At the start of 2023, many were optimistic about the earnings growth prospects for 2023, mainly driven by economic recovery domestically, with China’s reopening seen as a saviour to global growth expectations.
The United States was expected to hit a soft patch, with rate hikes since March 2022. Then the new Madani government was expected to work on the weakening domestic consumption and external headwinds.
Source: https://wikifinancepedia.com
The star performers in the current quarter (2Q) were surely YTL Corp and YTL Power as the latter’s surge in earnings from its power segment with favourable exchange rates. However, the same cannot be said for domestic-based power players, in particular Malakoff and Tenaga Nasional.
The performance of the telecommunication companies (except for Axiata) was decent. The rubber gloves sector has remained a drag.
The performance from the banking sector as compression in net interest margin slowed, while non-interest income helped to cushion the increase in higher operating costs. Automotive stocks too performed reasonably well, on the back of strong total industry volume growth, which jumped 10.3% year-on-year (y-o-y) for the first half of the year.
The Malaysian economy showed weakness in 2Q23 as the economy only expanded by 2.9% y-o-y.
The quarterly trend improved further as the 2Q23 gross domestic product (GDP) growth of 1.5% on a quarter-on-quarter (q-o-q) seasonal-adjusted basis was stronger than the preceding quarter’s growth of 0.9%. However, in nominal terms, the Malaysian economy contracted by 1.2% y-o-y and 1.1% q-o-q to RM439.1bil in the 2Q23 period. The negative economic momentum compared with a year ago as well as the preceding quarter was perhaps a reflection of the pain experienced by corporate Malaysia as core net earnings too fell by 5.9% y-o-y, although on a q-o-q basis, core earnings expanded by 2.1%.
Given that the market is always forward-looking, the zero earnings growth envisaged for 2023 is now more or less been fully priced in by the market and is now looking at next year’s 11.2% earnings growth.
The market has also fully priced in that rate hikes are no longer a concern but perhaps the weakness in the local currency is still on top of investors’ minds, given the weakening Chinese economic data points.
Hence, the tabling of the Budget 2024 proposal on Oct 13 will be a closely watched event as this will be the first budget to be presented by the honourable Prime Minister. He knows and we know he has limited options. We could expect more taglines and slogans which may bypass real issues. Having said that, perhaps he will focus on improving private investment and domestic consumption. Current trade numbers and government finances preclude any external improvement or capacity-building option by the public sector for 2024. So, good luck Mr PM!
Reference:
Better growth in 2024?, Pankaj C. Kumar, The Star, 9 September 2023
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