ASLI PROGNOSIS-Malaysian ECONOMY 2007/2008: Sustained Growth 5.9%; Buoyant Sentiments, Ringgit Strengthening, Business Confidence; Inflation 2.5-3%

Is it any wonder there was a hive of activities in KLSE over the last few days? The ASLI report must have been in the hands of many before it was released. And the good news is spreading fast and wide with share prices on the up in most of the counters when ASLI predicted that the Malaysian economy is projected to see sustained growth this year and in 2008 at a similar pace of 5.9 percent as sentiment remains buoyant with the strengthening of the ringgit (RM3.40 to US$1 by End-2007 & RM3.30 by end-2008) and business confidence.

Asli: Malaysia's economy to grow 5.9% in 2007, 2008

Kevin Tan & Yap Yew Jin Feb 07, 2007 ; from TheEdgedaily

The country's economy is expected to grow by 5.9% in 2007 and 2008, riding on higher government spending under the Ninth Malaysia Plan (9MP) and soaring foreign and domestic investors' confidence, the Asian Strategy and Leadership Institute (Asli) said. "The projected rise will be close to the country's potential output growth estimated at 6% per annum," Asli senior economic research fellow Datuk Dr Gan Khuan Poh told reporters in Kuala Lumpur on Feb 7. He said the pace of investments was anticipated to continue with national development spending rising in tandem with the expected strengthening of investors' confidence.

"Total investment is projected to grow at 8.1% annually in 2007 and 2008 while private investment is forecast to expand by 9.9% in 2007 and 10.3% in 2008," Gan said. Besides the boost from the 2% reduction in corporate income tax rate starting 2007, the ringgit appreciation was also expected to facilitate private investment through lowering the cost of imported technology, machinery and expertise, he added. Meanwhile, public investment would grow at 6.5% in 2007 and 6.2% in 2008 as the implementation of 9MP projects are likely to peak in the second and third year of the five-year development plan from 2006 to 2010.

"These projects include the commercial and industrial projects earmarked in
three development corridors in Peninsular Malaysia and higher allocation for infrastructure development in Sabah and Sarawak," Gan said. However, the pace of Malaysia's gross exports is likely to ease to about 9% in 2007 before picking up slightly to 9.5% in 2008 as the US economic growth is anticipated to moderate. "Gross imports are forecast to expand at 9.7% in 2007 and 11% in 2008, outpacing exports as domestic demands and imports are stimulated by a strengthening currency," he said.

Notwithstanding the higher anticipated import growth, Malaysia's trade surplus is forecast to rise to RM110 billion and RM115 billion in 2007 and 2008 respectively as the volume of exports exceeds imports. On the ringgit, which breached 3.45 to the US dollar yesterday, Gan said Asli was expecting the currency to strengthen further to 3.40 to the US dollar by year-end and to 3.30 by end-2008. He said the ringgit forecast was based on Malaysia's current account surplus and reserves.

As of now, Bank Negara Malaysia's foreign reserves can last for more than eight months. On whether the rising ringgit would affect Malaysia's exports, Gan said trade competitiveness did not rely on foreign exchange only. A stronger ringgit also allows for cheaper imports of capital goods for
companies to improve their production capacity, he added.

= = = = == = = == = =
February 07, 2007 17:54 PM

Malaysian Economy To See Sustained Growth In 2007 And 2008

KUALA LUMPUR, Feb 7 (Bernama) -- The Malaysian economy is projected to see sustained growth this year and in 2008 at a similar pace of 5.9 percent as sentiment remains buoyant with the strengthening of the ringgit and business confidence. Chairman of Centre for Public Policy Studies of the Asian Strategy and Leadership Institute (Asli), Tan Sri Ramon V. Navaratnam, said the ringgit appreciation was expected to facilitate private investments through lowering the costs of imported technology, machinery and expertise. Asli's publication, "Malaysia Economic Perspectives" forecast the ringgit at 3.40 to US dollar by year-end and at 3.30 by end-2008.

"Total investment is projected to grow at 8.1 percent annually in 2007 and 2008 while private investment is forecast to expand by 9.9 percent in 2007 and 10.3 percent in 2008," Navaratnam said at an Asli media briefing, Wednesday. Meanwhile, president of Malaysia Economic Association and senior economic research fellow of Asli, Datuk Dr Gan Khuan Poh, said while Malaysia's economic fundamentals were strong after the Asian economic crisis, productivity, output and competitiveness remained the key risks to its long-term economic growth. "Malaysia's potential output growth has been trending downwards from nine percent in the early 1990s to about 5.5-6 percent currently. This phenomenon is a consequence of suffering contractions in real private investments of 11.6 percent in the Seventh Malaysian Plan and one percent in the Eighth Malaysian Plan," Gan said. He said other potential risks to the Malaysian economy were the prevailing high oil prices and prospects of any global imbalances.

"Though the risk of a global economic downturn has increased, our view is that the US economy will likely achieve a 'soft landing' with growth expected to dip below trend growth of three percent in 2007. "The Malaysian economy can overcome the potential downside risks in the medium to long term by emphasising a productivity-driven and private sector-led economy," he said. "There is a shortage of skilled-manpower in the country to enable the economy produce products with leading-edge technology. With the ringgit's strength, companies will have to increase competitiveness to boost exports as we could no longer be a low-cost producing country," Gan said. He said the strengthening of the ringgit would also contribute to a stable inflation outlook.

"Based on the expectation that world oil price will range between US$50-55 a barrel over the medium term, Malaysia's consumer price index (CPI) inflation is forecast to range between 2.5 percent and three percent over the same period," Gan said. With inflation anticipated to be benign, he said, interest rates would likely remain low and stable, with real rates ranging between one and 1.5 percent. He said the overnight policy rate (OPR) over the medium term is expected to be range bound between 3.5 percent and four percent unless weaker-than-expected economic growth requires an interest cut to boost demand. Another underlying factor in Malaysia's economy is the high savings rate. Malaysia's excess savings, Gan said, has played a key role in the liquidity of the banking system. "Malaysia's excess savings as reflected by a positive savings-investment gap had allowed the government and the private sector to finance public debt out of domestic savings rather than international borrowings," he said. As for Malaysia's budget deficit, Gan said it would remain at manageable level with the government using its flexibility in adjusting taxes.

= == = == = = = =

Asli: Inflation at 2.5%-3% this year

By Kevin Tan Feb 07, 2007; from TheEdgedaily

Malaysia's inflation rate is expected to decline to as low as 2.5% in 2007 from an estimated 3.6% last year mainly due to falling oil prices, according to the Asian Strategy and Leadership Institute (Asli). In a recent economic report, it said world oil prices would range between US$50 (RM174.68) and US$55 a barrel over the medium term and Malaysia's inflation was forecast to range between 2.5% and 3% over the same period. "The downtrend in world oil prices and a moderation in global demand have helped to ease inflationary expectations and price pressures both internally

and externally. The short-term threat of inflation is therefore downgraded as the economic focus shifts to growth," it said. Despite the downtrend, Asli expected world oil prices to be sustained at above the US$50 level due to possible production cuts by the Organisation of Petroleum Exporting Countries (Opec) members to support the price, and strong demand from oil-importing countries. "Though the risk of an oil price shock has receded, the threat nevertheless remains as geo-political uncertainties continue to prevail in the oil-exporting Middle Eastern countries," it said. However, Asli also said effects of high oil prices on the economy are "less deleterious" with Malaysia continuing to be a net oil exporter over the forecast horizon and essential items under price control with subsidy provided by the government.

"With inflation anticipated to be benign, interest rates will likely remain low and stable, with real rates ranging between 1% and 1.5%," it said Asli added that the overnight policy rate over the medium term was expected to range between 3.5% and 4% unless weaker-than-expected economic growth requires an interest cut to boost demand.

South Johor land-linked stocks up on ME interest

Published February 7, 2007; from Business-times.asiaone

(PETALING JAYA) Shares of companies with land in south Johor rose in active trading in the past two days amid market talk of interest in land purchases by Middle Eastern investors, and as condominium prices in Singapore set record prices week after week, The Star reported. UEM World Bhd jumped 28 sen as a major gainer to RM2.65 on Monday; yesterday, the stock reached a record high of RM2.79. Tebrau Teguh Bhd was up 7 sen to 59.5 sen on Monday and rose higher yesterday to 64 sen. Meanwhile, Mulpha-W increased 3 sen to 30.5 sen and rose again on Tuesday to 35 sen. All three companies were among several analysed in UOB Kay Hian's report last year on the super-cycle potential of the South Johor Economic Region, since renamed Iskandar Development Region (IDR). Tebrau, UEM World and Mulpha-W were among the six most active stocks on Monday, amid market talk that Middle Eastern investors were willing to pay record prices for thousands of hectares in south Johor. 'Discussions with Middle East investors are advancing from the time Khazanah Nasional executives made a marketing trip there last year,' dealers said.

So far, land transactions in the IDR had involved local developers. There is anticipation that foreign investors, in particular those from Middle East, would soon enter the scene at much higher prices. The Wall Street Journal (WSJ) reported that petrodollar-rich Middle Eastern investors had spent a lot on initial public offerings in China in the past year, and were now acquiring strategic stakes in high-growth business sectors in the rest of Asia. These acquisitions into businesses represented a shift from traditional assets in treasury and portfolio investments, the WSJ said. There was also talk of foreign fund managers buying south Johor stocks. 'Their interest could be due to the continuous increase in condo prices on a per sq ft basis in Singapore. That's been setting record prices every week,' said Lim Beng Leong, head of UOB Kay Hian's Malaysian research.

= = == = =

Volume hits all-time high of 2.34b shares; By Joseph Chin

Volume transacted on Bursa surged to a record 2.35 billion units on Feb 7, with a value of RM3.28 billion as the stock market continued its bullish run. Frenzied buying of heavyweights and large capitalised stocks sent the Kuala Lumpur Composite Index (KLCI) to a 10-year high. On Feb 7, the market also saw interest in lower liners, with 16 of them among the 20 most active counters. At the close, the KLCI rose 6.94 points to 1,243.57, and the FBMEmas Index rose 60.72 points to 8,225.44. Advancers beat decliners 541 to 360 while 276 counters were unchanged. Feb 7 also saw the listing of Public Bank Bhd-CA and Malayan Banking Bhd-CC, which were among the top gainers. Public Bank-CA closed 81 sen higher at RM1.17 with 22.58 million units done while Maybank-CC rose 56.5 sen to 95 sen on a volume of 19.14 million.

The major gainers include Kuala Lumpur Kepong Bhd, which jumped 50 sen to RM16.70, Industrial Concrete Products Bhd 41 sen to RM3.20, Resorts World Bhd and Cement Industries Malaysia Bhd 40 sen each to RM16.90 and RM5 respectively, DiGi.Com Bhd 30 sen to RM15.70 and Bumiputra-Commerce Holdings Bhd 25 sen to RM10.20. Malaysian Resources Corporation Bhd rose 22 sen to RM1.70, UEM World Bhd was up 18 sen to RM2.97 while UEM Builders Bhd added 13 sen to RM1.88.

Marco Holdings Bhd's warrants were the most active with 118.46 million units done or 5.05% of total volume. It fell 0.5 sen to 10 sen. Aseambankers Malaysia research head Vincent Khoo said he expected the market volume and upward momentum to continue in the short term. He said foreign portfolio funds were picking up heavyweights and blue chips while merger and acquisition activities would continue to generate interest in the market. The ringgit continued to strengthen against the US dollar and was quoted at 3.492 at 5pm on Feb 7.