Monetary indicators remained mixed in April. Narrow money supply (M1) eased (+2.2% YoY; Mar: +2.5% YoY) while broad money supply (M3) rose (+4.9% YoY; Mar: +4.6% YoY). Meanwhile, total leading loan indicators improved. On liquidity, non-residents reduced their bond and equity holdings following the decision by Norwegian sovereign wealth fund (SWF) to pull out from emerging market bonds and Malaysia’s potential exclusion from the WGBI.

DATA HIGHLIGHTS

Monetary indicators were mixed in April as broad money supply (M3) rose at a faster pace (+4.9% YoY; Mar: +4.6% YoY) while narrow money supply (M1) eased (+2.2% YoY; Mar: +2.5% YoY). Meanwhile, total leading loan indicators improved due to a rebound in loan applications (+5.7% YoY; Mar: -6.0% YoY). Loan approvals grew at a slower pace of +5.0% YoY (Mar: +6.3% YoY).

Total deposits ticked higher (+5.5% YoY; Mar: +5.3% YoY), as higher deposits were seen across households (+5.7% YoY; Mar: +5.2% YoY), businesses (+1.8% YoY; Mar: +1.6% YoY) and foreigners (+9.1% YoY; Mar: +7.0% YoY).

Household loan-deposit gap tightened in April due to faster monthly growth in household deposits (+0.9%; Mar: +0.6%) amid sustained household loan growth (+0.4%; Mar: +0.4%). On a yearly basis, household deposits grew +5.7% YoY (Mar: +5.2% YoY) while household loans moderated to +5.2% YoY (Mar: +5.3% YoY).

Total loans growth eased to +4.5% YoY (Mar: +4.9% YoY) due to moderations in both household (+5.2% YoY; Mar: +5.3% YoY) and business loans (+3.2% YoY; Mar: +4.1% YoY). Gross issuance of corporate bonds was also slightly lower during the month (RM11.1bn; Mar: RM11.3bn).

Loan applications rebounded (+5.7% YoY; Mar: -6.0% YoY) due to a marginal rebound in household loan applications (+0.6% YoY; Mar: -3.9% YoY) and a stronger rebound in business loan applications (+11.8% YoY; Mar: -8.5% YoY). Household applications were driven by higher applications for residential properties (+12.2% YoY; Mar: +5.5% YoY), while businesses applications were mainly driven by rebound in manufacturing (+68.6% YoY; Mar: -13.1% YoY) and construction sector (+32.2% YoY; Mar: -7.7% YoY). Meanwhile, loan approvals moderated (+5.0% YoY; Mar: +6.3% YoY) due to lower business approvals (+0.7% YoY; Mar: +12.0% YoY) that offset the higher household approvals (+8.8% YoY; Mar: +1.3% YoY). Household approvals were driven by higher approvals for residential properties (+13.3% YoY; Mar: +1.9% YoY). For businesses, the deceleration stemmed from larger decline in manufacturing sector (-45.7% YoY; Mar: -22.4% YoY) partly due to high base effect.

April saw the highest non-resident bond outflows since May 2018 (-RM8.3bn; Mar: +RM3.0bn) while equity outflows persisted (-RM1.4bn; Mar: -RM1.6bn) after the Norwegian SWF announced plans to trim its exposure to emerging-market bonds, including MGS, as well as FTSE Russell’s move to place Malaysian bonds in its watch list over market liquidity concerns.

HLIB’s VIEW

Going forward, investment activity is expected to remain moderate following increased uncertainty in the global environment. On financial market initiatives, recent initiatives by BNM to deepen financial markets is a step in the right direction to address concerns of index managers, but it remains to be seen if it is sufficient to avert an exclusion from the WGBI in September 2019.

Source: Hong Leong Investment Bank Research - 3 Jun 2019