This Week’s Top Headlines

i) The Federal Reserve halts interest rate hikes for the first time after 15 consecutive months of tightening. However, Chairman J. Powell indicated that more rate hikes are likely to come as policymakers continue to battle inflation.

ii) Despite the pause in rate hikes from the Fed, the ringgit failed to strengthen and closed at RM4.6140 on Friday. It has declined by over 4.90% on a year-to-date basis, making it the 2nd worst performing currency in Asia.

iii) Perodua has reintroduced its Axia E-variant, which is the most affordable car in Malaysia priced at only RM22,000. Specifically designed for the lower-income group, the Axia E represents the carmaker's ongoing commitment to providing Malaysians with affordable and high-quality vehicles.

Scroll down to read the details.

Shoutout to all Learners and Gatherers! Thank you for all your support.

Get early access to our newsletter and miss nothing from the markets. Join our journey towards financial literacy today.

Our private announcement group will keep you updated with market movers and urgent matters. For only $1/month, you'll receive our weekly newsletter every Sunday night and daily notifications on important events, some with detailed thoughts from economist Mr. Sani Hamid.

✅ No commitments.

✅ Cancel anytime.

✅ Zero ads, zero shills.

Fed pauses interest rate hikes for the first time in well over a year, but signals more hikes to come

The Federal Reserve has maintained its key rate unchanged on Wednesday, following the sharpest flurry of interest rate hikes in four decades. Chairman J. Powell said that the pause is to allow policymakers to assess the economy and impact of previous rate hikes to determine whether additional policy firming may be appropriate.

The move, which kept the benchmark interest rate at a range of 5-5.25%, was largely anticipated by investors and economists.

However, investors were blindsided when Powell indicated that more hikes are likely to occur this year as they continue their battle against high inflation.

The Fed’s Dot Plot shows that policymakers are likely to push interest rates up by another half percentage point this year, representing two more 25 basis point rate hikes.

According to MIDF Research’s Economic Review Report, the Fed has upgraded the US growth and inflation outlook and foresees that inflation will take somewhat longer to reach its 2% target.

“Due to this, the FOMC forecasted the Fed funds rate will be raised to a higher level of +5.6% (Mar-23: +5.1%) to ensure interest rates remained at restrictive level,” MIDF said.

Near term outlook for the ringgit looking bleak

Despite the recent pause in rate hikes from the Federal Reserve, which was thought to perk up the ringgit, the local currency continued its downward trajectory following the FOMC meeting. It initially fell to RM4.6346 before retracing back to RM4.6140 on Friday.

On a year-to-date basis, the ringgit has depreciated by 4.90%, making it one of the worst performing currencies in Asia, second only to the Japanese yen, which has depreciated by 5.9%.

The ringgit’s problems are twofold.

The local note is not only experiencing a decline against the US dollar, primarily due to the strength of the greenback, but it is also depreciating against other major currencies.

Comparisons to our Southeast Asian counterparts show that the ringgit has slumped to multi-month lows against their currencies, with the Singapore dollar hitting consecutive all-time highs on Thursday and Friday, at RM3.4622.

Economists believe that the ringgit’s slump is due to foreign net selling of assets.

MIDF Research’s latest fund flow report shows that foreign net selling has stretched to the eight consecutive week in the Bursa market, with a total net outflow of -RM443.8 million last week.

17 out of 23 weeks this year have seen foreign investors dumping Malaysian stocks, leading to a cumulative net outflow of -RM3.4 billion.

This trend comes even as foreign funds are investing heavily into Asian markets. They net bought US$4.32 billion in the week of June 2, the highest inflow recorded for the year.

Taiwan, India, and South Korea have all seen large inflows from foreign investors.

Across eight Asian countries, Malaysia ranks top 2 in the heaviest net selling from foreign investors in the past 5 weeks.

We are only slightly ahead of Thailand.

This raises the question: Are foreign investors losing confidence in Malaysia?

No, foreign investors have not lost hope in Malaysia - The country’s FDI position has been increasing.

*Foreign direct investment (FDI) refers to the acquisition of an ownership stake in a foreign company or project by an investor, company, or government from another country. It is typically associated with significant ownership or control in order to expand operations into a new region. The term is different from stock investments in foreign companies, as the acquisitions are substantial and long-term.

Malaysia witnessed a positive net inflow of foreign direct investment (FDI) amounting to RM74.6 billion in 2022, surpassing the RM50.4 billion recorded in 2021.

The National Statistics Department stated that by the end of 2022, the country's FDI position had increased to RM879.1 billion, up from RM782 billion in 2021.

The Statistics Department highlighted that these figures indicate the favorable economic conditions in Malaysia, attracting foreign companies to continue their investments, while local companies expand and diversify their business activities abroad.

This provides further evidence supporting the notion that foreign net selling in the local stock market is primarily driven by portfolio rebalancing or profit-taking activities.

Another perspective that helps explain the selling trend is that funds are shifting their investments from South Asia to North Asia.

Considering how oversold the Malaysian market is right now, MIDF believes that we could possibly see money re-entering Malaysia.

In our private announcement group with RinggitPlus founder Hann Liew, he stated that over the past month, the Malaysian Ringgit (MYR) has shown weakness against most relevant currencies, with the exception of the Japanese Yen (JPY) and the Chinese Yuan (CNY). This suggests that we may need to brace ourselves for a turbulent period until August when political uncertainty reaches a climax.

In terms of economic fundamentals, Hann said that Malaysia appears to be relatively stable compared to the global scenario. The World Retail Tendency (WRT) is on the rise, and the services sector is also experiencing growth. However, there are some concerns regarding the year-on-year fluctuations in exports and imports, which are impacting certain industries.

On the fiscal front, Malaysia's position is significantly better than it was last year, primarily due to the absence of major 1MDB payments after March 2023 and expectations of a reduced subsidy bill this year.

To stabilize the ringgit further, it is crucial for the political landscape to reach a resolution, particularly through state elections. For long-term foreign investment, which plays a vital role in supporting the MYR, the government needs to provide a clear and consistent economic narrative, rather than relying solely on sporadic policy announcements.

Perodua Axia E 2023 - Malaysia’s cheapest car

Perodua has delivered on its promise by bringing back the Perodua Axia E, as it had stated during the launch of the second-generation Axia in February this year.

Primarily aimed at the lower-income group, the Axia E represents Perodua's original commitment to provide affordable and quality cars to Malaysians.

At RM22,000, it is the most affordable car in Malaysia, with the price applying to Peninsular Malaysia as well as Sabah and Sarawak.

Some important details you need to know:

1. RM3,000 cheaper than the original Kancil launched in 1994.

2. 43% cheaper than newer Axia models retailing at RM38,600.

3. Costs only RM300/month to purchase.

4. The only remaining Perodua model with manual transmission.

5. Does not come with insurance.

6. 33-litre fuel tank with fuel efficiency of 22.5 km/litre.

7. 4-star ASEAN NCAP rating despite not having ABS, EBD or stability control.

8. Does not have central locking and alarm.

9. Does not have a remote key.

10. No basic radio speakers and carpet mats.

In terms of its physical attributes, the E variant draws its foundation from the 2017 Axia model and has received a 4-star Asean NCAP rating from the Malaysian Institute of Road Safety Research (Miros).

Equipped with two airbags, a seatbelt reminder for the driver, and accompanied by a 5-year warranty, the Axia E ensures a safe and reliable driving experience.

The car is offered in three distinctive color choices: Ivory White, Glittering Silver, and the newly introduced Granite Grey shade.

That’s all for this week’s newsletter!

*This issue was written at 10.15 AM on 18th June 2023 and completed at 3.30 PM the same day. To get early access to our newsletter, be our patron for as little as $1/month!

DISCLAIMER: The information contained in this newsletter is for informational and educational purposes only. Nothing herein shall be construed to be financial, legal, or tax advice.