-  Asian Development Bank (ADB) expects Asia’s expansion to moderatethis year, putting pressure on policy makers to take steps to bolster their economies. According to a report released yesterday, developing Asia will probably grow at a softer pace of 6.0% in 2013 and 6.2% next year as compared to July’s projections of 6.3% this year and 6.4% for 2014. Slowing growth in two of Asia’s biggest economies, i.e. China and India is compounded by concerns that the Federal Reserve’s impending reduction of its record stimulus will result in massive reversal of funds and spur volatility in financial markets. Nevertheless, the Bank indicated that fears of a 1997-type crisis are unwarrantedconsidering the current-account surpluses and ample forex reserves in most developing economies regionally.

-  Southeast Asia will probably grow by4.9% this year and 5.3% next year, the ADB said. Economic growth in Southeast Asia has slowed in the YTD 2013 period as lacklustre export markets and moderated investment have weighed on three of its largest economies, i.e. Indonesia, Thailand, and Malaysia. Sluggish global demand for commodities including palm oil and natural rubber hurt these economies. Lacklustre electronics export contributed to a sharp deceleration in manufacturing in Malaysia and Thailand. By contrast, the Philippines has been resilient, propelled by the buoyant investment in construction and robust consumption expenditure.

-  After surging in 2012, growth in fixed investment has softened during 1H13 in ASEAN economies. In Malaysia, it moderated from a buoyant growth of 21% YoY in 2012, the strongest performance in 12 years, to 9.3% in 1H13. Indonesia had also experienced deceleration in fixed investment from an average of 9.0% over the past 3 years to 5.2%. Thailand’s fixed investment growth slowed from 13.3% in 2012 to 5.1% in 1H13.

-  For Malaysia, ADB expects the robust labour markets, generous cash transfers from the government and the public sector wages to be supportive of private consumption growth. Growth pace is expected to quicken from 4.3% in 2013 to 5.0% in 2014 on the back of better performance in the US and Europe and a gradual acceleration in global trade. Meanwhile, downside risk for Malaysia will stem from the dampening effect of fiscal consolidation on domestic demand. The government will also delay some public investment projects, which in turn, will ease pressure on fiscal and external accounts.

-  Contrastingly, our in-house GDP growth estimates for 2013 and 2014 are 4.6% and 4.8% respectively. As of YTD 1H13, Malaysia registered an expansion of 4.2% driven largely by the aggregate domestic demand growth of 7.7%. Prolonged weaknesses in the external environment have impaired the overall growth performance of the economy. Nonetheless, a slightly better growth expectation for 2014 will come from the rebound in global trades.

-  Based on the latest statistical release by BNM, a slowdown in domestic demand coupled with the net outflows of portfolio had contributed to the slower growth of money supply during the month of August. M3 grew by a moderated 8.3% YoY in August (July: +8.9%). Elsewhere, foreign holdings of MGS fell slightly to RM125.51bil in August which accounts for 42.73% of total outstanding amount (July: 42.75%). However, foreigners were net buyers of Malaysian equities in September as the Fed decided to maintain its asset purchase programme at the FOMC meeting last month. Foreign net buying of equities amounted to RM0.7bil in September (as compared to net selling of RM6.8bil in August).

-  In the US, the Congress failed to agree on funding for the new fiscal year that began on October 1. Treasury Secretary Jacob J. Lew and President Barack Obama have said they will not negotiate on the limit, which is tied to obligations the US has already incurred. Meanwhile, the Treasury are using accounting manoeuvres to avoid a breach of the USD16.7tril debt ceiling and to provide for the additional USD1.1tril to help to government meet obligations until 2014. These include allowing the government to enter into a debt swap with the Federal Financing Bank and the Civil Service Retirement and Disability Fund.

Source: AmeSecurities