Saturday February 16, 2013

Slower growth should not be a problem


THIS past week has been a bliss. Traffic was smooth in Kuala Lumpur and how I wish that is the case on a normal day.

As the Chinese New Year holidays wind to a close and as more people return to work, activity level will start resuming to their normal levels. So will traffic.

What can be expected is also a deluge of financial and economic information before February winds to a close.

Earnings season is expected to pick up pace as a lot of companies will be releasing their October-December 2012 financial performance, along with their full year results before the end of the month.

It will be interesting to see what profit numbers Corporate Malaysia reveals and whether those numbers meet or miss market expectations.

The other piece of big news out this month will be the gross domestic product (GDP) data. With a slew of reports out last week, indications are that the economy in 2012 will grow better than expectations.

So what do all those numbers say? Well for one, it will not be a surprise if growth in 2013 is slower than last year judging by what the capital and financial markets are saying.

It will be worth watching to see if analysts cut or raise their earnings growth expectations for 2013. I do, however, think expectations will be cut.

As for GDP projections, that will be revealed by Bank Negara sometime in March when it traditionally does so in conjunction with the release of its annual report.

Ernst & Young in a report yesterday said Malaysia in 2012 benefited from an expansionary fiscal policy, rising investments and growing consumer spending. It, however, expected GDP to slow this year despite a pick-up in export. Investments are expected to moderate and that will translate to a GDP growth of 4.3% this year.

More clarity will surface closer to when Bank Negara announces the new GDP forecast but many will wager that estimates will be higher than that but by how much? Much of the activity last year created a high base effect which can be hard to better.

One thing that greases the wheels of the economy has been financing and liquidity. Going by Malaysian Rating Corp Bhd's outlook for 2013, that appears not to be a problem.

As the Government expects the budget deficit to shrink to RM40bil in 2013 from RM45bil last year, MARC says given the deficit target and with an expected RM50.5bil maturing in 2013, it foresees the issuance of government bonds to be in the range of RM90bil-RM95bil.

And there is no shortage of takers for such debt.

The amount of Malaysian Government Securities held by foreign investors is at a record high of 44% as at end-December last year.

It's not just the Government that will be issuing more bonds. Corporate Malaysia is also expected to issue RM75bil to RM90bil of debt in 2013 as projects under the Economic Transformation programme gets implemented. MARC says net issuances after deducting for maturing bonds is projected to be RM32.5bil.

But those number will be less than 2012 which was a bumper year. MARC says for corporate bond issuances, total rated primary market issuance amounted to RM94bil compared with RM55bil issued in 2011.

Those numbers suggest too that the amount of money raised from the bond market this year will be lower than 2012.

Then there is the capital raising from fresh listing on Bursa Malaysia.

It was reported that the number of listings in 2013 could surpass last year although the amount raised will be smaller. In that report, it was highlighted that the capital market last year saw RM145.9bil raised from the issuance of bonds and from IPOs, 89% higher than in 2011.

For the banking sector, loans growth is also expected be in the positive territory albeit at a slower pace than last year.

With loans, capital raising and fund raising from IPOs taking a slight breather after a hectic 2012, it will not surprise me that 2013, with household debt in Malaysia at high levels, will see economic activity taking a more leisurely pace.

Will that be a problem? Well like the traffic free KL during the CNY period, taking a breather once in a while should not be a issue.

l Acting features editor Jagdev Singh Sidhu will be glad if growth numbers prove him wrong at the end of this year.

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