Monetary indicators were mixed in September. Narrow money supply (M1) expanded (+4.8% YoY; Aug: +3.8% YoY) while broad money supply (M3) growth moderated (+3.9% YoY; Aug: +4.2% YoY). Meanwhile, total leading loan indicators were weaker for the month. Non-residents increased their bond holdings but continued to reduce their equity holdings, albeit at a slower pace.

DATA HIGHLIGHTS

Monetary indicators were mixed in September, as narrow money supply (M1) grew +4.8% YoY (Aug: +3.8% YoY) while broad money supply (M3) growth moderated to +3.9% YoY (Aug: +4.2% YoY). Meanwhile, total leading loan indicators weakened following steep decline in loan applications (-6.1% YoY; Aug: -0.3% YoY) and approvals (-8.7% YoY; Aug: +0.2% YoY).

Total deposits continued to ease (+4.2% YoY; Aug: +4.6% YoY) amid a larger decline in business deposits (-0.6% YoY; Aug: -0.1% YoY) and moderation in household deposits (+5.6% YoY; Aug: +5.7% YoY) which offset higher foreign deposits (+9.7% YoY; Aug: +7.9% YoY).

The household loan-deposit gap widened due to marginal monthly growth in household deposits (+0.1%; Aug: +0.2%) amid slight moderation in household loans (+0.4%; Aug: +0.5%). On an annual basis, household deposits moderated slightly (+5.6% YoY; Aug: +5.7% YoY) while household loans growth was sustained (+4.6% YoY; Aug: +4.6% YoY).

Total loans growth eased slightly to +3.8% YoY (Aug: +3.9% YoY). Household loans growth held at +4.6% YoY (Aug: +4.6% YoY). Meanwhile, gross issuance of corporate bonds jumped to RM14.9bn (Aug: RM4.6bn), driven by issuance from quasi government and financial services sector.

The decline in loan applications steepened (-6.1% YoY; Aug: -0.3% YoY) due to lower applications in the household (-0.8% YoY; Aug: -8.9% YoY) and business sector (- 11.3% YoY; Aug: +10.9% YoY). Business loan applications were dragged by decline in manufacturing (-37.4% YoY; Aug: +3.2% YoY), construction (-21.2% YoY; Aug: +34.7% YoY) and finance, insurance & business activities sector (-12.8% YoY; Aug: +124.9% YoY). Meanwhile, loan approvals also declined sharply (-8.7% YoY; Aug: +0.2% YoY) amid a drop in business approvals (-18.1% YoY; Aug: +4.4% YoY) which offset the rebound in household approvals (+3.0% YoY; Aug: -2.8% YoY). Business loan approvals mainly fell due to the plunge in wholesale & retail trade and restaurants & hotels (-49.5% YoY; Aug: +9.4% YoY) and education, health & others sector (-91.6% YoY; Aug: -36.3% YoY).

Non-residents increased their bond holdings by +RM0.8bn (Aug: -RM0.1bn) amid FTSE Russell’s decision to retain Malaysia in their watchlist bond index until March 2020. Meanwhile, non-residents continued to sell local equities, albeit at a smaller pace (-RM0.5bn; Aug: -RM2.6bn).

HLIB’s VIEW

Despite the phase one trade truce between US and China, continued trade uncertainty, modest global demand and uncertainty surrounding Malaysia’s potential removal from the WGBI may continue to dampen foreign appetite for local bonds and equities. While we expect BNM to maintain OPR in the upcoming November MPC meeting, we retain our expectation for BNM to reduce OPR by 25bps by 1Q 2020 on the assumption global downside risks persist.

Source: Hong Leong Investment Bank Research - 1 Nov 2019