Market Review Malaysia

November 2013

OVERVIEW

Global stock markets resumed an upward trend in November. The FTSE All World Index rose 1.45% month-over-month, led by strong US performance. The S&P 500 and Dow Jones Industrial Average rose 3.05% and 3.82%, respectively. Year-to-date, the two indices have gained 29.12% and 25.64%, respectively. Surprisingly, however, the MSCI Emerging Markets Index declined 1.46% over the month, dragged by uninspiring market performance in Brazil and South Africa. Meanwhile, the Malaysian stock market moved mildly higher for the month, with the FBM KLCI Index gaining 0.67%, whilst the FBM EMAS Shariah Index rose 0.12%. Year-to-date, the indices have gained 10.86% and 13.69%, respectively.

Malaysia

Economic growth gained traction to reach 5% year-over-year in the third quarter, exceeding the 4.8% consensus forecast. This growth was supported by strong domestic demand, with private consumption and total investment expanding 8.2% and 8.6%, respectively. Foreign Exchange Reserves, however, fell by US$0.4 billion in the first half of November to US$136.7 billion due to capital reversals as a result of growing concerns that the US Federal Reserve may taper its quantitative easing programme ("QE") sooner than later. At the current level, the reserves are sufficient to finance 9.7 months of retained imports and cover 3.7 times the short-term external debt. Subsequent to the 20 sen fuel price hike on 3 September, inflation accelerated to 2.8% year-over-year in October from 2.6% in September. Despite higher inflation, Malaysia's central bank, Bank Negara Malaysia, has opted to maintain the Overnight Policy Rate unchanged at 3%.

The Malaysian ringgit remained weak at 3.22 per USD (versus 3.16 per USD a month ago). The price of crude oil also dropped to US$92.72 a barrel at the end of November from US$96.38 a month ago. The crude palm oil price, however, rebounded to RM2,615 per tonne on improved industry outlook. Year-to-date, the crude palm oil price is up 22%.

United States

Economic growth gained momentum, with real GDP growth accelerating to an annualised rate of 2.8% in the third quarter (from a revised 2.5% a quarter ago). The US ISM manufacturing PMI also improved, registering 57.3 in November, the highest reading since January. Meanwhile, consumer spending remained resilient, growing 0.2% month-over-month in September, after gaining 0.3% in August and 0.1% in July. Economic data appears encouraging, but investors are increasingly interested in budget negotiations that fall in December, the timing of QE tapering, the new debt ceiling, etc.

Market Indicators Current Value 1 Month YTD 1 Year
FBM EMAS Shariah (RM) 12,734 0.12% Up 13.69% Up 19.93% Up
FBM KLCI (RM) 1,813 0.67% Up 10.86% Up 16.44% Up
S&P 500 (US$) 1,806 3.05% Up 29.12% Up 30.29% Up
Dow Jones Industrial Average (US$) 16,086 3.82% Up 25.64% Up 26.62% Up
FTSE All World (US$) 265 1.45% Up 21.29% Up 24.28% Up
MSCI Emerging Markets Net TR (US$) 417 -1.46% Down -1.17% Down 3.66% Up

Current 1 Month Ago 1 Year Ago
Ringgit per US$ 3.22 3.16 3.18
Crude oil (US$) $92.72 $96.38 $84.96
Crude palm oil (RM) RM 2,615 RM 2,623 RM 2,992

China

Economic recovery remained modest and gradual. In November, the manufacturing PMI was 51.4, unchanged from October, whilst non-manufacturing PMI slowed to 56 (from 56.3 a month ago). Exports, meanwhile, rebounded to grow 5.6% in October compared to -0.2% in September, driven by higher shipments to advanced economies. Retail sales rose 13.3%, with communication appliances, automobiles, and furniture recording higher sales during the month. In its Third Plenum, China's leadership pledged to deepen reform on a broad basis and pursue economic rebalancing to put the economy on a more sustainable growth path, even if it results in slower growth in the near term.

Europe

The eurozone's manufacturing PMI inched up to 51.6 in November, after recording a reading of 51.3 in October. This marked the fifth consecutive month of growth, suggesting that manufacturing activities in the region continued to recover in the fourth quarter, albeit at a slow and uneven pace. The PMI index for the services sector, on the other hand, moderated to 50.9 in November, from 51.6 in October and compared with 52.2 in September. While economic conditions in countries such as Germany, Spain, and Italy may have improved, France and other peripheral eurozone countries remain weak.

Japan

GDP slowed to an annualized rate of 1.9% in the third quarter, from 3.8% in the second quarter and 4.3% in the first quarter. This marked the second consecutive quarter of slowdown as weaker consumer spending and a decline in export growth outweighed strengthening real estate investment. Household spending eased to 0.3%, with automobile sales slowing to 10.7% during the quarter. In the same vein, government consumption slowed to 1.1% from 3.0% in the second quarter.

COMPANY REVIEW

BIMB reported steady third-quarter results, with profit before tax growing 10.5% year-over-year on the back of 8.6% revenue growth. Loans grew 25%, supported by a 14% increase in customer deposits and better asset utilization.

Jollibee Foods posted another strong quarter, beating its consensus earnings estimate by 3%. Sales grew 14.1% while operating profit rose 13.3%, supported by 8.5% same-store sales growth and additional contributions from new stores.

PORTFOLIO TACTICS

Emerging markets continued to lag the US stock market, given uncertainty that the Fed would taper its US$85 billion a month asset purchase programme earlier than expected and as the US jobs report has so far surprised on the upside. Emerging markets will remain volatile due to lingering concern over imminent QE tapering, compounded by currency depreciation. In Malaysia, Budget 2014 displays fiscal prudence but provides little in the way of a catalyst to propel the market. Thus, we continue to position towards companies that have solid and long-term fundamentals, such as Consumers (e.g., Unilever Indonesia and Jollibee Foods), Health Care (e.g., Bangkok Dusit and Hartalega), Building Materials (e.g., Semen Indonesia) and Telcos (e.g., Axiata).

 

The information in this report has been obtained from sources which we believe to be reliable. We do not guarantee its accuracy or completeness. No liability can be accepted for any loss arising from the use of this report. All opinions and estimates expressed herein reflect our judgment as of this date and are subject to change without notice. This report is for the information of clients only. We, our directors, associates, clients and/or employees may have an interest in the securities mentioned herein.