Last Friday, Bank Negara Malaysia (BNM) announced Malaysia’s 3Q19 gross domestic product (GDP) moderated to 4.4% (vs 4.9% in 2Q19), the weakest in a year amid global slowdown. Following this, MQ Research outlined key points from BNM including the performance in all key sectors and the 3Q19 inflation, among others. MQ Research’s key picks include CIMB, Tenaga Nasional, Telekom Malaysia and more.

Event

• Bank Negara Malaysia released 3Q19 GDP stats with 3Q19 real gross domestic product (GDP) growth moderating to 4.4% from 4.9% in 2Q19, bringing year-to-date (YTD) growth to 4.6%. BNM expects this growth rate to be sustained into 4Q19 and 2020, underpinned by private consumption AND reduced drag from public investment, as capital spending picks up especially in the transportation sector (read higher construction sector jobs). This ties in with our thesis that an uptick in government related jobs, will spur news flow into 2020 providing support to the KLCI, which MQ Research expects to close 2020 at 1,731 (+8.5% return).

• MQ Research outlines below key points from BNM’s commentary

Impact

• All segments moderating. 3Q19 saw moderation in all key sectors on the back of global macro headwinds as well as general uncertainty. Private consumption (+7.0% YoY vs 7.8% in 2Q19) and net exports were the key growth contributors in 3Q. Public consumption expanded 1% year-on-year (YoY) largely driven by emoluments, while public investments declined (-14% YoY). While noting downside risks from the global environment, there was no change to BNM’s assessment of GDP growth in 2020, which the government has projected at 4.8% during the recent Budget 2020.

• Headline inflation at 1.3%. Headline inflation increased to 1.3% from 0.7% in 2Q19. BNM expects inflation to pick up in 2020, factoring in the removal of fuel price caps.

• Benefiting from trade diversion? In its commentary, BNM noted that despite a US$8.5bn contraction in gross exports YTD, Malaysia had gained approximately US$1.4bn in exports to the US and China for selected goods. While gross exports declined 1.9% in 3Q19, imports were down 5.9%. E&E and commodity exports were down, mitigated by higher non-E&E exports. BNM expects imports to pick up in 2020 as investments pick up, moderating net exports.

• Wage growth moderating but still healthy. Private sector wage growth moderated to 3.8% in 3Q19 (2Q 4.2%) but remains above trend. This, together with rising employment (2.1%), has supported the strength in private consumption, which is now back to the 2011-2018 average of 7%.

• Foreign holding of government debt up. Despite the risks of removal from the FTSE Russel World Government Bond Index, non-resident holdings of Malaysian government bonds inched up to 22.2% in October.

• BNM to remain accommodative. BNM noted that its policies will remain accommodative of economic activity. Our economics team expects the Overnight Policy Rate (OPR) to hold steady at 3% into 2020.

Outlook

MQ Research’s key picks for Malaysia are reflective of MQ Research’s key thematic, i.e. 1) increased government activity (Gamuda, Ranhill, CIMB, MyNews), 2) policy reforms (Tenaga Nasional, Malaysia Airports, Telekom Malaysia), and 3) global thematics/weak MYR plays (Sime Plantations, IHH, Top Glove, PChem).

Source: Macquarie Research - 18 Nov 2019