The Week Ahead: Post-budget rally, interest rates and 1MDB drama ahead

This article first appeared in The Edge Malaysia Weekly, on November 5, 2018 - November 11, 2018.
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The much-anticipated “budget of sacrifices” was finally tabled in parliament last Friday.

Because of the Deepavali holiday on Tuesday, parliament will not meet this week.

Although the working week is shorter, expect the collective sigh of relief to create a ripple in the stock market, potentially driving a rebound rally after a generally dismal October.

The market had been weighed down by trepidation ahead of Budget 2019, amid what has been a seesaw year so far.

In April, the benchmark FBM KLCI hit a multi-year high of 1,895.18 points but in July — about two months after the change in federal government — it fell to a 17-month low of 1,663.86.

Between Aug 28 and Oct 21, the index shed 7.87% to touch 1,683.06 points. Last Friday, it closed at 1,713.87.

Among the FBM KLCI’s 30 constituents, Telekom Malaysia Bhd has been the biggest loser, having fallen by over 61% year to date as at last Friday.

Other major losers include Astro Malaysia Holdings Bhd (38.22%), Axiata Group Bhd (36.31%) and YTL Corp Bhd (22.63%).

In contrast, the biggest gainers among the blue chips include Nestlé (M) Bhd (+41.5%), Petronas Chemicals Group Bhd (25.8%), Hong Leong Bank Bhd (24.15%) and Public Bank Bhd (21.8%).

A number of economic data releases are due this week ahead of Bank Negara Malaysia’s monetary policy statement release, scheduled for Thursday (Nov 8), as well as after.

Six economists surveyed by Bloomberg expect the 3.25% overnight policy rate to be kept unchanged at the Bank Negara monetary policy committee’s final meeting for the year.

That said, Nomura Research opined in September that a rate cut remains a possibility next year given that economic expansion is likely to slip below 4.2% then.

On Nov 5, ahead of the monetary policy meeting, the Department of Statistics Malaysia is scheduled to release the external trade data and indices for September.

Exports are expected to grow 6.6% year on year in September after a 0.3% contraction the previous month, according to economists polled by Bloomberg.

At the same time, imports are seen moderating to 7.7% year-on-year growth after three consecutive months of double-digit year-on-year increases. The trade surplus was estimated at RM7.5 billion.

On Friday (Nov 9), the statistics department is also scheduled to release September manufacturing statistics and index as well as key statistics on the labour force.

Industrial production in September is forecast to expand at a slower 2.2% year on year, against 4.8% in September 2017. If the projected expansion proves accurate, it would mark the third consecutive month that industrial activities have expanded at below 3% after a relatively stronger run earlier this year.

Around the region, the central banks of Australia and New Zealand will be on the market’s radar screen.

The Reserve Bank of Australia is scheduled to announce its latest interest rate decision on Tuesday (Nov 6) and is widely expected to keep its policy rate unchanged at 1.5%.

Also expected to keep its policy rate unchanged — at 1.75% — is the Reserve Bank of New Zealand, which is due to release its decision on Thursday.

China will also be watched with keen interest as Shanghai hosts the inaugural China International Import Expo from Nov 5 to 10.

The event, a large-scale B2B trade fair first announced by Chinese President Xi Jinping in May, aims to accelerate China’s global trade growth.

A number of data releases are also due, and include the Caixin October Services Purchasing Managers’ Index on Nov 5, the October foreign reserves on Nov 7, the October trade data on Nov 8 and inflation data on Nov 9.

Across the Pacific in the US, the mid-term elections will be held on Tuesday (Nov 6) with results expected to start streaming in the day after during the Asian trading session.

Expect any key shift in sentiment and capital direction to spill over into the Asian markets.

Note that due to the elections, the US Federal Reserve has moved its Federal Open Market Committee meeting for the month to Nov 7 to 8 (Nov 9 Malaysian time) instead of its usual earlier in the week schedule.

Following last week’s indictments relating to the 1Malaysia Development Bhd (1MDB) scandal, corporate observers will be on the lookout for additional newsflow, particularly from the US Department of Justice (DOJ).

The DOJ had indicted two former Goldman Sachs bankers — Tim Leissner and Roger Ng — as well as fugitive financier Low Taek Jho, better known as Jho Low.

All three were charged with conspiring to launder billions of dollars in illegal proceeds via 1MDB and for conspiring to pay hundreds of millions of dollars in related bribes.

The indictment marked a rare charge against executives of a major US bank. Leissner had pleaded guilty while Ng was arrested in Malaysia last week.

Goldman Sachs also reportedly put Andrea Vella, its former co-head of investment banking in Asia, on leave because of his alleged involvement in the scandal.

Reports indicate that the DOJ is still probing other bankers as well as Goldman Sachs, so more developments may unfold this week.

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