Kenanga Research 2012 Economic Outlook

The year 0f 2011 saw a confluence of mishaps, with the MENA unrest, Japan disaster, US debt ceiling scare and Eurozone's can of worms. We believe that it is very unlikely that 2012 will contain more uncertainties than 2011. After the convergence of these "Black Swan" events, there is also a lot of divergence in the recovery, making it difficult to coordinate economic policy.

1. Firstly, there is a 2 speed-global recovery as developing economies, particularly Asia, is outperforming the West.
2. Secondly, within Europe itself, there is a lot of divergence in how each country is coping with the crisis. Only Germany, Sweden and Switzerland have so far returned to pre-crisis growth levels; whilst Greece, Portugal and Ireland are clearly outliers in terms of demand growth.
3. Finally, there is a lot of mixed recovery in Japan as well, where companies with capital of at least 1bn yen are back to nearly full capacity production as early as May. However, companies with capital between 10m and 100m yen will take longer to recover as their profits fell by 40% in 2Q11, compared to their larger counterparts, whose profits fell by only 4%.

2012 Outlook would be better?

CIMB: Domestic Drivers to steady the ship in 2012

CIMB research remain cautious on Malaysia's growth outlook for 2012 as several factors will put the brakes on growth - slower export growth due to the fragile western economies as well as slower consumption and investment growth due to heightened uncertainty and volatile financial markets. The implementation of ETP and stimulus measures cannot take up all the slack left by weak exports.

Slowing growth, rising risks

We expect GDP growth to slow to 3.8% in 2012 from an estimated 5% in 2011. The factors that shape the prognosis are:

1. continuing weak global growth, pressured by volatile financial markets and Europe's sovereign debt worries;
2. a downturn in Malaysia's export cycle;
3. an expected slowing of consumption and investment due to worries over economic conditions

What to expect in 2012?

HwangDBS: Volatility will continue in 2012

Global Overview

The market will continue to be challenging and it is tough to make a judgment call at this juncture. News and headlines rather than fundamentals will continue to drive markets and as such, volatility will continue into 2012 largely driven by the lack of clarity with regards to the Eurozone debt crisis, the US debt problem compounded by slowing growth in the US economy. There is no quick fix or immediate resolution to these issues as the problems plaguing developed economies are deep rooted fundamental issues such as mounting debt, low growth and high unemployment.

In the case of the European Union, the fragmented economic and political governance of their common monetary union is working against them as leaders struggle to find an equitable solution to giving aid to highly indebted countries in the South of Europe such as Greece, Spain, Italy and Portugal, without overburdening financially stronger countries such as Germany and France. And for the US, their economy has not recovered since the Global Financial Crisis in 2008 as evidenced by weak home prices and the stubbornly high unemployment rate.

Malaysia Financial Sector Blueprint 2011 - 2020

Bank Negara Malaysia today released the new Financial Sector Blueprint. Themed "Strengthening Our Future", the Blueprint charts the future direction of the financial system over the next ten years.

The growth of the financial system should be ultimately anchored to the growth in the real sector. Based on the rate of growth of the economy projected for the next decade, the financial sector is envisaged to expand to six times of GDP in 2020 from 4.3 times of GDP currently. Meanwhile, the contribution of the financial services sector to nominal GDP is expected to grow from 8.6% of nominal GDP to between 10 and 12% by 2020. 

Recognising the increasingly complex linkages, both between the various components of the financial system and the greater international connectivity and regional financial integration, the Blueprint moves away from the sector-based approach of the previous Financial Sector Masterplan (FSMP).

There are 9 focus areas under the Blueprint to further advance financial sector development to drive Malaysia's transition to a high value-added, high-income economy with adequate safeguards to preserve financial stability:

New Fund: Public Islamic Savings Fund

The Public Islamic Savings Fund (PISVF) is  an Islamic equity fund that seeks to provide income over the medium to long-term period by investing in a diversified portfolio of primarily Shariah-compliant Malaysian stocks which offer or have the potential to offer attractive dividend yields. PISVF may also invest in Shariah-compliant growth or recovery stocks that have the potential to eventually adopt a dividend payout policy.

As the Fund focuses its investments mainly in the domestic market, PISVF offers investors an opportunity to capitalise on Malaysia’s resilient economic growth prospects in the medium to long-term. The performance of selected Shariah-compliant sectors of the Malaysian economy is expected to remain supported by sustained consumer and investment spending over the longer term.

To achieve increased diversification, the Fund may also invest up to 30% of its net asset value (NAV) in selected foreign markets which include  Singapore, Taiwan, South Korea, Japan, Hong Kong, Thailand, Indonesia, Philippines, Luxembourg and other permitted markets.

Growth Prospects for the Malaysian Economy

How did Singapore's Cooling Measures Impact Malaysia's Property Sector? (Dec 2011)

On 7th Dec 2011, the Singapore government announced that it would impose an Additional Buyer's Stamp Duty (ABSD) to moderate investment demand for private residential property and promote a more stable and sustainable market. This is needed in view of the stubbornly high inflation rate in Singapore amidst the slowing demand from developed markets. For those who don't know, inflation rate in Singapore was mainly contributed by surging property prices.

The ABSD was effective 8 Dec 2011. After the announcement, property-related stocks slumped last week, following by a slump in banking stocks because of an expected slower housing loan growth. The latest measures are a near-term negative for property developers with an anticipated trend in lower average selling prices and transactional volumes, which will hurt profitability. Nevertheless, most large-cap property developers in Singapore are relatively well diversified, not just across sectors (industrial and commercial), but also geographically.

Under the latest cooling measure, the ABSD will be added on top of the current Buyer's Stamp Duty, and apply to the purchase price or market value of the property (whichever is higher) according to the type of purchase as below:

New Fund: ASM Syariah Capital Protected Sector Linked Fund

ASM Investment Services Bhd had recently launched its latest fund called "ASM Syariah Capital Protected Sector Linked Fund". It is a close-ended fund with limited subscription period and a maturity of 3 years.

For this Fund, it aim to provide investors with capital protection upon the maturity of the Fund as well as to give investors potential returns higher than the rate of return of the 12-month Kuala Lumpur Islamic Reference Rates (KLIRR), being the selected Fund’s performance benchmark.

Please read on for more information...

OSK Strategy and Outlook (Dec 2011)

Essentially, with the uncertainties in Europe continuing amid a potential global slowdown in the economy, we will continue to see market volatility in the next few months. As such, we continue to advise investors to be patient and focus on Defensive counters, while looking out for opportunities to Trade. We continue to advocate Buying into Weakness when the KLCI falls towards the 1,300-pt level, focusing on Banks, O&G and Construction stocks while we advocate Selling into Strength on the same three sectors when the market rallies towards 1,500 pts.

Festive Cheer in December?

RHBRI's Stock Watch (December 2011)

In contrast, the better-than-expected results of Maybank came mainly from lower-than-expected credit cost and minority interest charged, partly offset by weaker-than-expected non-interest income. In addition, the change in accounting treatment for the recognition of profit equalisation reserve also helped lift earnings.

The stronger-than-expected revenue growth of DiGi, on the other hand, came from stronger data and prepaid voice, aided by festivities, as well as improvement in consensus, were above our forecast on account of better-than-expected EBITDA margins on the back of lower other operating costs and supplies & materials expenses, as well as lower effective tax rate.

During the quarter, BAT experienced stronger-than-expected industry volume growth, while earnings of Genting Plantations were boosted by stronger-than-expected increase in FFB production.

The Under-performers...

The end of Europe’s liquidity crisis? (Dec 2011)

Well, many people already bored with the on-going Europe debt crisis, and subsequently liquidity crisis. This is like what we have seen in 2008 when Lehman Brothers collapses, which drags down the whole financial systems globally through liquidity crisis. The different is between company and country. Maybe some of us doesn't know how this chain effects rattles the global markets. So, let us start here.

The European Organisation chart of Debts

The root of the problem plaguing the market right now is Europe debt crisis, where Greece and few other European countries were highly in debts. They just simply cannot generate enough revenue (taxes) to support the economy itself. So, they resorted to seek for funding via borrowing by issuing sovereign bonds to finance their day to day operations. However, the debt is piling up intensively after 2008 global financial crisis until recently. Because the government does not have money, their bonds may go into default. So, they were forced to borrow some more, but with higher interest this round.

For them, this kind of measures are simply to prolong the problems and those debts were still there charging higher and higher interest. They are buying time, hoping their economies will survive and growing in the future to repay back whatever they borrow now. What a pretty picture?

Who is the main borrower?

New JPJ Summon Charges? (Dec 2011)

Don't know whether this is true or not, JPJ (Jabatan Pengangkutan Jalanraya) have recently unveiled a set of new charges for traffic offenders. As a Malaysian with proper financial planning, sometimes we simply cannot ignore those "saman" issued by JPJ for various offences. It can eat into our money. By carefully study the charges being imposed by JPJ, we can estimate the amount associated with various traffic offences for proper "saman" planning.

Traffic Summon Charges

Price quoted below are nett without further discount, bargaining are subject to price increase without further notice.