Malaysia Building Society : MBSB Investor Day 2024

FLIGHT26

Investor Presentation

15 May 2024

FLIGHT26 Investor Presentation

DATO' WAN KAMARUZAMAN

CHAIRMAN

15 May 2024

ECONOMIC & MARKET OVERVIEW

GLOBAL GROWTH TO REMAIN BELOW TREND

GROWTH IN THE ADVANCED ECONOMIES WILL REMAIN MODEST DUE TO HIGH BORROWING COSTS

GDP Growth Projection (%)

7.5
				Average growth
				2011-2019: +3.5%
5.5
3.5
1.5
-0.5
			World
-2.5			Advanced Economies
			Developing Economies
-4.5												2022
2010	2011	2012	2013	2014	2015	2016	2017	2018	2019	2020	2021	2023e	2024f	2025f

Annual Growth (%)	2022	2023e	2024f	2025f
World Economy	3.5	3.2	3.2	3.2
Advanced Economies	2.6	1.6	1.7	1.8
USA	1.9	2.5	2.7	1.9
Euro area	3.4	0.4	0.8	1.5
UK	4.3	0.1	0.5	1.5
Japan	1.0	1.9	0.9	1.0
Developing Economies	4.1	4.3	4.2	4.2
China	3.0	5.2	4.6	4.1
India	7.2	7.8	6.8	6.5
Russia	(2.1)	3.6	3.2	2.8
Brazil	2.9	2.9	2.2	2.1
Thailand	2.5	1.9	2.7	2.9
ASEAN-5	5.5	4.1	4.5	4.6

Source: IMF

4

CONTRASTING OUTLOOK BETWEEN 2 MAJOR ECONOMIES

FED TO SHIFT TO RATE CUTS AS INFLATION MODERATES VS. MORE POLICY SUPPORTS MAY BE INTRODUCED IF CHINA'S ECONOMY SLOWS

USA

Economic resilience:

• US GDP to grow more than +2% this year, more encouraging than +1.0-1.5% predicted at the start of the year
• Consumers continue to spend, although recent data indicates signs of cooling job market

Inflation moderating but still elevated

• Core PCE inflation moderated further to +2.8%yoy in Mar-24, but would take time to fall to Fed's +2% target

Policy direction

• Fed to cut rate this year, but the timing has been pushed to around 4Q 2024
• Quantitative tightening: Fed to continue gradually reducing holdings of treasury securities and MBS

CHINA

Moderating Growth:

• GDP to grow below +5.0% (vs. official government target remains at +5.0%
• Continued challenges in the property market

Low inflation amid weak demand pressures:

• CPI inflation rebounded back to positives but remained low (Apr-24: +0.3%yoy).

Policy direction

• Expect more policy supports from the government and further easing by PBOC especially if domestic spending weakens

Source: IMF, National Authorities, MIDFR

5

MALAYSIA'S ECONOMY TO BE BACK ON 2 ENGINES

UNDERPINNED BY EXTERNAL TRADE RECOVERY AND SUSTAINED GROWTH IN DOMESTIC DEMAND

GDP by Expenditure (YoY%)

	2021	2022	2023	2024f
Real GDP	3.3	8.7	3.7	4.7
Govt. Consumption	6.4	4.5	5.4	2.5
Private Consumption	1.9	11.2	4.7	4.8
Govt. Investment	(11.1)	5.3	8.6	4.5
Private Investment	2.6	7.2	4.6	5.5
Exports of goods & svc.	15.4	14.5	(7.9)	3.1
Imports of goods & svc.	18.5	15.9	(7.6)	3.6
Net Exports	(4.0)	(1.0)	(11.3)	13.8

GDP by Supply-Side (YoY%)

	2021	2022	2023	2024f
Agriculture	(0.1)	0.1	0.7	1.5
Mining & Quarrying	0.9	2.6	1.0	3.5
Manufacturing	9.5	8.1	0.7	4.0
Construction	(5.2)	5.0	6.1	5.2
Services	2.2	10.9	5.3	5.4

Source: Macrobond, DOSM, MIDFR

GDP Growth (YoY%)

	8.7
	4.7	4.6
3.3	3.7

-5.5

2020

2021

2022

2023

2024f

2025f

• Positive job market conditions, increased income, recovery in the tourism sector and cash assistance from the government will support domestic spending.
• Exports to recover on the back of growing global demand and turnaround in manufactured goods exports, particularly E&E products.
• Services sector growth will be supported by increased domestic spending, while manufacturing sector will pick up in line with improving external trade.

6

GROWTH MOMENTUM IMPROVED IN 1Q 2024

GDP GREW STRONGER AT +3.9%YOY BASED ON ADVANCE ESTIMATE; BNM KEPT OPR AT 3.00% AS INFLATION UNDER CONTROL

GDP by Expenditure (YoY%)

20.0

15.0

GDP

Leading Index

10.0

5.0

0.0

-5.0

1Q21

2Q21

3Q21

4Q21

1Q22

2Q22

3Q22

4Q22

1Q23

2Q23

3Q23

4Q23

1Q24

Malaysia: CPI Inflation Forecast (%)

6.0

5.0						4.8
					3.7
4.0	3.2
				2.9
3.0	2.5
2.0				1.3
1.0
0.0
CPI	Non-food			Food
			2022		2023			2024f

GDP Growth (YoY%)

5.0

4.0

3.0

2.0

1.0

0.0

-1.0

OPR

Headline CPI

-2.0

Core CPI

-3.0

Jul-18

Jan-19

Jul-19

Jan-20

Jul-20

Jan-21

Apr-21

Jul-21

Jan-22Apr-22

Jul-22

Jan-23

Jul-23Oct-23Jan-24Apr-24

Apr-18

Oct-18

Apr-19

Oct-19

Apr-20

Oct-20

Oct-21

Oct-22

Apr-23

• BNM's policy setting focuses on supporting the economy as inflation remained below BNM's forecast of +2.0-3.5% for 2024
• Inflation is projected to accelerate to +3.2% in 2024 mainly due to policy changes (i.e. subsidy rationalization and hikes in fuel prices).
• BNM will keep OPR at 3.00% throughout 2024 as the source of inflation will be from supply-side changes.

Source: Macrobond, DOSM, MIDFR

7

EQUITY MARKET SEEN MORE SUPPORT

POST-HIKE PERIOD EMPIRICALLY BULLISH DUE TO SUBSIDING REQUIRED RETURNS

Leading index & negative yield spreads, however, signal risk of US recession

FBM KLCI 2024 target at 1,665 points @ PER24 of 14.6x

Source: Macrobond, DOSM, MIDFR

8

ANTICIPATING MORE FOREIGN FUND INFLOWS

EXPECT MORE FOREIGN FUND INFLOWS AS FED BEGINS TO CUT RATES; LOCAL INSTITUTIONS LOOK MORE ACTIVE THIS YEAR

Net Fund Flows into Bursa Malaysia: Local institutions vs. Foreign Investors (RM m)

4,000

3,000

2,000

1,000

0

-1,000

-2,000

-3,000

-4,000

Local Institutions Foreign

Jan-22

Feb-22

Mar-22

Apr-22

May-22

Jun-22

Jul-22

Aug-22

Sep-22

Oct-22

Nov-22

Dec-22

Jan-23

Feb-23

Mar-23

Apr-23

May-23

Jun-23

Jul-23

Aug-23

Sep-23

Oct-23

Nov-23

Dec-23

Jan-24

Feb-24

Mar-24

Apr-24

Source: Bloomberg, MIDFR

9

MYR TO GAIN, MGS YIELDS TO DECLINE AS FED WILL CUT RATES

FUNDS WOULD FLOW BACK TO EMs; MGS YIELDS WILL CLOSELY TRACK CHANGES IN THE US TREASURY YIELDS

USDMYR vs. Fed Funds Rate-OPR Interest Differential (bps)

MYR per USD								bps
3.80			USDMYR		FFR-OPR (RHS)	300.0
4.00								200.0
4.20								100.0
4.40								0.0
4.60								-100.0
4.80								-200.0
5.00								-300.0
2018	2019	2020	2021	2022	2023	2024

Yields: 10y MGS vs. 10y US Treasury (%)

5.0%								6.0%
4.5%			10-Year MGS		10-Year UST (RHS)		5.0%
4.0%								4.0%
3.5%								3.0%
3.0%								2.0%
2.5%								1.0%
2.0%								0.0%
2018	2019	2020	2021	2022	2023	2024

• Apart from Fed's rate cuts and expected foreign fund inflows, positive growth fundamentals (e.g. sustained trade surplus) will also support ringgit this year.
• Ringgit is forecasted to average relatively stronger at RM4.53 in 2024 (average 2023: RM4.56).

Source: Bloomberg, MIDFR

• UST yields will fall as market priced in rate cuts to be carried out later in 2HCY24.
• Following similar trend in UST yields, 10y MGS yield is projected to decline to 3.68% by year-end(end-2023: 3.73%).

10