China factory activity dives to worst on record as coronavirus paralyses economy - PMI

BEIJING: China's factories were dealt a devastating blow in February as the coronavirus epidemic triggered the sharpest contraction in activity on record, a private survey showed on Monday, with the health crisis paralysing large parts of the economy.

The Caixin/Markit Manufacturing Purchasing Managers' Index (PMI) tumbled to 40.3 last month, the lowest level since the survey began in 2004, and down sharply from the 51.1 reading in January as well as the 50-mark that separates growth from contraction.

The headline number was well off a Reuters poll forecast at 45.7 and even worse than the depths of the financial crisis in 2008-09, underlining the crippling effects of the virus across the country where authorities have imposed tough travel curbs and public health measures to contain the outbreak.

The findings, which focus mostly on small and export-oriented businesses, were backed by an equally grim official survey released on Saturday, which showed the steepest contraction on record.

Both the official and private surveys provide the first official snapshot of the state of China's economy since the outbreak of the coronavirus epidemic which has killed almost 3,000 people in mainland China and infected about 80,000. The virus has also spread rapidly to dozens of countries.

"China's manufacturing economy was impacted by the epidemic last month. The supply and demand sides both weakened, supply chains became stagnant, and there was a big backlog of previous orders," Zhengsheng Zhong, director of macroeconomic analysis at CEBM Group, said in comments on the survey.

The survey showed factory production and new orders collapsing to the worst levels on record, while employment also took a heavy blow. There was no respite for exporters either, with new export orders sinking at one of the sharpest rates in the series history.

The output gauge dived to 28.6 last month, from 52 in January, while that for new business plummeted to 34.9, from 51.9.

The results underlined fears among global health authorities, policymakers and investors of a potential pandemic and its debilitating impact on the global economy. The anxiety sent financial markets into a tailspin last week with trillions of dollars wiped out of stocks.

In response to signs of the deepening economic damage, Beijing has rolled out a steady stream of support measures to help businesses stay afloat, especially small enterprises which are facing a severe cash crunch but are a key source of employment.

China's central bank cut the benchmark lending rate last month to help lower financing costs and has said it would ensure ample liquidity through targeted reductions in banks' reserve requirement ratios.

Those support measures have buoyed business confidence, the private survey found, with the degree of optimism reaching a five year high.

But in the short run, analysts expect the epidemic to deal a sharp blow to growth with many forecasting a severe downturn in the first quarter.

Travel restrictions also affected the supply of labour, with firms struggling to fill roles in February, the survey showed, with factories shedding jobs at the quickest rate in the series history.

Economic growth in China slowed markedly to 6.1% last year, the weakest pace in nearly three decades, amid a bruising trade war with the U.S and despite Beijing's stimulus to boost sluggish investment and demand. - REUTERS

source https://www.thesundaily.my/business/china-factory-activity-dives-to-worst-on-record-as-coronavirus-paralyses-economy-pmi-NB2065186

Corporates to start feeling Covid-19 impact this quarter, say analysts

PETALING JAYA: The economic slowdown experienced in the last quarter (Q4) of 2019 does not seem to have hampered Malaysia’s corporate earnings with analysts saying that the results were in line with their estimates.

MIDF Research senior analyst Imran Yassin Md Yusof told SunBiz that the performance of key sectors on the local bourse, namely banking, oil & gas and plantation met broad expectations despite underperformance by some counters.

JF Apex head of research Lee Chung Cheng concurred, citing that corporate Malaysia remained unaffected by the weak economy in Q4 2019. However, he cautioned that corporate earnings for Q1 2020 could be lower as a result of the impact from the Covid-19 outbreak.

A RM20 billion stimulus package was announced last Thursday to combat the epidemic’s impact. Lee opined that the stimulus package will not have much impact on the overall corporate earnings as it is targeted at specific industries.

For Imran, the effect from the stimulus measures will be more indirect in terms of giving boost to private consumption, such as through the reduction in the minimum Employees Provident Fund contribution by employees from 11% to 7%.

He estimated that this would translate into disposable income of RM10 billion for employees, thus contributing to output growth through consumer spending.

“Private consumption is the single largest and the most dependable source of domestic demand for our economy ... this should provide some indirect support to corporate earnings,” he said.

However, as the economy softens, Imran said, the knock-on effect from a further slowdown in economic activity will be on loan growth and commodity prices.

“This will invariably put pressure on corporate earnings performance,” he added.

source https://www.thesundaily.my/business/corporates-to-start-feeling-covid-19-impact-this-quarter-say-analysts-EA2064170

Overnight Policy Rate cut on the cards on heightened risks

PETALING JAYA: Most economists expect Bank Negara Malaysia (BNM) to cut the Overnight Policy Rate (OPR) tomorrow by 25bps to 2.50% even though the government had announced a RM20 billion stimulus package last week.

This comes after the central bank surprised the market with a 25bps cut in January to 2.75%, the lowest since March 2011. It was seen as an early action to bolster growth as global risks began escalating.

OCBC Bank economist Wellian Wiranto said the stimulus package helps, but noted that the Malaysian economy will need all the help it can get given the multitude of challenges.

“We see the economy already showing signs of a slowdown in momentum from Q4 numbers, which are likely to be exacerbated by the ongoing outbreak scare. Add to that the potential hit on investment activities if the political drama drags on, and the central bank is likely to ease rates to help,” he told SunBiz.

He sees Q120 gross domestic product (GDP) growth at 3.5% year-on-year and 2020 GDP growth at 4.0%, and remain watchful of potential effects if the Covid-19 outbreak shows the potential to spread further globally.

TA Research said even a 50bps cut is possible in view of the current situation with bleak economic prospects, weak sentiment and low inflation environment.

Amid heightened risks to growth, JPMorgan believes BNM will lean on both fiscal and monetary support, therefore a trim in the OPR is anticipated.

It said the 2002-03 SARS outbreak had dampened Malaysia’s overall growth in first half 2003 but policy responses, both fiscal (economic stimulus package worth RM7.3 billion or 2.0% of GDP) and monetary (50bps cut in May 2003), paved the road to growth recovery in the second half of that year.

JPMorgan said if the Covid-19 outbreak and recent domestic developments continue to persist, it could put a dent in sentiment with a knock-on impact on domestic de-mand.

“Thus, even as fiscal policy steps up, in our view, further monetary policy support for the domestic economy could be expected in the near term beyond our current forecast. Thus, we are now expecting a 25bp monetary policy easing, in addition to our current forecast (25bps cut in Q220) which will bring the policy rate to 2.25% by end-1H20,” said JP Morgan.

Affin Hwang Capital, Kenanga Research and CGS-CIMB also see a rate cut tomorrow.

However, UOB is maintaining its view for BNM to keep the OPR unchanged at 2.75%, following its pre-emptive 25bps rate cut on Jan 22 and fiscal package of RM20 billion to mitigate downside risks to growth.

“However, if the risks related to Covid-19 are prolonged, this would pose a deeper drag on the economy and warrant further OPR cuts as economic risks tilt closer to a more severe scenario,” it added.

Malaysia registered 4.3% GDP growth last year, the lowest seen since the 2009 global financial crisis. Growth is projected to moderate to 3.2% to 4.2% this year as the Covid-19 outbreak has taken a toll on the economy.

source https://www.thesundaily.my/business/overnight-policy-rate-cut-on-the-cards-on-heightened-risks-AA2064147

Stimulus package not sufficient to boost market sentiment: Research house

KUALA LUMPUR: The RM20 billion fiscal stimulus package, albeit supportive, may not be able to provide a strong boost to market sentiment, which has been battered by a multitude of internal and external uncertainties.

“In spite of the seemingly positive initial market response to the stimulus package, going forward, we reckon the package would not be able to provide a sufficiently strong impetus towards general market sentiment,” said MIDF Research in a report.

With that, the research house is forecasting a year-end baseline target of 1,600 points for the KLCI, and a slower pace of economic growth in the range of 4-4.3% compared with 4.3% for 2019.

Nonetheless, the stimulus package has widely been perceived as the best move forward in helping domestic demand and reviving investment activities.

MIDF said the stimulus package, comprising tax cuts, business incentives, cash assistances and direct investment for infrastructure projects, will cushion some of the impact from Covid-19 and other headwinds on the Malaysian economy.

“Hence, we forecast a fiscal deficit to GDP ratio to widen from the initial target of -3.2% to -3.8%, higher than -3.4% projected by the government.

“The widening factor is partially due to larger contraction than expected for government revenue as anticipation of a slowdown in GDP growth would derail the government revenue target of RM244.5 billion this year,” it said.

The research house also noted that despite expectation of overall moderation in GDP growth, a rebound in public investment is anticipated, with the government expected to ramp up its spending this year through development medium in order to strengthen capital formation towards ensuring long-term growth sustainability. Private consumption will continue to the biggest contributor to the overall economic growth in 2020.

“Some of the rakyat-centric measures announced in the stimulus particularly the reduction in the minimum EPF contribution by employees from 11% to 7% would mean there will be more disposable income for the employees to spend, contributing to the growth via private consumption. In addition, earlier payout of the BSH to Mar 20 from the initial schedule in May-20 would be supportive to the consumption,” it said.

In its report, PublicInvest Research, which revised downward GDP forecast to 3.8% from 4.4% previously, said the cut to EPF contributions is expected to release about RM10 billion into the pockets of consumers, which may boost spending and revive consumer confidence.

Meanwhile, AmInvestment Research noted that additional funding for the stimulus package is expected to come from monetary operations.

“A statutory reserve requirement (SRR) reduction is in our cards. A 50-basis point cut in the SRR should release around RM8–9 billion. Room for the SRR to be reduced as much as 100 basis points cannot be ruled out.

“Likewise, while we have factored in a 25 basis point Overnight Policy Rate cut in March which is currently at 2.75%, the possibility for a 50 basis point cut is on the table,” it said.

As for beneficiaries from the stimulus package, CGS CIMB said these will be the consumer, construction and tourism-related sectors.

“Malaysia Airports may see a negative impact as it has been called to provide rebates for shop rentals at its airports, as well as discounts on its landing and parking charges. Overall, the stimulus package is unlikely to have a significant impact to our KLCI earnings.” the research house said.

CGS CIMB is maintaining its year-end KLCI target of 1,636 points and its top picks of Yinson Holdings Bhd, Tenaga Nasional Bhd and Pentamaster Corp Bhd.

Affin Hwang Capital Research said the initiatives are mostly positive for the construction, tourism, consumer and the manufacturing sectors.

“Other than for construction, we would nevertheless read these measures as propping up the already frail sector prospects rather than providing a significant leg up to growth.

“Some key beneficiaries include tourism plays like Genting Malaysia Bhd and possibly non-discretionary consumer plays such as Aeon Co (M) Bhd, Bonia Corp Bhd, and Hai-O Enterprise Bhd including the likes of auto companies such as, UMW Holdings Bhd and MBM Resources Bhd,” it said.

source https://www.thesundaily.my/business/stimulus-package-not-sufficient-to-boost-market-sentiment-research-house-LD2063850

MBSB Q4 profit jumps three times on expected credit loss writeback

PETALING JAYA: Malaysia Building Society Bhd’s (MBSB) net profit tripled to RM356.69 million for the fourth quarter ended December 31, 2019 against RM117.96 million in the same quarter a year ago, due to the expected credit loss writeback.

Revenue was up 15.3% to RM784.14 million from RM680.37 million.

For the full-year period, MBSB’s net profit expanded 11.6% to RM716.9 million from RM642.4 million, while revenue increased 5.2% to RM3.01 billion from RM2.86 billion.

During the year, MBSB’s net impaired loans, financing and advances saw an improvement of 0.05% to 2.34% in FY19 compared to 2.39% in FY18.

However, net profit margin regressed slightly to 2.89% in FY19 compared to 3.06% in FY18 following the overnight policy rate (OPR) cut in May 2019.

MBSB’s common equity tier-1 capital ratio stood at 19.24% as at December 31, 2019.

The group’s cost-to-income ratio improved to 28.37% from 29.53% in FY18. Operating profit stood at RM1.01 billion, higher than the RM970 million in FY18.

In addressing the present economic challenges, MBSB group president & CEO Datuk Seri Ahmad Zaini Othman said the group takes cognisant of the unfavourable factors currently affecting the economy, especially the Covid-19 virus and the political landscape.

“We have taken the necessary steps to manage these risks as well as putting in place the initiatives to accommodate customers who are distressed by the negative impact of Covid-19. Our business diversification into other sectors for example, renewable energy has also shown results as we have granted financing facilities amounting to over half a billion ringgit to certain key players.”

source https://www.thesundaily.my/business/mbsb-q4-profit-jumps-three-times-on-expected-credit-loss-writeback-MC2062349

Macau gaming revenues tumble 87.8% in Feb over coronavirus impact

HONG KONG: Gambling revenue in Macau plunged 87.8% in February year-on-year, with casinos shuttered for two weeks in the world's biggest casino hub as authorities imposed a raft of measures to keep visitors away to contain the coronavirus outbreak.

February's figure of 3.104 billion patacas ($386.74 million) was worse than analyst expectations of a drop of around 80%.

While Macau authorities gave the greenlight for casinos to reopen from Feb. 20, casino executives and residents say revenue will remain badly crimped in the Chinese territory's 41 casinos and for the businesses dependent on them because of the health restrictions and strict entry regulations on tourists.

Macau makes over 80% of its revenues from casinos but tourist visits have all but dried up. - Reuters

source https://www.thesundaily.my/business/macau-gaming-revenues-tumble-878-in-feb-over-coronavirus-impact-DC2062243

Blip or bust: Coronavirus economic impact still in doubt

PARIS: Markets have shuddered as the coronavirus spreads worldwide, but analysts doubt it will plunge economies into a crisis like the one that followed the 2008 Lehman Brothers investment bank failure.

Where will the market slide end?

Stock markets held up fairly well in the first weeks of the coronavirus outbreak in China, but fell sharply when a large number of cases were reported in Italy. In one week more than half a year of gains were wiped out in a brutal swing reminiscent of the financial crisis more than a decade ago.

Yet analysts note that such abrupt market corrections -- a swift drop of at least 10 percent from a recent peak -- have happened nearly every year over the past decade.

"Drops of 10 to 20 percent, that's nothing special," said Alexandre Hezez, Group Chief Investment Officer at asset manager Richelieu Gestion.

But the shock wave differs from those felt in 2008, which ravaged the financial sector before paralysing the broader economy, and in 2000 when the internet bubble burst.

This time, stock markets faced "an external shock," Hezez said. "If investors do not see a political, medical and monetary response, the market could fall lower still," he forecast.

Christian Parisot at the Aurel BCG brokerage felt however that "central bankers will keep us from arriving at that point."

And the real economy?

Growth forecasts for the first quarter of 2020 and the year as a whole have been lowered by most economists, and that is based on a fairly limited impact from the virus leading to a rebound in the second quarter.

The slowdown will clearly be sharper in China. The International Monetary Fund (IMF) has revised its growth forecast for the world's second biggest economy down from 6.0 percent to 5.6 percent, and Moody's expects it to be weaker still, at 5.2 percent.

That is certain to affect other countries, so Swiss bank Credit Suisse has trimmed its 2020 global growth forecast by 0.2 percentage points to 2.2 percent.

Countries such as Germany that export a lot to China will probably be hit hard, and some others could fall into recession.

Japan is a case in point, given a drop in output already late last year, while a mini-rebound in Italy, the European country hit hardest by the virus so far, now appears to be in trouble.

In 2019, Italy's economy, the third biggest in the eurozone, grew by just 0.2 percent.

Across the Atlantic however, growth in the United States is fairly strong, owing to resilient consumer spending on the back of "solid job growth and real wage gains," noted Sara Johnson, director of the global economic unit at IHS Markit.

In 2009, the world suffered an overall recession, with global gross domestic product (GDP) contracting by more than three percent.

Could things get worse?

"The longer this goes on the more people will become afraid, which will weaken confidence," said Sylvie Matelly, deputy director of the French Institute for International Relations and Strategic Affairs.

"There will be quarantines or cities blocked, and that means less economic activity and more ruptures in supply chains," she added.

Johnson felt that "the danger is that the outbreak spreads more widely and rapidly than we expected, leading to production shutdowns and travel restrictions outside of the Asia Pacific region."

While she believes that "financial markets have over-reacted to the downside risks to the global economy," Johnson noted there is a danger "that reaction could have adverse consequences" to it, nonetheless.

Matelly said that could happen if the market panic sparked runs on banks in China or other countries hit hard by the coronavirus where government finances are fragile.

"That is the scenario that would lead to a very serious economic crisis," she warned.

But it's not certain such a scenario will come to pass.

"The hypothesis of a quick rebound" in the global economy has been discounted, said Christian Parisot.

But "that does not call into question the hypothesis that things will improve" even if the outbreak wreaks havoc with the economy in the first half of the year and not just the first quarter," he added. - AFP

source https://www.thesundaily.my/business/blip-or-bust-coronavirus-economic-impact-still-in-doubt-BC2062164