-  Recent economic indicators for the month of January suggest a moderation in growth during 1Q14. We note that both the leading and coincident indexes for Malaysia point to a softer growth momentum in the next two quarters. The Malaysian economy will expand at a moderate pace in the near term as Diffusion Indexes for both the LI and CI were above 50.0%. That said, Malaysia is expected to preserve macroeconomic and financial stability owing to more flexible exchange rates, higher international reserves and a more developed financial system.

-  Labour market condition remains healthy although unemployment rate was higher in January. Overall unemployment rate continues to trend below the full employment threshold level of 4.0%. The unemployment rate rose by 0.3ppt MoM to 3.3% in January 2014. In January 2014, there were a total of 457,700 unemployed persons, an increase of 32,700 from the previous month. Aside from that, labour force participation rate is lower at 67.8% compared to an all-time high of 69.6% in September 2013.

-  Broad money (M3) moderated to +6.1% YoY totalling RM1.463tril in February 2014, compared to +6.7% YoY in January 2014. Mainly, the growth in M3 was driven by the extension of credit by the financial system to the private sector. Note that total loan’s growth surged by a moderated 10.7% YoY to RM1.241tril in February owing to the slowdown in corporate loans (January: +11.0% YoY).

-  However, leading indicators for the banking sector point to an improvement in the domestic environment as loans application and approvals advanced at a healthy pace in February. Overall demand for loans picked up in February, driven by loan applications from the business segment. Total loans applied grew by 8.5% YoY in February, from -14.8% YoY in January. Aside from that, we note that loan approvals had also rebounded during the month. Total loans approved surged by 9.5% in February (January: -0.1% YoY).

-  Elsewhere, the Ringgit appreciated by 0.3% YTD to close at 3.2655 yesterday on speculation that the relatively high bond yields will continue to attract foreign capital. Based on yesterday’s close, the 10-year MGS yield stood at 4.118%. As a recap, foreign holdings of MGS grew by 0.6% MoM (or RM823mil) to RM137.9bil in January. As a percentage of total outstanding MGS, foreign holdings account for 44.6% in January (December: 44.9%). 

Source: AmeSecurities