Economic Update- Malaysia 1q14 Bop

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  • Rosnani Rasul Rosnani_r@mna.com.my 03-22840580

    1

    Improving Current Account but Worsening Financial Account in 1Q14

    Current Account Surplus - Percentage of GDP

    (1Q12-1Q14)

    Source: Bloomberg, M&A Securities

    Overall BOP 1Q14 Analysis

    Malaysias balance of payment (BOP) deficit worsened to RM17.2 billion in 1Q14 from RM2.6 billion in

    4Q13 and against a surplus of RM4.0 billion a year ago. This worsening condition was chiefly caused by

    deteriorating financial account performance which registered accelerating capital outflow of RM37.5

    billion against the deficit of RM9.7 billion in the last quarter and a surplus of RM1.1 billion a year ago.

    This matched the persistent selling pressure as witnessed in the equity market. Persistent selling pressure

    was also reflected in the performance of Ringgit which dropped to an average of RM3.29 per Dollar in

    1Q14 against RM3.20 and RM3.16 in 4Q13 and 1Q13 respectively.

    The stronger surplus of current account performance which clocking in at higher surplus of RM19.8 billion

    in 1Q14 from RM14.8 billion in the previous quarter failed to offset against the onslaught of financial

    account deficit. Nonetheless, the rising current account surplus which jumped to 7.7% of GDP from 5.6%

    apiece in 4Q13 and 1Q13 respectively reflects Malaysias improving fundamentals. Thus, Malaysia has

    comfortably avoided a crisis that could jeopardize the outlook of Ringgit.

    Current Account 1Q14 Analysis

    Overall, almost all sub-segments in current account showed resilient performance led by wider

    surplus in goods account (1Q14: RM33.5 billion; 4Q13: RM33.3 billion), lower deficit in services

    account (1Q14: -RM2.7 billion; 4Q13: -RM4.1 billion), improving performance in primary income

    (1Q14: -RM6.4 billion; 4Q13: -RM10.0 billion). Only secondary income showed widening deficit after

    clocking in at RM4.5 billion in value against RM4.3 billion in 4Q13. The surplus in trade of goods was

    supported mainly by lower import which dropped to RM144.9 billion from RM148.3 billion (-2.2% q-o-

    q) last quarter against exports which eased to RM178.4 billion from RM181.7 billion (-1.8% q-o-q)

    recorded in 4Q13. Exports were mainly contributed by electrical & electronic products, liquefied

    natural gas (LNG) and petroleum products. The top three exports destinations were Singapore, The

    People's Republic of China and Japan. Meanwhile, the top three imports sources were The People's

    7.3%

    3.4% 3.5%

    8.9%

    5.6%

    0.8%

    4.0%

    5.60%

    7.70%

    0.0%

    1.0%

    2.0%

    3.0%

    4.0%

    5.0%

    6.0%

    7.0%

    8.0%

    9.0%

    10.0%

    1Q

    12

    2Q

    12

    3Q

    12

    4Q

    12

    1Q

    13

    2Q

    13

    3Q

    13

    4Q

    13

    1Q

    14

    % o

    f G

    DP

    Economic Report: Malaysian 1Q14 BOP

    PP14767/09/2012(030761)

    M&A Securities

    Wednesday, May 21, 2014

  • 2

    Rosnani Rasul Research_r@mna.com.my 03-22840580

    Economic Report: Malaysia 1Q14 BOP GDP

    Republic of China, Singapore and Japan. Resilient 1Q14 performance has pushed the nations current

    account surplus to reach 7.7% of GDP against, the highest seen since the last 5 quarters and the

    second highest since the last 9 quarters.

    Financial Account 1Q14 Analysis

    Hammered by rapid capital outflow matching the weakness in Ringgit, equity and bond markets, saw

    financial account deficit to widen to RM37.5 billion from RM9.7 billion, the single worst performance

    in a quarter beating the full year deficit in 2012 and 2013 of RM23.0 billion and RM15.8 billion

    respectively. Overall, it was portfolio investment that really put a dent in performance as there was

    a sharp reversal in investment to an outflow of RM14.6 billion from an inflow of RM3.9 billion in

    4Q13. Financial derivatives along with other investment also had their fair share in pulling down the

    financial account condition as both clocked an outflow of RM13.3 billion (4Q13: -RM769 million) and

    RM1.3 billion (4Q13: RM393 million) respectively.

    Although the cut down in quantitative easing measures in the US can be blamed on this along with

    the expectation of tightening in policy rates there but the severity of the selling pressure has caught

    us off guard. Looking at the relatively resilient Ringgit, bond and equity market during the quarter

    under analysis, suffice to say that it was the BNM (for Ringgit) and the local institutional investors

    that have been supportive of the market. Otherwise, Ringgit could tumbled below RM3.30 per Dollar

    or lower. The bonds market performance also mirrored the rapid capital outflow as yield, as in MGS

    10-year, tumbled by 25 basis point to 4.14% average in 1Q14 against 3.89% average in 4Q13.

    FDI 1Q14 Analysis

    Malaysias foreign direct investment (FDI) started 1Q14 on a slow momentum with a mere RM7 billion

    in investment against RM11.8 billion and RM8.9 billion received in 4Q13 and 1Q13 respectively.

    Although this can be described as slow but we are unperturbed as we believe countries that are rich

    in excess capital like the US, Eurozone and Japan will find their way into relatively peaceful,

    politically stable and strong workforce like Malaysia. These strong qualities are unlike neighboring

    countries like Thailand which is currently under Marshall Law or Indonesia which has sizeable

    unskilled workers.

    More importantly, the government will be more selective in FDI approval as it prefers to get high

    quality and high impact industry to invest here and not merely getting the investors to open their

    manufacturing factory here only to give jobs to the foreigners like the Indonesians and Bangladeshis.

    Malaysia today is aiming for more quality FDI and the slowdown in 1Q14 is not an issue.

    Outlook on BOP

    It is granted that financial account got hammered in 1Q14 tempered by rapid capital outflow in

    portfolio and financial derivatives products. We, for one, do not think that this will last given that

    there has been obvious reversal of trend seen in equity market from April till now. Based on available

    resources, our data show that foreign institutional investors have been net sellers in 1Q14 of RM5.3

    billion but from April till May were net buyers of almost RM2 billion. Hence, we expect Malaysias

    financial account to improve in 2Q14.

  • 3

    Rosnani Rasul Research_r@mna.com.my 03-22840580

    Economic Report: Malaysia 1Q14 BOP GDP

    Reversal in capital outflow would be more pronounced now that BNM has hinted that policy rates

    could be adjusted soon given the financial imbalance in the system. That would make investing in

    Malaysia an attractive proposition. Added with the steady performance expected from current

    account as we expect export momentum to remain robust, we expect all is well in Malaysias BOP.

    Source: Bloomberg, DOS, M&A Securities

    BOP

    RM million 2012 2013 1Q12 2Q12 3Q12 4Q12 1Q13 2Q13 3Q13 4Q13 1Q14

    Merchandise Balance

    -Goods 125,190 108,230 36,004 30,139 25,509 33,537 28,048 19,617 27,227 33,338 33,562

    -Services -16,210 -16,693 -5,423 -4,726 -3,275 -2,787 -2,590 -5,156 -4,832 -4,115 -2,711

    -Primary Income

    -36,050 -34,126 -8,653 -12,806 -9,032 -5,560 -8,037 -8,092 -7,969 -10,028 -6,449

    -Secondary Income

    -18,469 -17,504 -5,410 -4,650 -4,878 -3,531 -4,210 -4,533 -4,399 -4,361 -4,560

    Current Account

    54,460 39,907 16,519 7,958 8,324 21,659 13,211 1,836 10,027 14,834 19,842

    Capital Account

    241 -21 -136 -6 -10 393 -3 -4 5 -19 -2

    Financial Account

    -23,014 -15,807 -10,368 6,484 -8,959 -10,171 1,184 4,384 -11,659 -9,715 -37,577

    -Direct investment

    -Portfolio investment

    -24,415 -5,451 -9,454 4,646 -1,308 -18,299 -2,757 -8,295 1,615 3,986 -14,621

    -Financial derivatives

    63,859 -3,041 25,099 -4,961 33,338 10,384 3,917 3,277 -9,466 -769 -13,397

    -Other investment

    972 -253 -20 992 -64 64 211 -1,421 564 393 -1,487

    -Error and Omissions

    -27,814 -9,431 -13,235 -1,739 -6,881 -5,958 -10,349 -4,698 13,391 -7,775 444

    BOP 3,873 14,649 -7,221 12,697 -7,526 5,923 4,043 1,518 11,763 -2,675 -17,293

    Current Account % GDP

    5.8% 4.0% 7.3% 3.4% 3.5% 8.9% 5.6% 0.8% 4.0% 5.6% 7.7%

    Malaysia Current Account Balance

    (1Q12-1Q14)

    Malaysia Financial Account Balance

    (1Q12-1Q14)

    16,519

    7,958 8,324

    21,659

    13,211

    1,836

    10,027

    14,834

    19,842

    0

    5,000

    10,000

    15,000

    20,000

    25,000

    1Q

    12

    2Q

    12

    3Q

    12

    4Q

    12

    1Q

    13

    2Q

    13

    3Q

    13

    4Q

    13

    1Q

    14

    RM

    million

    -10,368

    6,484

    -8,959

    -10,171

    1,184 4,384

    -11,659 -9,715

    -37,577

    -40,000

    -35,000

    -30,000

    -25,000

    -20,000

    -15,000

    -10,000

    -5,000

    0

    5,000

    10,000

    1Q

    12

    2Q

    12

    3Q

    12

    4Q

    12

    1Q

    13

    2Q

    13

    3Q

    13

    4Q

    13

    1Q

    14

    RM

    million

  • 4

    Rosnani Rasul Research_r@mna.com.my 03-22840580

    Economic Report: Malaysia 1Q14 BOP GDP

    Malaysia Trade Balance

    (Mar 2013-Mar 2014)

    Source: Bloomberg, DOS, M&A Securities

    -100%

    -50%

    0%

    50%

    100%

    150%

    200%

    0

    2

    4

    6

    8

    10

    12

    Mar-

    13

    Apr-

    13

    May-1

    3

    Jun-1

    3

    Jul-

    13

    Aug-1

    3

    Sep-1

    3

    Oct-

    13

    Nov-1

    3

    Dec-1

    3

    Jan-1

    4

    Feb-1

    4

    Mar-

    14

    Gro

    wth

    m-o

    -m (

    %)

    RM

    billion

    Surplus (RHS) Growth m-o-m (LHS)

    Malaysia Balance of Payment

    (1Q12-1Q14)

    Malaysia FDI Trend

    (1Q12-1Q14)

    Malaysia Export Growth

    (Mac 2013-Mac 2014)

    Malaysia Import Growth

    (Mac 2013-Mac 2014)

    -7,221

    12,697

    -7,526

    5,923 4,043

    1,518

    11,763

    -2,675

    -17,293

    -20,000

    -15,000

    -10,000

    -5,000

    0

    5,000

    10,000

    15,000

    1Q

    12

    2Q

    12

    3Q

    12

    4Q

    12

    1Q

    13

    2Q

    13

    3Q

    13

    4Q

    13

    1Q

    14

    RM

    million

    7.47

    6.08

    9.61

    5.90

    8.95 8.77 9.08

    11.80

    7.00

    -60%

    -40%

    -20%

    0%

    20%

    40%

    60%

    80%

    0.00

    2.00

    4.00

    6.00

    8.00

    10.00

    12.00

    14.00

    1Q

    12

    2Q

    12

    3Q

    12

    4Q

    12

    1Q

    13

    2Q

    13

    3Q

    13

    4Q

    13

    1Q

    14

    FDI (LHS) Q-o-Q Growth (RHS)

    -10%

    -5%

    0%

    5%

    10%

    15%

    20%

    -10%

    -5%

    0%

    5%

    10%

    15%

    20%

    Mar-

    13

    May-1

    3

    Jul-

    13

    Sep-1

    3

    Nov-1

    3

    Jan-1

    4

    Mar-

    14

    Y-o-Y (LHS) M-o-M (RHS)

    -60%

    -40%

    -20%

    0%

    20%

    40%

    60%

    80%

    100%

    -4%-2%0%2%4%6%8%

    10%12%14%16%

    Mar-

    13

    May-1

    3

    Jul-

    13

    Sep-1

    3

    Nov-1

    3

    Jan-1

    4

    Mar-

    14

    Y-o-Y (LHS) M-o-M (RHS)

  • 5

    Rosnani Rasul Research_r@mna.com.my 03-22840580

    Economic Report: Malaysia 1Q14 BOP GDP

    M&A Securities STOCK RECOMMENDATIONS BUY Share price is expected to be +10% over the next 12 months. TRADING BUY Share price is expected to be +10% within 3-months due to positive newsflow. HOLD Share price is expected to be between -10% and +10% over the next 12 months. SELL Share price is expected to be -10% over the next 12 months. SECTOR RECOMMENDATIONS OVERWEIGHT The sector is expected to outperform the FBM KLCI over the next 12 months. NEUTRAL The sector is expected to perform in line with the FBM KLCI over the next 12 months. UNDERWEIGHT The sector is expected to underperform the FBM KLCI over the next 12 months. DISCLOSURES AND DISCLAIMER This report has been prepared by M&A SECURITIES SDN BHD. Readers should be fully aware that this report is for informational purposes only and no representation or warranty, expressed or implied is made as to the accuracy, completeness or reliability of the information or opinion contained herein. The recommendation and opinion are based on information obtained or derived from sources believed to be reliable. This report contains financial forecast/projection based on our assumptions which may defer from the actual financial results announced by the companies under coverage. All opinions, estimates and assumptions are subject to change without notice. Analysts will initiate, update and cease coverage solely at the discretion of M&A SECURITIES SDN BHD. Investors are to be cautioned that value of any securities invested may fluctuate from time to time. We advise investors to seek financial, legal and other advice for investing based on the recommendation of our report as we have not taken into account each investors specific investment objectives, risk tolerance and financial position. This report is not, and should not be construed as, an offer to buy or sell any securities or other financial instruments. M&A SECURITIES SDN BHD can accept no liability for any consequential loss or damage whether direct or indirect. Investment should be made at investors own risks. M&A SECURITIES SDN BHD and INSAS GROUP of companies, their respective directors, officers, employees and connected parties may have interest in any of the securities mentioned and may benefit from the information herein. M&A SECURITIES SDN BHD and INSAS GROUP of companies and their affiliates may provide services to any company and affiliates of such companies whose securities are mentioned herein. This report may not be reproduced, distributed or published in any form or for any purpose. M & A Securities Sdn Bhd (15017-H) (A wholly-owned subsidiary of INSAS BERHAD) A Participating Organisation of Bursa Malaysia Securities Berhad Principal Office Level 1,2,3 No.45-47 & 43-46 The Boulevard, Mid Valley City, Lingkaran Syed Putra, 59200 Kuala Lumpur Tel: +603 2282 1820 Fax: +603 2283 1893

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