AmWatch - Economic Update : Inflation stays at 3.5% YoY for two consecutive months, 17 Apr 2014

FOCUS OF THE DAY

Economic Update : Inflation stays at 3.5% YoY for two consecutive months

Malaysia’s Consumer Price Index (CPI) advanced by 3.5% YoY in March which was in line with both our and consensus expectations (February: +3.5% YoY). Specifically, core inflation grew by 3.3% YoY while the cost component of Food and Non-alcoholic Beverages increased by 3.9% during the month.

Note that the transport index surged by 5.1% YoY while Housing, Water, Electricity, Gas & Other Fuels increased by 3.6% YoY. With that, inflation soared by 3.4% YTD. The increase was driven by the Food & Non-Alcoholic Beverages and Non-Food index, which advanced by 4.0% and 3.1% YTD, respectively.

We expect monthly headline inflation to soar during the middle of this year before prices ease towards the later part of 2014. Mainly, we anticipate further reduction in petrol subsidy in mid-2014 as the government plans to reduce overall spending on subsidies.

In terms of percentage contribution, transport index accounts for 14.9% of total CPI. As such, adjustment in petrol pump prices will significantly impact overall inflation. No change to our CPI growth assumption at this juncture. We are keeping our full-year CPI growth estimate for 2014 at 3.0% (2013: +2.1%).

BNM had recently guided that Malaysia’s headline inflation is expected to average between 3% and 4% in 2014. Going forward, BNM will continue to focus on ensuring sustainable economic growth in a stable price environment while avoiding the build-up of financial imbalances.

Despite the negative real interest rate environment, we do not foresee a raise in interest rate in 1H14 unless the cost-push inflation leads to a more persistent inflationary risk ahead. That said, we believe that interest rate will be maintained in the upcoming policy meeting in May while BNM assesses the economic impact arising from the cuts in subsidy.

Others :

Capitamalls Malaysia : Achieved an average +1% rental reversion              HOLD

KL Kepong : Expects stronger FFB output in 2HFY14          HOLD

QUICK TAKE

Auto Sector : Perodua: New variants, EEV entry                OVERWEIGHT

NEWS HIGHLIGHTS

APM Automotive Holdings : To sell land and buildings

Boustead Heavy Industries Corp : Signs deal with MoD

Property Sector : Another developer from China comes to Johor Baru, plans RM10bil project

Rubber Gloves Sector : Prices to rise due to higher cost of gas

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.