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Malaysia Macro View/Weekly

Malaysia MYR Rally: Still Has Legs Near Term

15 March 2010

Since early March, the MYR has strengthened 2.2% against the USD. Year-to-date, the MYR has been the best performing currency in Asia, especially vs the USD and also on a NEER basis. The SGD-MYR cross has now decisively breached the 2.40 barrier, and is now testing the 2.37 handle. Bank Negara does not seem overly concerned about recent currency strength. Gov. Zeti told Bloomberg that the currency’s appreciation reflects Malaysia’s strengthening fundamentals. Indeed, we suspect the central bank may be even welcoming expectations of a modestly strengthening currency. However, MYR rally may still have legs in the near term.

Malaysia: Leading the Way in Policy Normalization

8 March 2010

Robust 4Q09 GDP growth surprised on the upside at 4.5% YoY (Consensus: 3.4%) and with the exception of private investments, was broad-based across most other demand segments. With the strong 4Q GDP performance, Malaysia’s GDP has now caught up vs. regional peers after lagging in 2Q and 3Q, and this could translate into near-term MYR outperformance. Nonetheless, the weakness in private investments continues to be a soft spot in the economy. Overall, we see upside risks to our above-consensus GDP forecast of 5.5% for 2010. This forecast assumes YoY GDP growth will peak at >8% in 1Q10, before moderating thereafter.

Malaysia: Signposts for Early Policy Normalization

1 March 2010

Market shifting towards view of early policy rates normalization: (i) 4Q GDP points to subsiding growth concerns, catch-up with region; (ii) Gov Zeti consistently vocal about the need for rate normalization; and (iii) Robust Household credit growth a concern for BNM. n OPR hike could also be accompanied by a 50bp hike in the SRR, followed by another 25bp OPR hike in May, with further hikes dependent on incoming data (we expect a pause in July presently). The hikes would be calibrated to send a signal to those who assume that rates would stay low indefinitely, yet not enough to cause significant real impact.

Malaysia: Setting the Stage for Early Exit

22 February 2010

2009 probably ended on a strong note, with 4Q09 GDP probably turning in an above-consensus 4.2% yoy (consensus: 3.4%, previous: -1.2%). Exports resumed healthy sequential gains in Dec, led by exports to China, which likely continued in Jan, while a tightening labor market continues to support consumption. This momentum seems likely to continue into 1H10 and we adjust up our 2010 GDP forecast to 5.5%, from 5.2%.

Malaysia Weekly: Upside Surprise in December Exports Reinforces Odds of Early Rate Normalization

8 February 2010

December exports surprise on the upside, beating consensus expectations, but in-line with our own expectation. Exports led by double digit YoY jumps in 7 out of the 10 major export categories. Sharp jump in Asia-bound exports, especially to China. Imports also outperformed expectations; trade surplus widened. December exports reaffirm BNM’s confidence on growth outlook; reinforcing likelihood of rate normalization in 1H10

Malaysia: Upside Surprise in Dec Exports Reinforces Odds of Early Rate Normalization

5 February 2010

December exports surprise on the upside, beating consensus expectations, but in-line with our own expectation. Imports also outperformed expectations; trade surplus widens. December exports reaffirm BNM’s confidence on growth outlook; reinforcing likelihood of rate normalization in 1H10

Malaysia Weekly: Shifting Policy Considerations

1 February 2010

Expected timing of rate hikes brought forward after MPC statement — Clues in the policy statement include first, acknowledgement that a prolonged period of low interest rates could result in financial imbalances, and second, the absence of the sentence that had appeared in past statements

Malaysia Weekly: End of Deflation Doesn’t Mean Rates Are About to Rise Soon

24 January 2010

The end of technical deflation and start of policy exit in China doesn’t mean that Bank Negara will be in any hurry to hike rates soon
Large OPR hikes alone not seen to be effective with supply side inflation risks with a stronger MYR NEER likely more effective
Monetary accommodation to compensate for modest fiscal tightening
“Small adjustments” possible, but OPR to remain “below neutral” till investments pick up decisively

Malaysia: Much Ado About Capital Outflows

18 January 2010

Though attracting much attention lately, the capital outflows story is not new. Except for 2004, the financial account has been persistently in deficit over the past decade, though the magnitude of net outflows increased sharply in 2008. Net capital outflows in 2008-1H09 partly attributed to portfolio outflows, which have since reversed to inflows. Persistent net FDI outflows since 2006, reflect not just lackluster foreign investments but also large increase in outward FDI by residents. Large outflows in “Other Investments” category of the BoP is also of interest, though the lack of granularity in the data leaves more questions than answers.

Malaysia Macro Outlook 2010: Cyclical Catch-Up and Structural Crossroads

11 January 2010

Near-term export-led cyclical catch-up is underway (albeit not in a straight path). Yoy GDP growth will probably peak at 7-8% in 1Q10, before moderating as base effects and earlier policy stimulus are gradually withdrawn. While 3Q09 saw a net portfolio inflow after 5 straight quarters of outflows, inflows and FX reserve accumulation remain small. Supply-side inflation pressures on subsidy reforms, with rates remaining below neutral until investment picks up decisively. Fiscal consolidation underway with reduced MGS/GII gross issuance, but calendar bias towards long end. Medium-term growth rebalancing requires tackling structural deficiencies.

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