The Week Ahead: Xi-Trump G20 date and the Equanimity sale in focus

This article first appeared in The Edge Malaysia Weekly, on November 26, 2018 - December 02, 2018.
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After learning that the super-yacht belonging to fugitive financier Jho Low has cost the government RM3.5 million to maintain since Aug 7, Malaysians may find out this week how much the Equanimity fetched at an auction set to close on Nov 28.

The 90m vessel, which was reportedly valued at US$175 million by London-based VesselsValue, would net US$125 million for government coffers if sold for half its US$250 million original price tag in 2014.

The spotlight will also be on Datuk Seri Najib Razak, whose 1Malaysia Development Bhd-linked abuse of power case is set for mention at the Kuala Lumpur High Court on Nov 27. The former prime minister, who claims trial to 21 counts of money laundering and four counts of abuse of power, sat outside the dock when appearing before sessions court judge Azura Alwi on Nov 16. Najib may also appear in the Sessions Court on Nov 29 with former Treasury secretary-general Tan Sri Mohd Irwan Serigar Abdullah for case mention on six counts of criminal breach of trust.

The investing world, meanwhile, will be closely eyeing the European Union leaders meeting on Nov 25, which seeks to endorse the divorce deal with the UK and its future relations. Many will also be keeping their fingers crossed for good news from the G20 leaders’ summit on Nov 30. Chinese president Xi Jinping has a dinner date with US President Donald Trump in Buenos Aires on Dec 1, which, it is hoped, will lead to the suspension of the ongoing trade war. As it is, the US’ 10% tariff on US$200 billion of Chinese goods is set to rise to 25% for all products from China on Jan 1.

A positive development would be good news for Malaysia, for which total trade is 131% of gross domestic product.  Close to 50% of its exports are incorporated into China’s final products that are then exported to the US. Some 13.5% or RM126 billion of Malaysia’s exports went to China last year, the country’s largest trading partner for nine straight years. Malaysia’s economy, which is projected to grow 4.9% next year, could lose 0.3 to 0.5 percentage points in growth next year from the US-China trade tensions or up to 0.9 to 1.1 percentage points if the tensions further escalate, Bank Negara Malaysia said in its 3Q2018 bulletin.

Already, eyes are on the declining oil price as well as the ringgit, which is under pressure as foreign investors pull money from emerging markets. Budget 2019 had assumed oil prices at US$72 a barrel, which looked conservative when Brent Crude was fetching US$86.29 a barrel on Oct 3.  At the time of writing, however,  prices hovered near US$62 a barrel. Still, there may well be good news from Vienna, Austria, on Dec 6, where Opec members may arrive at a consensus to cut output to help support prices. Back home, debate on Budget 2019 at the committee stage, which started on Nov 22, continues until Dec 6 in parliament.

At the time of writing, the ringgit was hovering at a low of 4.1970 to the greenback, weakening 8.7% from as strong as 3.8620 to the dollar on April 2 this year. UOB Bank economist Julia Goh reportedly expects the ringgit to average 4.22 to the greenback next year, consistent with forward data on Bloomberg at the time of writing. Bloomberg data also show median forecasts for the currency pair at 4.07, more optimistic than the average of 4.11. The most bearish forecast is 4.40 while the most optimistic was 3.70.

This week, apart from the release of the Producer Price Index for October on Nov 30, economists will be watching out for Bank Negara’s monthly statistical highlights and the detailed disclosure of its international reserves as at end-October.

Of interest is the central bank’s short position in foreign exchange swaps, which had widened since April this year to US$19.8 billion as at end-September, or 19.2% of total foreign reserves of US$103 billion.

Incidentally, Bank Negara’s foreign reserves were at their highest in more than three years at US$109.5 billion in April — also the month the ringgit was at its strongest year to date — but slipped to US$102.1 billion as at mid-November, even as foreign funds began pulling more money from emerging markets, including Malaysia. Nonetheless, it is worth noting that Bank Negara did unwind most of its borrowings via foreign exchange swaps when foreign selling receded earlier this year, as witnessed by how the figure slid to US$6.95 billion or 6.4% of foreign reserves in March 2018 from as high as US$19.1 billion or 19.9% of foreign reserves in April 2017.

When announcing 3Q GDP figures in mid-November, the central bank said its reserves-to-short-term external debt coverage of 1.0 times is adequate to facilitate international transactions. Foreign holdings of Malaysian government bonds remain stable at 23.2% in September this year with 52.7% of holders being central banks and pension funds, which are deemed long-term investors, its data show.

Central bank watchers also have speeches from European Central Bank chief Mario Draghi on Nov 26, the Bank of England’s Mark Carney on Nov 27, US Federal Reserve chairman Jerome Powell on Nov 29 and the latest US Federal Open Market Committee minutes release on Nov 30. The Fed is expected to hike interest rates again in December, but some experts have begun to wonder if another three hikes would happen next year.

Back home, this week will see the peak of third-quarter earnings reporting with results expected from Petronas Dagangan Bhd, Telekom Malaysia Bhd, Carlsberg Brewery Malaysia Bhd, AirAsia Bhd and UEM Sunrise Bhd, among others. Also of interest is market capitalisation data after the closing bell on Nov 26, which will be used for the upcoming semi-annual review of the FBM KLCI constituents on Dec 6. Among notable shareholders’ meetings this week is Sapura Energy Bhd’s extraordinary general meeting on Nov 29, seeking approval of its RM4 billion rights issue.

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