Budget 2023: Potential catalyst for the share market - Manokaran

Weekly analysis by Manokaran Mottain

THE benchmark KLCI Index fell to an intra week low of 1,467.20 points on 24 August 2022 before rebounding to end the week at 1,500.29 points (-4.15 points or -0.2%) which also happens to be its key resistance level.

The market initially fell on the back of lower-than-expected 2Q22 earnings from corporates but rallied towards the end of the week in light of bargain hunting activities spurred by improving sentiments across the regional markets.

Nevertheless, I am still advocating a cautious approach to the equities market given the consistently low daily trading value each day as well as the lack of major catalysts in the near term.

The nearest potential catalyst for the market is the Federal Budget 2023 which has been brought forward to 7 October 2022 from 28 October 2022.    

Bond yields for US Treasuries (UST) rose over the past week following US Federal Reserve Chairman Jerome Powell’s speech in which he reiterated that the US Federal Reserve’s focus to subdue inflation and restore price stability.

Yields for the 10-year UST rose by 6 basis points to 3.03% as it is almost inevitable that US Federal Reserve will raise the Federal Funds Rate by another 50 basis points at its upcoming meeting in September 2022 following Powell’s speech at the annual Jackson Hole Wyoming symposium.

The yield curve inversion between the UST 2-year and 10-year notes continues into its 7th week as the UST 2-year notes yield rose by a further 14 basis points during the week to 3.38%. 

This caused the yield inversion to widen further to -35 basis points from -27 basis points last week. The long-term average of the yield spread for both UST is +0.92% or +92 basis points.   

Meanwhile, the 10-year MGS yields remain unchanged at 3.96%. The increase in the UST yields brings the yield spreads between both countries’ 10-year bonds to narrow further by 6 basis points to 93 basis points.

Therefore, I am maintaining my view that the MGS yields is likely to come under pressure in the coming weeks in the run up to the BNM Monetary Policy Committee and US Federal Open Market Committee meetings next month.

ECONOMY

The Federal Government will maintain the existing electricity tariffs for all consumers for the second half of 2022 and will bear the extra cost of electricity generation.

The Federal Government will pay a subsidy of RM5.8 billion to Tenaga Nasional Berhad (TNB) to ensure it is not adversely affected by the rising cost of fuel in line with the Incentive Based Regulation as well as guaranteeing up to RM6.0 billion worth of financing for TNB to ensure its electricity supply generation operations is not disrupted.

Communications and Multimedia Minister Tan Sri Annuar Musa disclosed that discussions with the 6 telecommunication companies for them to take up to 70% stake in Digital Nasional Berhad is progressing well and the Malaysian Communications and Multimedia Commission will chair a meeting on 29 August 2022 to finalize the terms.

The Department of Statistics Malaysia (DOSM) disclosed that Penang, Johor, Selangor, Sarawak and the Federal Territory of Kuala Lumpur were the top five exporting states for Malaysia in July 2022. Penang contributed 27.9% of the country’s exports which followed by Johor (23.2%), Selangor (18.0%), Sarawak (8.7%) and the Federal Territory of Kuala Lumpur (5.7%).

Meanwhile, Malaysia’s Leading Index (LI) rebounded 5.3% year-on-year to 111.7 points in June 2022 from 111.3 points in May 2022. The  LI is an indicator which anticipates the future direction of the economy.

In a separate development the DOSM said business sentiments continued to be positive for 3Q2022 with the confidence indicator rising by +4.7% as compared to +3.5% in 2Q2022, especially from the services and industry sectors which recorded +13.6% and +6.6% respectively from +5.6% and +0.8% in the previous quarter.

However, confidence for the wholesale & retail and construction sectors remained negative with sentiment rating of -5.8% and -24.9% respectively.

The overall business prospect for the 2H2022 moderated to +12.2% from +25.0% for the period between April to September 2022.

CURRENCY

The Ringgit recovered some ground against the US Dollar over the past week after being on its back foot for the past two weeks.

The local currency ended the week against the US Dollar at RM4.4650 RM4.4740/USD1.00 (+0.9sen) as there was some profit taking in the green back after its dizzying rally since the start of April 2022 from the RM4.20 level.  

The Ringgit also strengthened against all the other major currencies for a second consecutive week. The Ringgit rose against the British Pound at RM5.2455/GBP1.00 (+4.8sen), the Japanese Yen at RM3.2470/JPY100 (+1.7sen), the Euro at RM4.4505/EUR1.00 (+4.1sen) and the Singapore Dollar at RM3.2030/SGD1.00 (+1.2sen).

For the week ahead, I am maintaining my forecasted on the Ringgit/USD trading band at between RM4.44 to RM4.50.

For the other major currencies, I expect them to consolidate in the near term following their sizable gains over the past two weeks.  – DagangNews.com

  Manokaran Mottain has been an economist with a number of financial institutions is now managing his own firm, Rising Success Consultancy Sdn Bhd