A Finale To Rate Cycles?
Last week was akin to global monetary tightening’s crescendo “everything, everywhere, all at once” moment.
Central Banks in Australia, the US, the EU as well as Bank Negara (BNM) in Malaysia hiked their respective policy rates by +25bps.
The underlying driver for higher rates was inflation remaining stubbornly above respective target ranges notwithstanding recent signs of a sustained moderating trend as energy/commodity and logistics prices have eased even as demand has started to soften as the global economy slows.
While inflation is also moderating across ASEAN, policy varies widely – while the Money Authority Singapore also tightened for the fifth consecutive time in April, Indonesia has held its policy rate steady for a third consecutive meeting given moderating price pressures and stabilizing Rupiah, while Vietnam is expected to cut its policy rate by another 50bps (first 50bps cut was in March) this month as part of a broad economic stimulus package.
Maybank IB Malaysia and Regional Head of Equity Research Anand Pathmakanthan (pic) said today (May 9) that in hiking the OPR by another +25bps, to 3.0%, BNM noted resilient domestic demand and positive spillover from China reopening which makes it timely to further normalize the degree of monetary support.
“While monetary policy remains slightly accommodative at the current level, we are not forecasting any further OPR hikes for the rest of the year given easing inflation (March CPI moderated to +3.4% YoY, vs. Feb’s +3.7%) and high frequency economic indicators such as Maybanks IB’s monthly GDP tracker, manufacturing purchasing managers index (PMI) and external trade are all signalling moderating GDP growth.
From a sector perspective, the Banks will appreciate the implicit NIM support from the OPR hike (per significant NIM expansion over 2022, when OPR was raised by +100bps) though net impact this time around will be diluted by heightened competition for deposits and declining CASA ratios.
Nonetheless, potential share price weakness stemming from anticipated lackluster 1Q23 reporting (due primarily to weak NIM) is now an even more attractive opportunity to accumulate – our top picks are HLBK, RHB and Alliance, while we also have BUY ratings for AMMB and CIMB. The peaking global interest rate cycle also bodes well for the Tech sector as pressure on valuations eases; while tech has been facing near-term demand uncertainties, as underscored by below-expectations 1Q23 reporting by ViTrox and Frontken, we see operating conditions improving into late-2023 – hence, any knee-jerk selling is a BUYing opportunity.
Maybank IB’s top picks are Inari and Greatech.