The Week Ahead: Mahathir goes to China, and second-quarter GDP

This article first appeared in The Edge Malaysia Weekly, on August 13, 2018 - August 19, 2018.
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The highlight of the week will be Tun Dr Mahathir Mohamad’s first official visit to China since becoming prime minister for the second time.

The visit is scheduled from Aug 17 to 21. Last week, the Chinese ambassador to Malaysia Bai Tian said that apart from meeting President Xi Jinping and Prime Minister Li Keqiang in Beijing, Mahathir is also expected to visit Hangzhou — the home of Alibaba Group and Zhejiang Geely Holding Group.

The meetings will provide a clearer signal on the Mahathir administration’s stance towards China — its various investments in Malaysia and, to some extent, its assertive policy in Southeast Asia.

Since the May 9 election, Mahathir has publicly criticised lopsided terms in China-related deals. He has also revived the look-east policy from his first premiership and has openly courted Japan as a middle power to balance China’s growing assertiveness in the region.

A key talking point when Mahathir meets the Chinese leadership will likely be his government’s pledge to review several big-ticket infrastructure projects that the previous administration pushed through in partnership with China-linked investors.

Alibaba founder Jack Ma, meanwhile, met with Mahathir in Malaysia last June, having advised the previous administration on its digital economy aspirations.

Geely is the 49.9% shareholder in Proton — the brainchild of Mahathir that started in 1983 during his first tenure as prime minister. He has openly expressed disdain over the current ownership of Proton.

Bank Negara Malaysia is expected to release the official gross domestic product figures for the second quarter ended June 30 on Aug 16.

The consensus forecast pegs the expected GDP expansion at 5.4%, matching first-quarter growth, which was the slowest in five consecutive quarters.

The figure will be closely watched as the second quarter saw the Goods and Services Tax zero-rated.

That may have spurred an increase in private consumption, which could support GDP expansion. However, some economists have cautioned that any consumption growth could be weakened by reduced public spending and investment.

Any outsized GDP growth could also mitigate the possible impact on growth from the reintroduction of the Sales and Services Tax in the fourth quarter.

Back in March, Bank Negara had forecast a full-year GDP expansion of 5.5% to 6% for this year.

However, in May, the central bank said it may revise this forecast once the full details of the economic initiatives to be proposed by the Council of Eminent Persons (CEP) are known.

The details may come as soon as this week, which would be the last full week for the CEP before its 100-day life expires on Aug 20, barring any extension.

Elsewhere, on the global front, it is relatively quiet on the monetary policy front as key central banks worldwide will only meet again in September.

The Norwegian central bank, Norges Bank, is to meet on Aug 16. While it has kept its 0.5% key interest rate unchanged, the first hike in seven years is well on the cards soon. A hike was initially expected by December this year, but the central bank has been signalling that it may happen sooner — the latest signal in June pointed to a September increase.

Note that the Reserve Bank of Australia last week said its benchmark rate will stay at a record low until 2020, longer than expected.

The contrast is a snapshot of a global divergence between top central banks — the European Central Bank is leaning towards keeping interest rates low even as the US Federal Reserve is talking up interest rate hikes.

In Corporate Malaysia, shareholder meetings scheduled this week include those of Batu Kawan Bhd and Kuala Lumpur Kepong Bhd. Both will have their respective extraordinary general meetings on Aug 15. The agendas are similar.

Both sets of shareholders will vote on the proposed adoption of a new constitution that will be more aligned with the Companies Act 2016 and the Bursa Malaysia’s listing requirements issued on Nov 29, 2017.

Preceding the two EGMs will be Sam Engineering and Equipment (M) Bhd’s EGM on Aug 14. At the top of the agenda is shareholders’ go-ahead for the company’s proposed employees’ share grant scheme.

The earnings reporting season will also pick up for the quarter ended June 30.

According to Bloomberg, among the expected earnings releases is that of blue-chip counter Tenaga Nasional Bhd. Consensus estimates forecast a 43% year-on-year jump in the electricity distributor’s net profit for the second quarter to RM2.12 billion, amid 10% revenue growth for this quarter.

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