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The Star
3 days ago
- Business
- The Star
De-dollarisation unlikely in near term
PETALING JAYA: The US dollar's weakening since early January and the rise of emerging market currencies, including the ringgit, is not a sign of drastic de-dollarisation and is possibly temporary in nature. While economists do see a long-term structural shift away from the greenback such as in international reserves and trade, many believe the current dollar weakness is of US President Donald Trump administration's own making. Interestingly, Trump favours a weak dollar as he attempts to bring back manufacturing into the world's biggest economy. Economist Geoffrey Williams told StarBiz the volatility in the greenback is driven by 'short-term issues' related to the tariffs and the general stance of US economic policy. 'This is normal during periods of policy uncertainty. The dollar weakness will continue until the tariff issues are settled, then there will be a turnaround. This may happen as early as July when the 90-day pause period ends or earlier as tariff deals are announced.' Williams, however, acknowledged there is a long-term shift in the use of the dollar, with the greenback's use in international reserves falling from above 70% 25 years ago to less than 60% now. 'This is likely to continue, but it is not necessarily due to the current short-term issues,' he said. The US dollar has been on a downtrend this year, with the Dollar Index falling by 8.6% year-to-date to below the 100-point mark. Any value below 100 is considered a territory of weakness for the US dollar. As at press time yesterday, the Dollar Index was around 99.2. Meanwhile, the ringgit has appreciated by 4.9% year-to-date to RM4.24 per US dollar. Maybank Investment Bank Research (Maybank IB) expects the ringgit, along with major regional currencies like the Singapore dollar, rupiah and baht to further strengthen this year, as global investors spread their holdings more widely after years of heavy US positioning. 'However, while this may occur, we are not convinced yet that there is sufficient evidence to show a real structural shift out of the US dollar into the region,' it said in a note. According to Maybank IB's forecast, the ringgit is ripe to test RM4.10 by the fourth quarter of this year. The research house said Trump's capricious nature may continue to inject volatility in the markets. However, unlike past episodes of risk aversion, the US dollar was punished most discernibly as part of the 'Sell America' narrative. 'We found signs of US dollar risk premium rising in recent price action by looking at a GARCH model of the Dollar Index volatility and the rise may not be completely done as we are still off historic highs. We suggest to continue selling the US dollar on rallies if the United States continues to push its agenda of tariffs,' it said. Beyond tariffs, Socio-Economic Research Centre (SERC) executive director Lee Heng Guie believes the United States' unsustainable debt and budget deficit are also weighing on the dollar. Additionally, foreign investors have rebalanced their portfolios as they reduced exposure to the US dollar-denominated assets and switched to other currencies. 'It is reckoned that the US dollar has not enjoyed the same hegemony of its 1990s heydays. De-dollarisation and a long-term trend towards diversification of currencies in global financial transactions and trade is a growing trend in the face of shifting global power dynamics. 'Prospects for the US dollar may not be as bright as they once were, as some diversification from the greenback is underway as the world's economic centre of gravity is indeed shifting eastward towards China, India and other emerging markets,' said Lee. Meanwhile, Williams pointed out that investors were moving into other currencies including major liquid currencies like the euro, pound and yen. 'The move to use national currencies in bilateral trade is also increasing as is the use of cryptocurrency investments and all of this is market driven which is likely to continue,' he said. Despite the shift away from the US dollar, it is noteworthy that it has retained its position as a leading reserve currency. In 2024, the US dollar's share of global reserves stood at 57.8%, although this was a reduction from a peak of 71% in 2000 and 62.3% in 2010. SERC's Lee said since end-2020, central banks' reserve diversification has not been towards the euro, pound sterling and the Japanese yen, but towards non-traditional reserve currencies such as the Chinese yuan and other small, open and better managed currencies including the Australian dollar. The euro's share of global reserves was reduced from a peak of 25.8% in 2010 to 19.8% in 2024, while that of the yen's share also fell from 6% in 2020 to 5.8% in 2024. Based on available data, the yuan's share of global reserves, which was 1.23% in 2017, has increased over the years to remain constant at 2.3% in 2020 to 2024. In terms of cross-border transactions, the US dollar is also the most used currency in the world. Based on the data from the international payment messaging system SWIFT, the US dollar had a share of 60.1% as of December 2024, followed by the euro (12.8%). The yuan's share was 2.8%. Maybank IB also highlighted that the share of US dollar transactions on SWIFT had actually increased in recent months up to April 2025. 'This does suggest that the dollar's dominance is hard to challenge in the near term,' stated the research house. Regardless, Lee foresees the trend of the dollar weakness to continue on persistent worries about the tariff policy uncertainty and the US growth prospects. The more discerning concerns are the impact of Trump's proposed 'One Big Beautiful Bill Act' raising the US debt and deficit by trillions of dollars. Additionally, the Federal Reserve interest rate cuts to combat cyclical weakness could hurt the dollar further. With a weak dollar in place, it would mean a period of strength for the ringgit. Lee said that a strong ringgit is good for businesses importing intermediate and capital goods, while it could dampen the export-oriented industries' competitiveness, in particular to the US market. 'A favourable exchange rate is not the only factor influencing a company's price competitiveness. Non-price factors such as enhanced quality or better labelling of exported products as well as product differentiation and value-addition are also important to sustain real price competitiveness.' Williams, on the other hand, said the weak dollar will impact Malaysian exporters through continued volatility, which affects pricing into export markets. 'This is normal but the real issue for exporters is the outcome of the tariff negotiations. 'If this goes well, it will be better for exporters, but they may still face the 10% baseline tariffs and will have to change business models due to that,' he said.
The Star
5 days ago
- Business
- The Star
'Opportune time to accumulate quality stocks'
AmEquities CEO Ng said three conditions are needed to revive market activity. KUALA LUMPUR: AmInvestment Bank Bhd has a cautiously optimistic view on market outlook, citing stable fundamentals but acknowledged ongoing headwinds that suppress market sentiment. 'Deals are in the pipeline, but the problem is uncertainty,' the bank's newly-appointed chief executive officer Christopher Ng Kok Wai told StarBiz at the launching of the AmEquities trading platform and media briefing here, yesterday. Many investment opportunities are available but companies are not able to continue without improved market clarity, he added. According to Ng, three conditions are needed to revive market activity namely a strong economic impetus, US interest rate cuts and clarity on tariffs as well as global trade. 'Fund managers are still holding elevated levels of cash relative to pre-Covid-19 norms. Once a catalyst emerges, we expect those funds to be deployed,' he noted. He said last year's positive market performance was supported by the strengthening ringgit, strong inflows into the data centre segment and political stability. Ng described the current market environment as being on 'auto cruise', where it is steady but lacks momentum. 'It's not bad, but it's not good either. We need an impetus,' he said, adding that global uncertainties, particularly around tariffs and the US rate cycle, continued to weigh on sentiment. While the broader market outlook remained mixed, Ng said fundamentals remained sound. 'From a domestic standpoint, consumption is still strong,' he said. He stated that crude oil prices of between US$70 and US$80 per barrel would be sufficient for the oil and gas sector to remain viable. 'The industry isn't asking for a boom, just stability,' he added. On the retail front, Ng acknowledged that most investors had remained cautious and on the sidelines. 'Retail investors are understandably hesitant, especially with the external environment. But there are still opportunities,' he said. With the FBM KLCI trading below its historical average, it could be an opportune time to accumulate quality stocks. 'It may not feel like the perfect time, but valuations are reasonable. Caution is warranted, but not paralysis. 'We are cautiously optimistic. As a focused, Malaysian-centric player, we see this market environment as a window to create opportunities, even when sentiment is soft,' he added. The AmEquities trading platform is offering a host of advanced features including customisable dashboards, access to live market data in real time with multilingual support. It aims to provide investors with a seamless and informed trading experience, reflecting the bank's commitment to innovation amid a challenging market environment.
The Star
5 days ago
- Business
- The Star
Earnings in 1Q25 fail to excite
KUALA LUMPUR: It was an underwhelming results season for many companies in the first quarter of the year (1Q25). The benchmark FBM KLCI saw a reflection of this sentiment as profit-taking became apparent in the second half of May: at the period of time when most companies reported their results. The earlier strong performance in the benchmark index since the US tariff-induced sub-1,400 points year-to-date low on April 9 provided room for bullish investors to buy into stocks then. The upward momentum lasted until mid-May, when the market saw strong profit-taking as foreign funds took the opportunity to take profit and reduce their stakes with the FBM KLCI giving back some of its gains. Even as the FBM KLCI's price-to-earnings valuation sits at slightly below historical averages at circa 13.93 times, fund managers say the market needs more catalysts to sustain any move higher and the recent disappointing 1Q25 results appears to have failed to deliver on this front. At last Friday's close, the FBM KLCI stood at 1,508.35 points. Whether bargain hunting will emerge sooner or later will also depend on how trade talks with the United States are resolved and progress forward eventually since this would also affect the economic outlook as well. The local market price action also appears to be muted to the latest attempt of a policy change on US tariffs by the US Court of International Trade, which had attempted to block President Donald Trump's order on tariffs tomorrow. The decision was overruled by a temporary reinstatement of the tariffs by a US federal appeals court a day later. Investors participating in the local market appear to be numbed by these latest developments that were supposed to be positive for risk sentiment; and present share price price valuations may have already factored in this possibility as well, said analysts. Apex Securities' head of research Kenneth Leong said while the 1Q25 results season was less exciting, there were also concerns if the strong financial performance in 2024 was sustainable. 'After raking in a relatively strong performance last year, sustainability comes into question as to whether projected earnings growth could play catch up. 'Most sectors such as banking, construction, property, telcos (telecommunication companies) and plantations came in line with expectations,' Leong told StarBiz. He pointed out that the technology sector had underperformed with key players including Inari Amertron Bhd , Frontken Corp Bhd and QES Group Bhd all coming in below expectations on weaker demand as well as unfavourable currency exchange. Also, Leong said another factor for the recent weak sentiment is the softer economic growth outlook after the 1Q25's gross domestic product (GDP) grew by 4.4% year-on-year. 'GDP growth continues to taper for the third straight quarter and the trend could remain in place in the subsequent quarters ahead. Our in-house projection is a GDP growth of 4.2% in 2025,' he said. Leong anticipates investors may continue to be sidelined as there is much prevailing uncertainties from international trade developments. 'While trade tensions appear to have eased in recent weeks, the ultimate impact of tariff and other policy changes remains uncertain,' Leong said. Meanwhile, portfolio manager at Tradeview Capital Ng Tzyy Loon said the 1Q25 earnings reports have generally been quite muted with some companies coming in below expectations. Ng expects a further slowing down in year-on-year GDP growth in the 2Q25 and that more clarity should emerge on this front after mid-2025. 'This (clarity) would come once the trade and employment data better reflect the current situation and enable governments and central banks to take necessary measures. 'Of course, this is provided that there's no more drastic change in Trump's tariff plans,' Ng said. He advised investors who are now looking to bargain hunt to focus on domestic-driven businesses and stocks with great liquidity, noting that this would provide some cushion in the event of any future significant sell-downs. But Ng also highlighted the highly fluid nature of the US tariff talks, which at times seem to make progress, at other times appear to regress, and occasionally seem to be going nowhere. 'This serves as a reminder to the market participants that we are not out of the woods yet,' he noted. Former investment banker and private investor Ian Yoong said the performance of companies listed on Bursa Malaysia has generally been disappointing even after taking into consideration seasonal factors. 'The exception was the construction sector where the outperformance has been helped by strong order books. 'The banking sector too has fared well in the first quarter of 2025,' Yoong said. Sentiment wise, Yoong said investor confidence from both retailers and institutional investors are still at a low. 'This is mainly attributed to the imposition of tariffs in the US and the trepidation brought about by the flip-flopping in decision making of the current US administration. The United States and European equity markets have fared well notwithstanding the same factors that have adversely affected our domestic market. 'The steep fall in many stock prices especially in the small and mid-cap sector is grossly overdone. This presents a golden opportunity for long term investors,' Yoong said. Moving forward, Leong said the plantation sector which has generally delivered a strong set of numbers in the first quarter may be impacted by the slightly weaker crude palm oil price - especially for planters with high exposures to upstream operations. 'On a brighter note, we expect the construction sector's earnings to remain sustained, backed by execution of their sizeable order books,' Leong added.
The Star
26-05-2025
- Business
- The Star
MALAYSIA IN POSITION OF STRENGTH
KUALA LUMPUR: Malaysia is coming from a position of strength amid the current economic uncertainty, sparked by the global tariff war. Former chairman for London's Standard Chartered group Jose Vinals said that while tariff imposition by the United States could have an impact on the country's future growth, strengths like its current Asean chairmanship is among the drivers supporting the overall economy. Vinals, who remains as an adviser at the global lender, noted that the country's other strengths included political stability, sound national economic policies, a good business environment and proper rule of law. 'The country is endowed with rich natural resources and you also have tremendous talent in the country. 'The creative minds here have made Malaysia a country that revolves around trade and technology,' Vinals told StarBiz during a visit here last month. As Asean chair, Malaysia is well positioned to facilitate intra-Asean integration and cohesion even against the backdrop of the current economic environment, which is fraught with uncertainties, he added. 'Asean is one of the top five strongest economic regions in the world and it's a powerhouse in Asia with a multi-engine growth story, which we expect will continue to attract strong foreign direct investment flows as investors seek to diversify their operational capacity and tap into new markets. 'Uncertainty creates new risks, but also new opportunities in fast-growing trade corridors like Asean, sustainable development, and cross-border wealth. 'A very important role that Malaysia can play is leveraging its good sense of economic diplomacy and the value of international connectivity to drive further cohesion to benefit global trade,' he said. Malaysia, like most countries, is likely to be impacted by the US' imposition of tariffs – which is currently on a pause – but the ultimate narrative is dependent on the final negotiations that take place between the United States, Malaysia and the other countries. 'It's too early to say whether the global economy will undergo a recession, but what we can expect is volatility. 'How big an impact it will have will depend on the final negotiations that take place, but it will certainly have a negative impact on growth,' he said. As with other Asean countries, Malaysia's economy has prospered through open trade, Vinals said, adding: 'I am a fan of open markets and free trade. Globalisation has brought a lot of benefits to the world when it comes to open trade and investment flows, and the answer is making sure we have freer and fairer trade, not necessarily by increasing tariffs but by removing barriers to trade.' He shared that the role of Standard Chartered is to leverage its global network across 53 markets – including all 10 Asean markets – and local market expertise as a super connector to support wealth, trade and investment flows and drive cross-border growth, with a focus on emerging high potential corridors and helping clients navigate increased complexities. 'In Malaysia, Standard Chartered has maintained a strong relationship with clients and stakeholders for 150 years. 'We have a fantastic franchise here and are working hard to make it even better. 'Our strong and very diverse business lines, excellent capital strength and asset quality position us well to continue to support our clients in the structurally higher growth and vibrant markets in which we operate. 'We're staying close to our clients to help them navigate today's uncertainties and enable them to find and seize new opportunities,' he said, adding that the bank continues to work closely with its clients as they adjust their supply chains, adapt their business models and cope with the expected lower global and local growth. 'Malaysia has a bright future ahead, and it will require work, but the trust and relationships we've built here gives us tremendous confidence that we're going to continue moving further and faster.' Commenting on the interaction he has had with colleagues, clients and stakeholders, he said that there is 'tremendous energy' to move forward. 'Through my interactions here, I can see that there is tremendous energy to move forward, and every time I come to Malaysia, I am overwhelmed by how welcoming and warm the people are. 'I think that Malaysians are truly wonderful and I leave Malaysia with all of my batteries recharged and confident in the future of the country.'
The Star
20-05-2025
- Business
- The Star
Double-digit expansion in April
PETALING JAYA: It remains to be seen whether the positive trade numbers registered in the first quarter of financial year 2025 (1Q25) can be replicated in the months to come, as US tariffs continue to be the main wildcard in the country's trade outlook. Malaysia's trade performance in April 2025 saw a double-digit expansion in both exports and imports. Trade increased by 18.2% year-on-year (y-o-y) to RM261.94bil, the highest monthly value ever recorded since August 2022. Exports expanded by 16.4% y-o-y to RM133.56bil and imports were up by 20% y-o-y to RM128.37bil. Nonetheless, given the sharper surge in imports, mainly due to inbound capital goods that surpassed the rise in exports, trade surplus narrowed to RM5.19bil in April from RM24.8bil in March. Bank Muamalat Malaysia Bhd head of economics, market analysis and social finance Dr Mohd Afzanizam Abdul Rashid said the latest export print was higher-than-expected by a greater margin. He noted that total exports which grew by 16.4% y-o-y in April were higher than the consensus estimate of 7.5%. 'While this can be a positive start for the figures in 2Q25, it also reflects that there could be front-loading activities among the trade partners. Exports to the United States which accounted for 14.4% of total exports in April rose by 45.6% y-o-y, albeit slower than the 50.8% y-o-y growth registered in March,' he told StarBiz. Mohd Afzanizam said Putrajaya's trade performance for the months of May, June and July is expected to post 'fairly stable' growth. However, Afzanizam cautioned that the outlook beyond July will be critically dependent on how tariff negotiations will pan out. 'The fluidity in policy making by the Donald Trump administration makes it hard to predict what the trade performance would be from July onwards. Suffice to say, exports growth would likely hover below last year's exports growth of 5.7%,' he said. Electrical and electronics (E&E) products made up the bulk of exports in April, accounting for 45.1% of total shipments. Valued at RM60.23bil, E&E exports rose by 35.4% year-on-year. Meanwhile, exports of petroleum as well as chemical and chemical products declined by 9.3% and 11.3% y-o-y, respectively, in April. They were valued at RM8.50bil and RM5.23bil, accounting for 6.4% and 3.9% of total exports. BMI, a unit of Fitch Solutions, flagged that exports will be a major drag on the country's growth over the coming quarters. It warned that the E&E exports momentum will almost certainly not be sustained in 2Q25. 'Exports did, admittedly, rise in 1Q25 as exporters attempted to front-run US tariffs. Data from the Statistics Department showed exports of E&E products to the US rising by 28.9% y-o-y in February and 62.9% y-o-y in March. 'However, Malaysia is particularly exposed to US tariffs on semiconductors, which accounted for nearly 20% of US-bound shipments in 2024,' BMI said in a research note yesterday. To this end, Mohd Afzanizam also concurred that exports would be a main downside risk to the country's overall growth given Malaysia's openness to international trade and investment. On the other hand, economist Geoffrey Williams said April's trade figures were within expectations due to the front-loading of exports in the first three months of the year ahead of the tariff announcement on April 2. 'We saw a huge surge in exports, especially to the United States in February and March, so the lower exports in April was expected,' he said. That said, Williams added that export growth and the contribution of net trade to overall economic growth are expected to be front-loaded in the first half of the year, followed by a slowdown in the second half. He said the front-loading activities from the first three months are likely to be sustained in 2Q25 because of the pause in reciprocal tariffs and ongoing uncertainty around the negotiation outcomes. 'This might push more exports in the April to June quarter to avoid any undesirable outcome after,' he said. In terms of markets, exports to the United States were the second largest in April, accounting for 14.4% of total exports, expanding by 45.6% y-o-y, with a value of RM19.22bil. This is followed by exports to China which rose by 2.1% y-o-y to RM14.40bil, taking up a 10.8% share of total exports. In the meantime, imports from China were the largest in April, making up 23.2% of total imports, and increasing by 20.6% y-o-y with a value of RM29.76bil. Meanwhile, imports from the United States were the third largest last month, accounting for 14.4% of total imports and rising by 111.8% y-o-y with a value of RM18.47bil. Meanwhile, Universiti Tunku Abdul Rahman economics professor Wong Chin Yoong said the likelihood that the country's trade performance may see a negative growth rate is low. This, he said, is on the back of tariff exemptions on local exports to the United States and potential abolition of the 24% reciprocal tariff. 'The impact of the tariffs on our exports to the United States would actually be quite moderate, as more than 60% of Malaysia's exports to the US are exempted from tariffs. 'Looking ahead, as long as those exports continue to be exempted, the country will likely continue to see positive export growth to the United States and to the rest of the world,' he said. Wong said his expectation that the reciprocal tariff would be scrapped, leaving only a 10% tariff on most countries, as the base case, is in line with the recent remarks of US Commerce Secretary Howard Lutnick. 'The world is also better prepared for the tariff war this time around, compared with US President Donald Trump's first stint as president back in 2018. 'Back then, global trade and cross-border foreign direct investment flows slowed sharply in the second half of 2018, with many indicators turning flat or negative. 'However, we are not seeing this kind of scenario now, even though the current tariff war is broader and harsher than it was in 2018. Hence, in that sense, we are more resilient,' he said. While Wong expects a softer trade performance for Malaysia in May and June, he remains optimistic, citing the latest de-escalation of the United States-China tariff war as a supporting factor. Meanwhile, Wong also cautioned that two key risks could threaten Malaysia's trade performance in the coming months, namely the introduction of industry-specific tariffs by the United States and the likelihood of a US recession. 'If you look at our trade statistics, our exports to the United States are heavily concentrated, where about 70% are in petroleum, E&E and machinery. Hence, sector-specific tariffs on semiconductors for instance could have a greater impact on our export performance as compared with country-specific tariffs. 'Further, a recession in the United States will not only have a much larger impact on the country's overall exports performance, but also that of Malaysia's other key trading partners, which could also indirectly affect our trade performance,' he added. Williams, however, said the real concern is the country's trade balance which has been on a downtrend since August 2023. 'Recovery has been volatile and not sustained,' he said. However, Mohd Afzanizam and Wong maintain that narrowing the trade surplus in April is not really concerning. For one, Mohd Afzanizam said imports of capital goods are very volatile compared with other categories such as intermediate goods and consumption goods. 'Hence, it may not be repeated in the months to come especially when business sentiment is cautious. Firms may want to review their capital expenditure and this can have an impact on capital goods import going forward,' he said. Wong opined that the narrower trade surplus in April was mostly a reaction towards US tariff policies and is not reflective of any structural change in Malaysia's trade. 'It will be back to more normal levels once the outlook on tariffs becomes clearer. Overall trade balance reflects domestic conditions. As long as our overall savings still exceed overall investment, the trade balance will remain in surplus,' he said. Going forward, Mohd Afzanizam said Malaysian companies should find new customers to mitigate the impact of tariffs. However, he also acknowledged that finding new markers is not an easy feat and will take time, as the businesses need to familiarise themselves with the rules and regulations of the new markets. 'This is where the role of the government through the relevant ministries and agencies such as the Investment, Trade and Industry Ministry is critical to facilitate businesses' transition to new trading partners,' he said.
