Malaysia

Economy to expand favourably in 2018

December Leading Index (LI), which monitors the economic performance in advance, rose 1.6% y/y in December from 4.4% y/y in November 2016. Meanwhile, the coincident index which examines the current economic activity, grew 3.2% y/y while the lagging index rose 3.2% y/y. We expect the domestic economy to remain healthy in 2018. Growth will continue to be supported by domestic activities on the back of improving business and consumer sentiments and exports, namely coming from semiconductors and resource-based activities. Hence, we reiterate our 2018 GDP outlook of 5.5%.

• December Leading Index (LI), which monitors the economic performance in advance, rose 1.6% y/y in December from 4.4% y/y in November 2016. Meanwhile, the coincident index which examines the current economic activity, grew 3.2% y/y while the lagging index rose 3.2% y/y.

• However, on a m/m basis, the leading index fell by 1.8% y/y to 119.0 points from 121.2 points in November due to the fall in real imports of semiconductors (-0.8% y/y) and the number of housing units approved (-0.6% y/y). The coincident Index (CI) eased by 0.2% m/m to 131.8 in December due to weaker industrial production (-0.2%) and real contribution to EPF (-0.2%).

• We expect the domestic economy to remain healthy in 2018. Growth will continue to be supported by domestic activities on the back of improving business and consumer sentiments and exports, namely coming from semiconductors and resource-based activities. Hence, we reiterate our 2018 GDP outlook of 5.5%.

Singapore

Inflation stays flat

Headline inflation in January was flat due to weaker food (1.1% y/y) and transport cost (0.7% y/y) coupled with sluggish housing and utility (-3.6% y/y). Core inflation, which excludes cost of accommodation and private road transport, eased to 1.4% y/y.

We expect the headline inflation to strengthen only modestly to 0.9% y/y in 2018 with the core inflation at 1.5% y/y. The MAS projects the headline inflation to hover around 0-1% and core inflation in the 1-2% range. Hence, the MAS will continue to maintain its current monetary policy and should exit from its neutral policy stance in the October 2018 meeting. By which time inflation should have increased at a moderate pace.

• Headline inflation in January was flat at 0% y/y from 0.4% y/y in December 2017. Slower inflation was due to weaker prices of food (1.1% y/y in January from 1.4% y/y in December) and transport (0.7% y/y in January from 1.4% y/y in December, plus sluggish housing and utility, down -3.6% y/y in January from -2.3%y /y in December. Core inflation, which excludes cost of accommodation and private road transport, eased to 1.4% y/y in January from 1.5% y/y in December 2017.

• On a m/m basis, headline inflation fell for the second straight month by 0.2%. The drag came from the decline in accommodation costs and private road transportation costs ex-petrol. These declines reflect the disbursement of S & CC charges in January 2018 and the fall in COE prices. Only food and fuel and utility costs rose in January.

• We expect the headline inflation to strengthen only modestly to 0.9% y/y in 2018 with the core inflation at 1.5% y/y. The MAS projects the headline inflation to hover around 0-1% and core inflation in the 1-2% range. While wage growth improvement could be limited due to improving productivity, investment registered its first positive growth for the first time in six quarters in 4Q2017.

• We believe the MAS will continue to maintain its current monetary policy and should exit from its neutral policy stance in the October 2018 meeting. By which time inflation should have increased at a moderate pace.

Source: AmInvest Research - 26 Feb 2018