AmWatch - Economic Update : Forex reserves increase for the first time since October 2013 , 23 Apr 2014

FOCUS OF THE DAY

Economic Update : Forex reserves increase for the first time since October 2013

Malaysia’s forex reserves at Bank Negara Malaysia (BNM) had surprisingly increased during the 1H of April. The increase in reserves could have been attributable to the inflow of short-term funds or improvements in net trades.

Overall reserves grew by 0.7% (or +USD0.9bil) from end-March to USD131.1bil in mid-April as BNM had accumulated forex reserves during 1H of April to ensure orderly fluctuation of the Ringgit. In Ringgit terms, forex reserves advanced by 0.7% (or +RM2.8bil) from end-March to RM427.4bil in mid-April.

At the close of 15 April, Ringgit stood at RM3.244 per USD. Ringgit had strengthened against the greenback by 1.0% YTD or 0.7% from end-March. Similarly, Ringgit was stronger against the IDR (+1.0% from end-March), CNY (+0.7%), EUR (+0.3%), GBP (+0.2%), and THB (+0.2%) during 1H of April.

The reserves position is sufficient to finance 9.4 months of retained imports and is 3.3 times the short-term external debt. Having said that, Malaysia is expected to preserve macroeconomic and financial stability owing to more flexible exchange rates, higher international reserves and a more developed financial system.

Elsewhere, exports/ imports/ trade balance registered +12.3%/ 8.3%/ RM16.79bil as of YTD February 2014. Net trades had advanced by RM5.32bil YTD. We believe that the Fed’s decision to start reducing the pace of asset purchases in Dec had a limited impact on the economy, as investors had already anticipated the eventual unwinding of the QE.

Both the Ringgit and Malaysia’s forex reserves had started deteriorating as early as May 2013. By end-August, the Ringgit depreciated by 10.9% from the close of RM2.9625 per USD on 8 May. Meanwhile, overall reserves at BNM depleted by 4.7% (or -USD6.6bil) between May and August 2013. As of YTD 1H March 2014, total reserves slipped by 2.8% (or -USD3.8bil).

Others :

Malaysia Building Society : DRP price set at RM2.03          HOLD

QUICK TAKE

British American Tobacco : Cost rationalisation to support FY14F earnings              HOLD

NEWS HIGHLIGHTS

Malaysia Building Society : To sustain revenue for current year

AirAsia : Connects Singapore to Kuala Terengganu

SP Setia  : 1MDB and US firm in solar tie-up

Power Sector : Gets RM282m Pantai-Salak South transmission line project

Property Sector : BlackRock to sell office towers, mall

DISCLAIMER:

The information and opinions in this report were prepared by AmResearch Sdn Bhd. The investments discussed or recommended in this report may not be suitable for all investors. This report has been prepared for information purposes only and is not an offer to sell or a solicitation to buy any securities. The directors and employees of AmResearch Sdn Bhd may from time to time have a position in or with the securities mentioned herein. Members of the AmInvestment Group and their affiliates may provide services to any company and affiliates of such companies whose securities are mentioned herein. The information herein was obtained or derived from sources that we believe are reliable, but while all reasonable care has been taken to ensure that stated facts are accurate and opinions fair and reasonable, we do not represent that it is accurate or complete and it should not be relied upon as such. No liability can be accepted for any loss that may arise from the use of this report. All opinions and estimates included in this report constitute our judgement as of this date and are subject to change without notice.