquired RM417.3 million net of local equities last week, the highest inflow recorded since September 2018 and about 16 times the net inflow in the previous week.

MIDF Research said foreign investors turned buyers starting in the last two weeks, after nine consecutive weeks as sellers.

“Foreign investors continued hitting the buy button, for equities listed on Bursa. They turned buyers after a short-selling mode on Monday, ending the week with net positive,“ the research house said in its fund flow report today.

Foreign investors first bought RM51.7 million net on Tuesday followed by a net total of RM378 million for the rest of the week. The net buying quantum peaked on Friday, on renewed trade optimism.

It was reported that the US is considering measures to roll back tariffs on Chinese products, which helped to offset the fears of a global economic slowdown after disappointing Chinese trade data. Notably, Chinese exports and imports recorded a drop in December, stemmed from the trade war impact.

So far in 2019, MIDF Research said foreign funds bought RM424.5 million net or US$103.4 million net of local equities.

“In comparison to the other three Asean peers we monitor, namely the Philippines, Indonesia and Thailand, Malaysia has the lowest foreign net inflow on a year-to-date basis,“ MIDF said.

Despite the inflows into Bursa, participation rate among the various group of investors recorded a decline across the board. Foreign average daily traded volume (ADTV) dipped 20.7% to settle below the RM1 billion level.

Meanwhile, retail market and local institutions ADTV followed suit, down by 14.9% and 17% respectively.

MIDF Research said positively, retail market’s ADTV still remain above its healthy level of RM800 million.

Stock-wise, Public Bank Bhd registered the highest net money inflow of RM18.04 million last week. Its share price appreciated by 0.16% for the week, underperforming the FBM KLCI which inched 0.53% on a weekly basis.

Malaysia Airports Holdings Bhd, however, recorded the highest net money outflow of RM13.32 million last week. Its share price advanced by 1.38% for the week to close at RM8.10.