AmWatch - Economic Update : Reserves fall on weak Ringgit, 24 Jul 2015

FOCUS OF THE DAY

Economic Update : Reserves fall on weak Ringgit             

The international reserves of BNM amounted to USD100.5bil (or -4.7% from end-June) as at 15 July 2015. On a YTD basis, the reserves had contracted by 13.3% (or -USD15.4bil). The reserves position is sufficient to finance 7.9 months of retained imports and is 1.1 times the short-term external debt.

The Ringgit remained weak vis-à-vis the Greenback during the 1H of July. Ringgit hovered at an average of 3.79 per USD during the 1H of July which was weaker compared to June’s average of 3.74. Monetary policy will remain accommodative for the rest of the year in support of growth in a stable price environment. Although prices were on the rise and the Ringgit currency stayed relatively weaker against major currencies, the overall economy had probably slowed in 2Q15 due to the GST.

Despite steady loans growth of 8.9% in May 2015 vs. 8.8% in April, household spending softened amid weak domestic sentiment and higher prices. Loans growth for the household segment grew, albeit at a slower pace of 9.0% YoY in May vs. 9.4% in April, on the back of higher prices and cautious spending. We do not anticipate any changes in the OPR in 2015. The benchmark interest rate is likely to remain unchanged at 3.25%. Overall, the positive real interest rate environment remains attractive for international carry trades. In June, real interest rate stood at +0.75% as inflation rate was at 2.5% YoY.

Global holdings of Malaysia’s government bonds surged to an all-time high in June. When included both conventional and Islamic sovereign bonds, global holdings rose to 32% of total outstanding government bonds (vs. 31.2% in May). As for the interest rate in the US, Yellen said during her semi-annual report on the economy to the Senate Banking Committee that the Federal Reserve is "highly focused" on the risks of raising interest rates too early.

Economists’ outlook for the first Federal Reserve rate rise remains intact even as crises in Greece and China rocked global financial markets and dimmed global economic prospects. That said, a survey by Bloomberg on 20-22 July showed that odds for a September liftoff remain at 50%, exactly where they were in June. Consensus estimate in the US assigned 40% odds to a later move and does not expect a rate hike when the FOMC gathers on 28-29 July.

Others :

Plantation Sector : Taking a look at USD loan exposure of planters            OVERWEIGHT

               

NEWS HIGHLIGHTS

Yinson Holdings : Bids for three new contracts to provide FPSO units

Bursa Malaysia : Eyes structured products from FTSE4GoodIndex

Construction Sector : Sunway Construction records net profit of RM34.36m

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.