Demand Upswing Seen
PETALING JAYA: Export-oriented tech and commodity firms are set to benefit from the rising demand for chips and an imminent “commodities super-cycle, ” spurred by growing consumption on the back of the global vaccine rollout.
In light of the vaccine rollout in advanced countries, Sunway University professor of economics Yeah Kim Leng said the revised, improved outlook by the International Monetary Fund (IMF) on the global economy will bode well for local exports.
“Malaysia is set to benefit from better external demand, especially from advanced nations such as the US and China, ” he told StarBiz.The IMF expects the global economy to grow 5.5% this year, a 0.3 percentage point increase from October’s forecasts, in light of the global vaccination rollout.
Meanwhile, JPMorgan in a recent note said a super-cycle in commodities is about to take place and that investors will be able to benefit by increasing their exposure to energy stocks.
The research note highlighted that the last super-cycle in commodities began in 1996 and peaked in 2008, before bottoming out last year when oil prices crashed into negative territory.
As both the commodities upswing and downswing cycles lasted 12 years, JPMorgan believes that another upswing is imminent, as heightened demand for oil has been sparked by a post-pandemic economic recovery.
Yeah said the super-cycle will be heavily dependent on China’s economic performance.
“The upcycle will be driven by the performance of China’s economy, which is set to grow between 6% and 7% this year.”
An analyst said China’s economic growth will also bode well for Malaysian tech companies.
“We see Malaysia’s electrical and electronics sector benefiting from China’s 14th Five-Year Plan (2021-2025). The global pandemic has also spurred the demand for electronic chips in smartphones and laptops.”
According to the International Trade and Industry Ministry, China remained as Malaysia’s largest export destination, with exports expanding by 12.5% to RM158.6bil. Exports to China contributed 16.2% to Malaysia’s total exports in 2020.
On a year-on-year basis, the Bursa Malaysia Technology Index has risen over 118%, outperforming the benchmark FBM KLCI, which has risen over 4% during the same period.
Rakuten Trade equity sales head Vincent Lau said Malaysian companies will certainly benefit from crude oil prices and crude palm oil (CPO) prices, which have been on a steady uptrend.
“The rise in commodity prices will definitely benefit us. Considering that the government’s Budget 2021 assumption of US$42 per barrel for 2021 and it is above US$60 per barrel right now, our fiscal position will be looking a lot better, ” he said.
At the time of writing, Brent crude stood at US$63.10 per barrel, while CPO is hovering near RM4,000 per tonne.
Lau told StarBiz that the growth trend will depend on how quickly and effectively the Covid-19 pandemic can be contained.
Fortress Capital Asset Management chief executive officer Thomas Yong said the recovery from the pandemic so far has been uneven for the manufacturing and services sectors, with the latter picking up much slower due to the frequent movement control order disruptions.
“Export-driven sectors are dependent on external demand, which should also benefit from vaccination drives globally. However, as vaccination commences domestically, the key direct beneficiary will be the services sector.”
He added that sectors such as airlines, gaming, hotels and retail malls, which have suffered the most, will be the primary beneficiaries as more people are vaccinated.
“Another sector that will benefit is the building materials, as construction activities will pick up stronger with less disruptions.
“Having said that, the challenges in the vaccination programme such as logistics and people’s willingness to accept vaccination might result in a longer time to achieve any set vaccination target, ” he said.
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