Investment & Market Trends

KUALA LUMPUR: Malaysia’s broad money supply (M3) reached a seven-month high in October, growing at 3.7 per cent year-on-year (YoY), primarily driven by increased demand deposits (3.6 per cent) and foreign currency deposits (8.3 per cent). Kenanga Investment Bank Bhd in a report said however, the expansion was partially offset by persistent weaknesses in savings deposits (-3.9 per cent) and other deposits (-2.7 per cent). Month-on-month (MoM) growth was at 0.6 per cent, the highest since August 2022. The research firm noted that the M3 growth was propelled by an expansion in claims in the government sector, with net claims reaching an eight-month high at 12.3 per cent. Conversely, claims in the private sector moderated to a four-month low at 4.8 per cent, attributed to slower loans (4.4 per cent) and securities (7.4 per cent), the firm noted. The contribution of claims on the private sector to overall M3 growth decreased to 4.6 percentage points. Further, the investment bank noted that foreign assets grew at 0.7 per cent, sharply slowing to an eight-month low, mainly due to a more significant contraction in the banking system at 14.6 per cent. Kenanga also noted that loan growth reached a two-year low at 4.0 per cent YoY in October, supported by an expansion in residential property (7.4 per cent) and increased loans for transport vehicles (9.4 per cent). While these contributions expanded to 3.6 percentage points, the overall loan growth was weighed down by weaker growth in working capital (0.3 per cent) and a contraction in other purposes (-1.6 per cent). Credit card growth also slowed (12.1 per cent), reducing its contribution to 0.2 percentage points, the research firm noted. In terms of sectors, the household sector (5.8 per cent) continued to support overall loan growth, contributing 3.4 percentage points. Growth was further aided by expansion in education, health & others (8.2 per cent) and manufacturing (2.1 per cent) sectors, contributing a combined 0.3 percentage points. “However, ongoing weakness in electricity, gas, steam and air conditioning supply (-29.4 per cent) and a contraction in transport and storage (-6.4 per cent) partially capped the growth. “\Month-on-month, loan growth moderated to a three-month low at 0.3 per cent,” Kenanga said in the report. Deposit growth remained unchanged at 4.3 per cent YoY, with MoM growth expanding at a slower pace (0.4 per cent). The expansion in demand deposits (2.0 per cent) and foreign currency deposits (3.6 per cent) supported the overall growth, while fixed deposits expanded at a slower pace (6.1 per cent). However, Kenanga said a sustained fall in savings deposits (-3.9 per cent), other deposits accepted (-1.2 per cent), and a substantial contraction in negotiable instruments of deposits issued (-17.4 per cent) capped the growth upside. Kenanga said the 2023 loan growth forecast remains at 4.0 per cent to 4.5 per cent compared to 5.7 per cent in 2022, with an increasing likelihood of settling around the lower end of the target range. The firm said this aligns with the fourth quarter (Q4) of 2023 gross domestic product (GDP) growth target of 3.7 per cent compared to 3.3 per cent in the second quarter (Q2) of 2023 and the overall 2023 GDP forecast of 3.5 per cent to 4.0 per cent compared to 8.7 per cent in 2022. “The anticipated growth is supported by improvements in consumer and business confidence, steady labour market conditions, increased income levels, and a clear policy direction from the current government. “Additionally, it is believed that the Bank Negara Malaysia (BNM) will maintain its overnight policy rate (OPR) at 3.00 per cent in 2024, considering a stable inflation outlook to support continued growth,” Kenanga said.