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This article first appeared in The Edge Malaysia Weekly on January 22, 2018 - January 28, 2018

CORPORATE Malaysia is set for an eventful week ahead, even as the World Economic Forum kicks off its annual rendezvous in Davos with the theme “Creating a Shared Future in a Fractured World”. Indian Prime Minister Narendra Modi will deliver the opening address while US President Donald Trump is slated to give a keynote address. Familiar Malaysian faces in Switzerland will include Khazanah Nasional Bhd managing director Tan Sri Azman Mokhtar, AirAsia group CEO Tan Sri Tony Fernandes and CIMB Group Holdings Bhd chairman Datuk Seri Nazir Razak.

Back home, Prime Minister Datuk Seri Najib Razak is scheduled to deliver a keynote speech on Tuesday at Invest Malaysia Kuala Lumpur, where some 50 companies across diverse sectors are set to meet investors, ahead of a general election widely expected to be called soon.

There may also be a tailwind from China’s stronger than expected fourth-quarter GDP reading of 6.8%, which pushed full-year growth to 6.9% — the first annual acceleration since 2010 — something Malaysia’s export-centric economy is likely to benefit from.

On Wednesday (Jan 24), attention will be on what could be Bank Negara Malaysia’s first interest rate increase in 3½ years (in July 2014, it was hiked by 25 basis points).

Governor Tan Sri Muhammad Ibrahim, who hinted of a review of the degree of monetary accommodation, had previously said any increase in Bank Negara’s headline overnight policy rate (OPR) would constitute a “normalisation” rather than a hawkish stance. Expectations are for a 25 basis points increase to 3.25%, matching the rate before the 25 basis points cut in July 2016 to pre-empt global headwinds from the surprise vote in the UK to leave the EU, or Brexit.

“Normalisation restores [the interest rate] to a level deemed appropriate to support sustainable growth, consumption and investment while encouraging savings,” says Lee Heng Guie, executive director of the Socio-Economic Research Centre.

Bank Negara’s first monetary policy committee meeting of the year comes ahead of the US Federal Reserve’s Federal Open Market Committee’s first rate decision of 2018, which will be out in the early morning here on Feb 1 — a non-market day to mark Federal Territory Day. The FOMC in December maintained guidance for three more hikes in 2018.

Some observers reckon the greenback’s weakness may not persist much further, pointing to Apple Inc’s US$38 billion one-off tax payment on its overseas cash holdings as a sign of more money being brought back to the US.

At the time of writing, the ringgit was fetching 3.9388 to the US dollar, its highest level in 18 months. The ringgit also gained against the Singapore dollar to 2.9854, a level last seen in August 2016.

Last Thursday, Khazanah’s Azman told reporters that the ringgit is trading “closer to where it ought to be” — citing a real effective exchange rate (REER) of 3.80 to 3.90 to the greenback — but added that actual values can “be out of whack for some time”. Bloomberg data shows the most bullish projections at between 3.75 and 3.92 for 2018, compared with median projections of 3.93 to 4.08 to the US dollar.

Last Wednesday (Jan 17), the Bank of Canada raised its key rate by 25 basis points to 1.25%, citing recent strength in economic data, and signalled further increases. The Bank of Japan’s monetary policy committee is slated to meet on Jan 22 and release the minutes of its Dec 20-21 meeting on Jan 25.

Over at the European Central Bank, the governing council is also set to meet, with president Mario Draghi scheduled to hold a press conference on Jan 25. The ZEW Economic Sentiment Index as well as the Eurozone composite, manufacturing and services PMI Index are slated for release on Jan 23 and 24 respectively.

Singapore, which uses its currency to manage inflation, is scheduled to release December’s inflation reading on Jan 23. Malaysia will release the Consumer Price Index for December 2017 on Jan 24 and Bank Negara’s foreign reserves level for mid-January on Jan 22.

The central bank’s foreign reserves stood at US$102.4 billion (RM414.6 billion) at end-December, up 8.2% from US$94.6 billion (RM424.2 billion) end-December 2016, sufficient to cover 7.2 months of retained imports and 1.1 times short-term external debt. The reserves also reflected a stronger ringgit to US dollar exchange rate of 4.0488 as at end-2017, compared with 4.4841 as at end-2016, back-of-the envelope calculations show.

Malaysia’s inflation rate is expected to remain above 3% in December on the back of higher fuel prices. The CPI moderated to 3.4% in November 2017 from 3.7% in October and 4.3% in September.

On the corporate front, Fraser & Neave Holdings Bhd (Jan 24), Sasbadi Holdings Bhd (Jan 23) and Bright Packaging Industry Bhd (Jan 22) are among the companies having their annual general meetings (AGM) this week. Companies that will hold extraordinary general meetings (EGMs) this week include Malaysia Building Society Bhd (Jan 23) and LBS Bina Group Bhd (Jan 26). MBSB shareholders will be voting on the proposed merger with Asian Finance Bank Bhd, which would allow it to become a full-fledged Islamic bank. LBS, meanwhile, is seeking shareholders’ approval for a proposed 1-to-2 share split and 1-for-10 bonus issue of the subdivided shares.

 

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