Left Brain Right B - the DBS Vickers Securities Equities Research
Left Brain Right B - the DBS Vickers Securities Equities Research
Left Brain Right B - the DBS Vickers Securities Equities Research
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Regional Equity Strategy 4Q 2009<br />
Strategy Overview: Asia Equity<br />
Malaysia: Bump and grind (Irvin Seah, irvinseah@dbs.com, extracted from “Economics – Markets – Strategy,<br />
4Q09” dated 17 September 2009)<br />
• GDP growth in <strong>the</strong> second quarter registered a<br />
solid 13.4% QoQ saar<br />
• The recovery was driven largely by domestic<br />
demand<br />
• Exports and industrial production continue to grind<br />
north, pointing to a more robust recovery going<br />
forward<br />
• Full year GDP growth forecast for 2009 and 2010<br />
are raised to -2.9% and 4.5% respectively<br />
• Inflation is also likely to be higher at 0.7% in 2009<br />
and 1.6% in 2010<br />
• Bank Negara will likely start hiking rates in 3Q10<br />
Outlook turning brighter<br />
Economic data around <strong>the</strong> world have been heading up,<br />
reflecting <strong>the</strong> improving fundamentals of <strong>the</strong> global<br />
economy as recovery sets in. Despite <strong>the</strong> fact that headline<br />
GDP growth has remained negative on a year-on-year basis,<br />
<strong>the</strong> overall outlook of export dependent economies such as<br />
Malaysia has improved significantly, in line with <strong>the</strong> more<br />
favorable external economic conditions. Exports have been<br />
grinding gradually northward, growing by an average of<br />
about 2.3% MoM sa from Feb09 onwards after hitting a<br />
bottom in Jan09. Likewise, industrial production is also<br />
heading in a similar direction given <strong>the</strong> improvement in<br />
export demand. In fact, <strong>the</strong> increase in imports of capital<br />
goods (exclude transport equipment) in recent months<br />
seems to suggest that producers are gearing up for stronger<br />
orders ahead. And judging from <strong>the</strong> sharp spike-up in <strong>the</strong><br />
SEMI book-to-bill ratio, <strong>the</strong>y have every reason to do so,<br />
especially for electronics manufacturers and those in related<br />
industries. The SEMI book-to-bill ratio went above <strong>the</strong><br />
crucial parity level for <strong>the</strong> first time since Jan07. A reading<br />
above one indicates that <strong>the</strong> global semicon and to some<br />
extent, <strong>the</strong> electronics industry are in expansion mode. And<br />
<strong>the</strong> atest reading of 1.06 for Jul09 could well provide a hint<br />
of better things to come for <strong>the</strong> electronics as well as <strong>the</strong><br />
overall manufacturing industry.<br />
Domestic economic conditions have also made <strong>the</strong> turn and<br />
are improving. While unemployment rate has risen to 4.0%<br />
in 1Q09, up from 3.1% in 4Q09, higher frequency data are<br />
in fact showing significant improvement in <strong>the</strong> domestic<br />
economy. For example, motorcycle and car sales have<br />
started to pick up after <strong>the</strong> slump earlier in <strong>the</strong> year. The<br />
indices on business and consumer sentiment compiled by<br />
<strong>the</strong> Malaysia Institute of Economic research (MIER), which<br />
literally fell off <strong>the</strong> cliff in 4Q08 and 1Q09 have also turned<br />
around. In addition, as <strong>the</strong> positive effects of <strong>the</strong> MYR 67bn<br />
stimulus package continue to filter through <strong>the</strong> system,<br />
consumer sentiment and business activity will certainly<br />
improve fur<strong>the</strong>r. And domestic demand, traditionally an<br />
important engine of growth for Malaysia especially when<br />
external demand is weak, should once again provide <strong>the</strong><br />
much needed support for <strong>the</strong> economy in <strong>the</strong> current<br />
recovery phase.<br />
Growth forecast raised<br />
While <strong>the</strong> general growth outlook in <strong>the</strong> coming quarters is<br />
expected to remain positive, <strong>the</strong> trajectory of <strong>the</strong> growth<br />
profile is likely to be more subdued as compared <strong>the</strong> second<br />
quarter. Global monetary policy direction is expected to<br />
remain accommodative in <strong>the</strong> medium term while<br />
governments around <strong>the</strong> world are also likely to persist with<br />
<strong>the</strong>ir earlier expansionary fiscal policies until a more robust<br />
recovery is secured. The positive impact of <strong>the</strong>se policy<br />
measures as well as <strong>the</strong> global recovery will continue to<br />
cascade down to Malaysia’s export-oriented sectors.<br />
Domestic driven industries will benefit from <strong>the</strong> fiscal<br />
stimulus package introduced by <strong>the</strong> government as well as<br />
<strong>the</strong> improving employment outlook and consumer<br />
sentiments. Under such scenario, our full year GDP growth<br />
forecast for 2009 of -4.0% was beginning to look ra<strong>the</strong>r<br />
conservative. As such, we have revised this year’s GDP<br />
growth forecast to -2.9%. Growth forecast for 2010 has also<br />
been raised to 4.5%, from <strong>the</strong> earlier forecast of 3.8%.<br />
Page 30<br />
“This report has been re-printed with permission from <strong>DBS</strong> Group <strong>Research</strong><br />
(Regional Equity Strategy) of <strong>DBS</strong> Bank Limited” disclosures on page 37 of this report