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The Star
2 days ago
- Business
- The Star
Uncertainty looms over semiconductor exports
PETALING JAYA: Malaysia faces the steepest growth risk in Asia from the United States' looming sectoral semiconductor tariffs, as uncertainty over exemptions continues to cloud the sector's prospects, says Nomura. The Japanese investment bank noted: 'Relative to our baseline gross domestic product (GDP) growth forecasts for 2025, Malaysia (minus 0.5 percentage points) and the Philippines (minus 0.4 percentage points) face the most significant downside risks, given their vulnerability to the incoming Section 232 chips tariffs.' Nomura's current baseline GDP growth forecasts for Malaysia are 4.4% for 2025 and 4% for 2026. Last week, US president Donald Trump threatened to impose a 100% tariff on semiconductor imports, with exemptions for companies that have committed to or are in the process of building manufacturing facilities in the United States. In April, the Trump administration launched a Section 232 investigation into semiconductors, which will assess whether imports threaten US security and allow the president to impose tariffs in response. The administration has signalled plans to fast-track the review, with some reports suggesting results may be announced months ahead of the original December deadline – possibly as early as August or September. Nomura said the longevity of Asia's low effective tariff rate (ETR) hinges critically on the timing of US tariffs on pharmaceuticals and semiconductors. Currently, it noted that given a higher share of exemptions, the ETRs are substantially lower for Singapore and Malaysia. 'Our analysis reveals that, in electronics, Taiwan's exposure is the highest in the region, with its ultimate exposure to the United States reaching 2.8% of GDP. 'Malaysia follows at 2.3% of GDP, with Singapore, South Korea and Thailand (1.3% to 1.4% of GDP each) completing the top five,' the investment bank said. Nomura also noted that while transitioning investment takes time in sectors like chips and pharmaceuticals, companies could face immediate margin pressure. 'An exemption from sectoral tariffs for countries investing in the United States could offer some short-term relief but presents a longer-term dilemma: accelerated investment in the United States could undermine their established growth models,' it said. Meanwhile, OCBC chief economist Selena Ling said affected firms in the semiconductor sector may rush to recalibrate their supply chains, since the 100% tariff will likely apply to all manufacturing hubs (like Taiwan and South Korea), but exemptions are given at the firm level. Hence the net impact is still unclear. 'That said, there are likely to be ripple effects on the supporting ecosystem in the broader electrical and electronics sector, especially SMEs (small and medium enterprises) and those in the precision engineering industry,' she told StarBiz. UOB senior economist Julia Goh said the scope of the exemptions remains unclear at this stage. She added that a portion of Malaysia's semiconductor exports to the United States – particularly those involving US companies operating in Malaysia – could receive exemptions from the 100% tariff. 'Additionally, there are still questions regarding the local supply chain. 'If local suppliers provide inputs to multinational corporations that receive exemptions, will they also be eligible for similar exemptions?' Goh highlighted that any added tariffs on wafers, substrates, or critical chemicals will increase the landed cost of upstream inputs. Malaysian assembly and test plants would either have to absorb compressed margins or pass costs downstream, making final chips less price-competitive, she noted. 'Such uncertainties may delay capital investment in new facilities until the US trade rules are clearly defined, potentially slowing Malaysia's progress up the value chain. 'To stay on course, Malaysia's best strategy is to strengthen domestic capabilities, diversify sourcing, and pursue stable trade arrangements. 'Malaysia may win new orders if it offers stable, tariff-free access – but only if it has the upstream ecosystem to produce or import alternatives at scale,' she said. In a report, UOB Research estimated an ETR of 24% on Malaysia's semiconductor exports to the United States, based on certain assumptions. 'This assumes 68% of exports are taxed at 19%, about 11% at 100%, and the remaining 21% – linked to multinational semiconductor firms – are exempt. 'The estimated 24% rate exceeds the 19% reciprocal tariff, reinforcing the Investment, Trade and Industry minister's concerns about risks to Malaysia's competitiveness in the global semiconductor supply chain,' the report stated.
The Star
2 days ago
- Business
- The Star
13MP boost for affordable housing
PETALING JAYA: The government's announcement under the 13th Malaysia Plan (13MP) to develop one million affordable housing units between 2026 and 2035, will help ease pent-up demand and improve homeownership prospects. Zerin Properties chief executive officer Previn Singhe said the government's target of building one million affordable homes over a 10-year period is both 'bold and ambitious'. 'Beyond numbers, success will depend on building in the right places, close to jobs, transport and services, as well as ensuring these homes are designed to genuinely meet the needs of B40 and M40 families. 'This is so they do not risk becoming future overhang statistics,' he told StarBiz. Previn said it is imperative that there are 'supporting measures' to ensure this plan succeeds. 'Measures such as the improvement of existing affordable housing financing schemes, including the expansion of the rent-to-own and housing credit guarantee programmes, will be critical in widening access to homeownership for first-time and lower-income buyers. 'At the same time, making schools a mandatory component of large-scale housing projects will enhance liveability and strengthen long-term community value. 'Together, these measures push housing delivery beyond bricks and mortar –towards building integrated, future-ready communities.' Olive Tree Property Consultants founder and chief executive officer Samuel Tan also said the move by the government to build one million affordable homes under the 13MP was 'ambitious'. 'The government remains committed to ensuring access to quality, affordable and inclusive housing. As of this year, 180,000 housing units have been completed, with another 235,000 currently under construction.' He noted that structural issues, such as the mismatch between housing supply and demand, as well as property prices that remain beyond the reach of many, continue to pose challenges. 'Selection of locations and developers are equally important. Achieving one million houses is only a quantitative target. What is more important is the qualitative target.' TA Research said the planned increase in affordable housing supply, particularly in strategic locations, should help ease pent-up demand and improve homeownership prospects for lower- and middle-income households. 'On the demand side, improved financing mechanisms, including tiered interest rates and flexible tenure structures, are expected to enhance affordability, especially for first-time buyers. 'We are also encouraged by the government's move to empower a central housing agency to lead planning and delivery efforts.' The research house said this could significantly reduce inefficiencies and eliminate duplication of efforts between federal and state bodies, paving the way for more targeted and effective execution. Tan noted that Malaysia faces a significant challenge in providing affordable housing for its citizens, with house prices often exceeding what many can afford. 'This affordability crisis is driven by various factors, including rising land costs, construction costs and a lack of sufficient affordable housing supply. 'There is also a discrepancy between the types of housing being built and the actual needs of the population, with an oversupply of high-end properties and a shortage of affordable options.' This imbalance, said Tan, is exacerbated by factors like income inequality and variations in housing preferences across different demographics. Moreover, he said the construction industry in Malaysia needs to embrace modern technologies and innovative building methods to improve efficiency, reduce costs and enhance the quality of housing. 'The adoption of the Industrialised Building System (IBS), for example, can help accelerate construction and lower costs, making housing more accessible.' He added that there should also be a consolidation of housing agencies to initiate and monitor housing development. 'Currently, multiple agencies are doing the same job and this increases the cost and causes confusion among the stakeholders,' Tan said. To ensure that initiatives under the 13MP come to fruition, Previn emphasised that there is a need to 'prioritise execution over announcements.' 'Malaysia's development plans have historically struggled with delivery gaps. To avoid repeating this pattern, we must establish clear ownership and accountability structures at both federal and state levels. 'There is also a need to ensure transparent timelines, key performance indicators and public reporting mechanisms for all flagship initiatives.' Previn also said there is a need to enable stronger inter-agency coordination, particularly between planning units, regulators and implementation bodies. 'Without robust execution frameworks, even the most well-crafted plans risk stalling.' Another significant structural shift that has been proposed under the 13MP is the mandatory adoption of the build-then-sell (BTS) model for housing development - to be enforced through amendments to the Housing Development Act. TA Research noted that while the intention is to curb project abandonment and enhance buyer protection, it added that the move introduces substantial funding and working capital risks for developers. 'Under the 10:90 BTS structure, developers must complete construction before receiving the bulk of sales proceeds. This could delay new launches and deter participation from smaller players with limited balance sheet strength or constrained access to project financing. 'In our view, this would accelerate market consolidation and widen the competitive gap in favour of well-capitalised players.' That said, the research house said it does not expect the implementation to be immediate. 'Given that it requires legislative amendments, the process is likely to involve multi-stakeholder consultations and industry engagement. A rushed rollout would be disruptive, and we believe policymakers are aware of the potential implications. 'We anticipate a phased approach that balances buyer protection with developer viability, potentially through exemptions, transitional support, or segmentation by developer scale,' it said. Previn also concurred that the BTS model is a major structural change that enhances consumer protection and market credibility, which reduces risks of poor-quality or abandoned projects. 'It will also accelerate IBS adoption, improving efficiency and delivery timelines. 'However, smaller, highly leveraged developers may face liquidity pressures, longer project cycles and higher financing costs, unless accompanied by supportive financing mechanisms or phased implementation of BTS.' Without sufficient large, capable IBS suppliers, Previn warned that there would be bottleneck risks that would push up costs and erode affordability. Tan meanwhile noted that currently, developers are allowed to sell houses before they are built under the 'sell-then-build' model. He noted that making the BTS model mandatory will be difficult. 'There are many obvious merits for this initiative. But it carries several problematic issues. Only the deep pocket developers can afford to implement this scheme. 'It will then be an uneven playing field for the start-ups and smaller development companies.' Tan said the additional holding cost will be passed on to the end-purchasers, making house prices more expensive. 'This will jeopardise our Home Ownership Programme. On the other hand, it will ensure that abandoned projects are curbed. End-purchasers buy what they see ensuring that quality is maintained. 'We opine that this BTS model should not be mandatory. Developers are given the options to choose the most appropriate models. The authorities must monitor their performance to ensure quality and timely delivery,' he said. Previn said many of the 13MP's strategies such as the BTS model and affordable housing targets are conceptually strong, but 'must be grounded in market data and developer capacity.' 'Enforcing BTS across the board without a phased rollout could tighten housing supply and raise costs in the short term 'Additionally, affordable housing should not just be 'affordable to build' but also meet the preferences and needs of the target buyers,' he said.
The Star
2 days ago
- Business
- The Star
Malaysia holds investor appeal
PETALING JAYA: Investors are eyeing Malaysia as a key destination for their investments, as the country remains in a favourable position compared to its Asian emerging market peers. To lend credence to this view, Citi managing director and head of markets for Asia South, Sue Lee, told StarBiz that Malaysia stands out among Asian emerging markets due to its attractive mix of a highly skilled workforce, political stability, and cost competitiveness. She added that these key strengths continue to draw strategic investments across electronics, manufacturing and services. 'Malaysia's stable and vibrant economy, supported by strong government initiatives, attracts billions in foreign direct investment into the country through incentives such as tax breaks and special economic zones like data centre hubs, the Johor-Singapore Special Economic Zone, and the high-tech parks in Penang. 'Its diversified economy and export-oriented markets, with strong contributions from industry players in semiconductors, integrated circuits, manufacturing, commodities and services, bode well for the country,' Lee said. She said another key advantage that Malaysia has over other emerging markets is its highly skilled and multilingual workforce. English is widely spoken and labour costs remain competitive. Lee said Malaysia's strong trading relationships with both the East and the West, supported by multiple trade agreements spanning Asia, the Americas and Oceania, are another plus point. These agreements include the Asean Free Trade Area, Regional Comprehensive Economic Partnership and Comprehensive and Progressive Agreement for Trans-Pacific Partnership. Citi is a banking group headquarted in the United States with a physical presence in 94 countries, local trading desks in over 80 markets and a custody network in over 100 markets globally. Out of this, 63 are proprietary to Citi. The group operates in over 180 countries and jurisdictions. Citi's consumer banking business in Malaysia was acquired by UOB Malaysia in 2022, resulting in Citi's retail banking and consumer credit card operations being transferred to UOB Malaysia. However, Citi continues its transaction processing operations in Malaysia. Since establishing the Citi Solutions Centre, a world-class global processing centre in Penang in 1993, and a second centre in Kuala Lumpur in 2007, Citi has been a leader in transaction processing in the country. These centres are part of the global Citi Solutions Centres Network, helping build scale, capacity for growth, and world-class processing standards. Commenting on the recent overnight policy rate cut and Citi's business outlook in Malaysia, Lee said that despite the revised gross domestic product growth forecast of 4% to 4.8% for this year, Citi's markets business has seen double-digit growth. This was driven by equities, foreign exchange (forex) rates and funding. 'Given our longstanding presence in Asia, our institutional clients see us as the most Asian of the global banks. 'Clients rely on both our onshore and offshore capabilities as they look to hedge their exposures. 'Citi is seeing increased flows through various market products as a result of increased market volatility. 'We will continue to provide liquidity and risk management solutions to our clients who require support,' she noted. Lee said Citi is also expanding its reverse repo book locally to offer more liquidity and enhance its product capabilities to meet cross-border forex and rates requirements. On the impact of US tariff policies on global trade and Malaysia, Lee said there is a healthy demand for hedging and risk management tools. Citi has observed a notable increase in corporate clients hedging activity, including both local firms and multinational national corporations. 'In times of uncertainty, Citi's business model, global footprint and strong balance sheet serve as a pillar of strength and stability for our clients. 'Given this, more clients in Malaysia are leaning into Citi for advice and our advice to local clients is pretty straight forward. 'Important opportunities will come up, and they will require financial flexibility and efficient decision-making,' Lee noted. Elaborating on trends in Malaysia's forex and rates activity, she said forex market volatility has jumped to a five-year high. Early tariff threats triggered a safe-haven flight to the US dollar, causing the US dollar-ringgit exchange rate to test RM4.50 earlier this year. 'However, with tariff deals coming through, the market has sold off US dollars heavily, and the ringgit has strengthened back towards RM4.20,' she said. She added that the narrowing rate differential between the United States and Malaysia also pushed the US dollar-ringgit exchange rate lower. 'Foreign currency deposits have been trending higher and currently sit at an all-time high. 'This reflects corporates' preference to hold US dollar deposits. 'But this is expected to change with the narrowing rate differential, which will likely lead to increase hedging demand from clients,' she said. To this end, Citi is capitalising on the heightened volatility by providing clients with optimal liquidity for their hedging requirements. 'We are on the ground, helping our clients navigate this highly uncertain market environment by providing them with the latest insights through the FX Wire platform,' Lee said. Following July's interest rate cut and Bank Negara Malaysia's indication that the move was pre-emptive, she expects demand for Malaysian securities to slow. However, Lee said should the US dollar weaken in the future, foreign investor inflows are likely to pick up again. Regarding Malaysia's competitiveness with South-East Asia benefitting from global supply chain diversification, Lee noted that many of Citi's clients in the region are concerned about tariffs and their economic implications. 'Trade deals and clarity will help boost investor confidence. 'More broadly, companies are preparing for a fundamental shift in trade and capital flows. 'Our global network is designed for moments like these. 'Our ability to connect the dots across markets, provide real-time insights, and execute at scale is what sets Citi apart. 'The uncertainty will continue to drive fluctuations in global markets and we will continue to find ways to help clients mitigate risks and seize opportunities,' Lee said.
The Star
6 days ago
- Business
- The Star
CPO prices likely to remain steady
PETALING JAYA: Crude palm oil (CPO) prices are facing renewed pressure as stockpiles climb to a 19-month high, raising concerns over the earnings outlook for plantation players. Regardless, analysts foresee prices to remain elevated between RM3,800 and RM4,500 per tonne for the rest of 2025. CPO futures were trading at RM4,220 per tonne at market close, according to Bloomberg data. While prices have declined year-to-date, they have gradually recovered since early May, when the contract was trading at RM3,772 per tonne. The stronger performance comes even as Malaysian palm oil reserves are estimated to have surged nearly 10% a month earlier to around 2.23 million tonnes in July, the highest level in 19 months. Speaking to StarBiz, Malaysia Palm Oil Association chief executive Roslin Azmy Hassan acknowledged the jump in inventory levels is weakening market sentiment, particularly as the July stockpile was recorded to be the highest since December 2023. Roslin shared that the high inventory level was driven by stronger output and weaker demand. 'CPO production in July rose by around 8% compared to June, supported by improved weather, enhanced harvesting efficiency and seasonal yield recovery,' he said. 'However, export growth was not strong enough to match supply. Key buyers like India and China reduced buying due to comfortable stock levels and more competitive pricing from Indonesia,' he added. Looking ahead, Roslin said the inventory buildup could persist over the next two months. 'The high inventory scenario is expected to persist until at least October 2025, coinciding with the seasonal peak production period. 'Unless there are major weather disruptions or a sharp demand recovery, stock levels may only begin to ease in the fourth quarter,' he added. CIMB Securities head of research Ivy Ng Lee Fang shared a similar outlook, saying CPO inventories are likely to remain high in the near term. 'We expect the CPO price to trade between RM3,800 and RM4,300 per tonne,' she said. Ng added that the downside would be cushioned by slower palm oil output growth and stronger biodiesel demand in Indonesia, while the upside is capped by rising stock levels. She pointed out that two key developments to watch are whether Indonesia raises its biodiesel blend from B40 to B45 or B50, and whether the United States increases its biodiesel incentives. She also flagged potential risks from weather conditions. 'For example, the recent severe haze condition in Indonesia could affect palm oil supply if it prolongs,' she said. BIMB Securities analyst Saffa Amanina echoed the near-term cautious tone, citing elevated stockpiles that are likely to remain above two million tonnes through September. 'We expect CPO prices to remain under pressure in the near term due to elevated inventory levels, which are likely to stay above two million tonnes through September,' she said. She said this was due to seasonal peak production in both Malaysia and Indonesia, alongside the upcoming soybean harvest in the United States, which may weigh on sentiment across the broader vegetable oil market. 'We estimate that CPO prices could temporarily soften, with downside risk to briefly dip to RM3,700 per tonne,' she said. Still, she believes the decline will be limited by restocking demand from India ahead of Deepavali. Amanina projects that prices will recover towards the year-end, trading between RM4,100 and RM4,200 per tonne, supported by monsoon-related supply disruptions. She added that price pressures could also stem from the narrowing CPO-soybean oil price gap, in-house expectation of a stronger ringgit, and a wider palm oil-gas oil spread, which may reduce biodiesel blending incentives. Potential support, on the other hand, may come from changes in US biofuel targets and European restocking ahead of the European Union's deforestation regulation. While most experts are cautious in the short term, some are less concerned. Former Malaysian palm oil executive Joseph Tek downplayed fears of oversupply, saying the current stockpile levels are not unusually high. 'While end stocks are at 2.2 to 2.3 million tonnes, it is not really high. The market has just gotten used to seeing below two million tonnes. This level should be seen as neutral and I don't expect prices to react dramatically,' he said. He pointed out that the supply situation may appear elevated on paper, but regional consumption patterns are shifting. For instance, Indonesia has been using more of its palm oil locally, leaving less for export. 'The market is not exactly overflowing,' he said. While he expects the current situation to linger for a bit, he remains bullish that prices will hold steady. Looking ahead, Tek said several factors could influence the market in the second half of 2025, including production trends in both Malaysia and Indonesia, developments in the biodiesel segment, and policy decisions from the United States. 'The market is expecting a big peak in production, but I remain cautiously optimistic. My pragmatism tells me it may not be as high as anticipated,' he said. He added that while Indonesia's biodiesel blending hit a strong 95% realisation rate in the first half of the year, there have been some hiccups recently. 'If blending volumes dip, we could see prices take a hit,' he said, noting that the industry is also keeping a close watch on the rollout of the B50 biodiesel programme. Meanwhile, the upcoming announcement of the US Renewable Volume Obligations could also play a role in shaping global vegetable oil demand. 'While end stocks might look steady, these factors could still keep the market lively. I would like to think of it as a steady raft with a few interesting currents,' he said. On pricing, Tek expects CPO prices to remain firm in the near term, trading within a favourable range of RM4,100 to RM4,500 per tonne. 'I'm looking at plus or minus 5%, but if there are other intertwined factors interplaying, then we can raise it to plus or minus 10%,' he said.
The Star
7 days ago
- Business
- The Star
Tariffs unlikely to shake domestic industries
PETALING JAYA: Domestically-driven sectors and ones that depend mostly on internal demand will likely be able to sustain their earnings despite volatilities of trade and impending tariffs. Areca Capital Sdn Bhd chief executive officer Danny Wong said such sectors including banks, data centre-related companies and those dealing with construction, utilities and even land sales, will fare better. 'These sectors could likely outperform the ones that are affected by external factors like tariffs. 'These may settle down once tariffs are finalised or when news of it becomes stale eventually,' he told StarBiz. In early April, the Trump administration implemented an initial 24% tariff on Malaysian goods, but faced threats of a 25% rate with potential hikes of up to 40%. After intense negotiations, a trade pact was agreed, cutting the effective US tariff on Malaysian goods to 19 % – effective this month. For now, semiconductors that fall under Section 232 and pharmaceuticals remain exempt. Wong said for the technology sector, some companies will be able to pivot quickly in light of any new development coming from tariffs. 'It will solely depend on the sub sector and the companies whether they are chip makers, artificial intelligence, or automotive for example. 'But companies that depend on resources like labour might find it challenging,' he explained. Analysts also believe the aforementioned sectors will be able to counter external headwinds. For instance, Maybank Investment Bank (Maybank IB) Research stated that it expects a more balanced second quarter after a rather underwhelming first quarter of 2025. It noted sectors such as construction, healthcare, property and, more selectively, the oil and gas and utilities sectors will have positive momentum. However, planters may see weaker earnings in the second quarter from lower crude palm oil prices, while others might see an uplift from the currency exchange and disposal gains. Meanwhile, Hong Leong Investment Bank Research (HLIB Research) said in a recent report that despite so many uncertainties, not all is doom and gloom. According to the research house, Malaysia still has many factors that will support overall national competitiveness. 'Exemptions remain in place, reflecting the United States recognition that it cannot afford to alienate Malaysia, given its strategic role in the global supply chain. 'Malaysia accounts for approximately 19.8% of total US semiconductor imports, followed closely by Chinese Taipei at 19% and Vietnam at 10%. 'Malaysia's electrical and electronics exports account for 70% of total exports to the United States,' the report said. Furthermore, Malaysia's trade performance had also improved, driven by resilient export growth, greater market diversification, and a recovery in the tourism sector. In addition to that, the country's extensive network of bilateral free trade agreements and participation in the Regional Comprehensive Economic Partnership alongside trade talks will bring about opportunities for preferential market access, thus positioning Malaysia as a regional trade hub. CIMB Securities looked at the manufacturing sector, and noted that in 2024, Malaysia held the largest share of the rubber glove market. 'We expect some incremental shift in US glove orders to Malaysia, but higher tariffs will still increase US buyers' cost base, which may limit restocking or lead to leaner inventories,' it said. The research house added China and Vietnam will most likely redirect supply to non-US markets at a more competitive average selling price (ASP), further intensifying global pricing pressure. 'We believe the revised US tariff rates for glove-producing countries will prompt Chinese glove makers to shift production to the Asean region, particularly Indonesia, to benefit from lower US tariffs,' CIMB Securities said. It added that it will maintain a 'neutral' stance on the sector on the back of ongoing headwinds, particularly sluggish demand recovery due to cautious buyer purchasing patterns, elevated costs and weak ASPs in an oversupplied market with new incoming capacity, particularly from Indonesia. Maybank IB agreed, stating that even though Malaysia enjoys a lower tariff rate of 19%, the narrow or zero tariff differential against regional peers such as Indonesia, Thailand and Vietnam provides limited competitive advantage for Malaysian glove makers, especially as China glove makers continue to expand capacity in these countries. It noted that these offshore facilities allow China players to bypass US tariffs on China-origin goods, further intensifying competition within South-East Asia and limiting pricing power. 'Our channel checks indicate China production costs overseas range from US$14 to US$15 per 1,000 pieces versus Malaysia's US$15 to US$16 per 1,000 pieces. 'With similar tariffs and higher costs, local glove makers have limited pricing power and could risk losing US market share once the new capacity in these countries comes online by end-2025 to early-2026,' it said. With that, Maybank IB said it will maintain a 'negative' stance on local glovemakers with lower target prices as well. 'We believe upcoming results could be weak, mainly due to the weakening US dollar versus the ringgit,' it noted. It also said cost efficiency will be key in maintaining competitiveness.
