Malaysia market commentary

You might be wondering why I have been keep talking about the US market and not so much of Malaysian market. US is the central of earthquake that transmits Tsunami to the rest of the world. So, monitor the central is important to assess the damage on the shores.

Back to Malaysian market, important development over the last two weeks (Business Times)

1. Malaysia is an extraordinarily open economy with gross exports clocking in over 100 per cent of GDP. Moreover, nearly 40 per cent of those exports are electrical and electronic items which can decline rapidly if there is a severe recession in the US.

2. Ms Zeti has gone further and for the first time said that the central bank was prepared to cut interest rates. The authority has kept interest rates steady at 3.5 per cent since April 2006 despite insistent calls that rates be lifted to check growing inflation fuelled by rising oil prices.

3. MALAYSIA'S central bank governor Zeti Akhtar Aziz met the country's top bankers late last month to give them a message: don't cut off credit lines to clients suddenly deemed suspect because of the global financial crisis.

Ms Zeti needn't have worried. Loan growth has moderated - from more than 10 per cent to around 8 per cent - but only because of slowing economic activity.

4. (theStar) KUALA LUMPUR: The Malaysian Institute of Economic Research (Mier) has revised upwards Malaysia’s gross domestic product (GDP) growth in 2008 to 5.3% from 4.6% previously due to higher-than-expected growth in the first half of the year.

But the independent research house forecast a lower GDP of 3.4% for 2009 due to the poor global economic outlook, and predicted that a recession might hit the country by the second or third quarter next year.

One of the high tech electronic hub, Penang, is already sensing something very bad is going to happen.

5. (theEdgeDaily)GEORGE TOWN: Faced with the possibility of retrenchments next year in the manufacturing sector due to the global economic slowdown, Penang is asking the federal government for an RM500 million allocation to retrain workers over the next five years.

Without disclosing details, Chief Minister Lim Guan Eng said though he did not know the numbers, he was aware of retrenchment or downsizing plans which would be undertaken by certain multinational companies next year.

He said instead of waiting for it to happen, Penang wanted its workforce to be prepared for gainful employment in any eventuality.

“Even the national growth forecast has been halved to 3.57% and it will definitely have an impact on all of us. We are asking for RM500 million for five years, which will amount to RM100 million a year to retrain these workers.

I am not sure whether most of the market participants have genuinely discounted the development. While I am taking a more positive stance anticipating the real economy to be on a firmer footing in 12-24 months, I don't think the market has gone through the short term re-pricing yet. For example, OSK is still calling themselves realistic while forecasting 3% growth. If the actual earnings contract by 10-15% in 2009, KLCI can well go down to 700-800 points before pricing in a genuine earning recovery.


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