Malaysia's fiscal prudence, as guided in the recently announced Budget 2025, will bode well for the sustainability of the country's economic development moving forward, said a fund manager from British asset manager Schroders plc.

Jason Yu, Schroders' Asia head of multi asset and fixed income management, said the government's focus on governance reforms is also expected to lead to better overall economic performance, citing as examples successful reform efforts in Japan, South Korea and China.

The Malaysian government has kept development expenditure at RM86 billion under its Budget 2025, as it eyes a fiscal deficit-to-GDP of 3.8% for the year, with the 2025-2027 average seen at 3.5%. In tabling the budget, Prime Minister Datuk Seri Anwar Ibrahim also announced new revenue measures such as the 2% tax on dividend income of RM100,000 and above, as well as plans to further rationalise spending, including the targeted RON95 blanket subsidy rationalisation by mid-2025 seen to slash subsidy bills by RM8 billion per year.

Federal government debt growth is expected to slow to 6% in 2025, from 7.4% in 2024 and 8.6% in 2023, according to the latest estimates from the Ministry of Finance.

"It seems that there will be more focus going forward on artificial intelligence (AI) technology development as well, which we believe will sustain or continue to shift [the economy] from a very natural resources-orientated economy to the next phase of sustainable development," Yu said during a market outlook presentation on Tuesday.

Among AI-focused measures that were announced under Budget 2025 were special tax deductions for private universities and skills training institutes that develop new courses, such as AI, robotics, the Internet of Things (IoT), data sciences, fintech and sustainable technology. It set aside an increased RM50 million allocation to expand AI-related education to all research universities, compared to RM20 million previously, and increased the funding for research and development to RM600 million, up from RM510 million previously.

Tax incentives were also given for automation in the manufacturing, services, agriculture and commodities sectors, which include allowances and tax exemptions on capital expenditures for the adoption of technologies such as AI and drones that reduce reliance on foreign labour.

"So, we think it is overall positive from the governance point of view. Apparently it’s a trend [in Asia], and Malaysia is doing well. Hopefully we can see more advanced AI technology development going forward," Yu added.

In his presentation, Yu also cited how governance reforms in Japan have made Japanese equities more attractive to international investors and fund managers. Similar effects, he added, could also be seen in South Korea with its 'Corporate Value-Up Programme', as well as in China with its new 'Nine Measures' that aim to encourage listed companies to increase dividends and enhance their investment value.

Earlier, RHB Asset Management Sdn Bhd, the fund management arm of RHB Bank Bhd, relaunched its RHB Asian Income Funds — comprising RHB Asian Income Fund, RHB Asian Income Fund-SGD, and RHB Asian Income Fund - Multi Currencies — with a broadened investment scope that spans global and alternative assets, in addition to Asian multi-asset investments.

The fund, which feeds into the Schroder Asian Income Fund managed by Schroders Singapore, now has a higher income distribution target of 6% to 6.5% per annum, compared with 4% to 4.5% per annum previously, and a more flexible income distribution policy, allowing for monthly income distribution.

"This is made possible from the higher income distribution from the target fund, the Schroders Asian Income Fund," said RHB group wholesale banking managing director Datuk Fad'l Mohamed.

"Besides, the fund also benefits from the Asia+ investment strategy, the ability to invest outside of Asia to generate additional returns. This includes exposure to alternative asset classes that provide diversification and yield enhancement," he added.

RHB Asset Management managing director and chief executive officer Ng Chze How also confirmed that investors in the fund will be exempted from the 2% tax on annual dividend income worth more than RM100,000, as recently announced in Budget 2025.

According to its September 2024 fund factsheet, the RHB Asian Income Funds has 30.4% exposure to the financial sector, the largest as a proportion of net asset value (NAV), followed by technology (12.3%), consumer discretionary (12.3%) and utilities (8.1%).

In terms of countries, 18.1% of the fund's NAV is allocated to China, followed by India (13.5%), Australia (11.5%), and Hong Kong (10.7%).

Source: Theedgemarkets

Source: Reuters

South Korea has raised the prospect of sending weapons to Ukraine in response to North Korea’s reported dispatch of troops to Russia to support Moscow’s war on Ukraine, underscoring the risk of a divided Korean peninsula getting dragged into the conflict.

South Korea’s National Security Council held an emergency meeting on Tuesday and asked North Korea to immediately withdraw troops, it said in a statement. Seoul could consider providing weapons to Ukraine depending on developments, a senior presidential official told reporters.

“The government will take corresponding measures step by step depending on the progress of military cooperation between Russia and North Korea,” South Korean President Yoon Suk Yeol’s office said in a statement.

In recent days, South Korea has been raising alarm over North Korea’s reported move, which if confirmed would mark a further deepening of military ties between Moscow and Pyongyang. On Monday, the South Korean foreign minister summoned the Russian ambassador in Seoul and strongly urged Moscow to immediately pull out North Korean soldiers and end their cooperation.

There are conflicting claims about the size of the potential deployment but South Korea’s spy agency said last week that 1,500 North Korean troops arrived in Russia this month with a second batch of troops likely to be transported soon.

President Volodymyr Zelenskiy told reporters in Brussels last week that Pyongyang is preparing to send 10,000 troops even as Nata Secretary General Mark Rutte said there was no evidence North Korean soldiers are involved in the fight.

Western officials are taking a much more cautious approach to ascertaining the scale of North Korea’s involvement in the conflict, with a key unanswered question being whether their function is more on the engineering side, for example, rather than direct combat.

After a phone conversation with Yoon on Monday, Rutte said on X, formerly Twitter, that North Korea sending troops to fight alongside Russia in Ukraine would mark a “significant escalation.” Yoon called the growing ties between Moscow and Pyongyang a “threat” to world security and vowed not to sit idle.

The provision, should it be considered and approved, would mark an end to South Korea’s policy banning lethal aid to Ukraine. If some of Seoul’s large store of artillery shells started heading to Kyiv in addition to weapons supplies from Pyongyang to Russia, that would result in the war drawing upon two of the world’s largest artillery forces.

The reports of deployment quickly raised concerns in South Korea over what North Korean leader Kim Jong Un would get in return for the alleged troops dispatch. Kim has been already getting aid from Russia to prop up North Korea’s ailing economy and advance its weapons programs in return for providing artillery shells and ballistic missiles, according to Seoul and Washington.

North Korean soldiers’ direct participation in the conflict could have wider implications apart from tipping the balance in Russia’s favour, according to a Global Insight report produced by Bloomberg analysts. It said any North Korean involvement is likely to provoke a response from Ukraine’s partners and likely expand sanctions against Russia.

The deployment, if confirmed, would be a major step in Pyongyang’s cooperation with Moscow after Russian President Vladimir Putin and Kim agreed in June to provide immediate military assistance if one of them is attacked. North Korea maintains around 1.28 million active troops, according to South Korea’s defence white paper.

Source: The edge markets

Since our last publication, the price actions of Gold (XAU/USD) have staged the bullish breakout and cleared above the US$2,640/715 medium-term resistance. The yellow metal has rallied by 9.6% from 11 September to Monday, 21 October current all-time high of US$2,740.

“Trump Trade” narrative has reinforced the uptrend in Gold

The “Trump Trade” narrative has gained traction in the recent week due to rising odds of Trump winning the US election based on data from betting markets (60%Trump versus 39% Harris based on Real Clear Politics data as of 20 October).

Given that Trump’s “generous” corporate tax cuts proposal to reduce the tax rate to 15% from 21% will likely widen the US federal deficit further, in turn leading the market to question the credit standing of the US government (such as the prospect of more frequent government shutdowns) that may see an erosion of confidence in US Treasuries and strengthened Gold (XAU/USD).

Gold is being used as tail-risk hedge

Fig 1: S&P 500 & S&P 500/Gold ratio long-term secular trends as of 22 Oct 2024 (Source: TradingView, click to enlarge chart)

Trump’s proposed tax and trade tariffs policies are likely to reignite upward inflationary pressures in the medium to long-term.

In addition, geopolitical risk premium has not been totally eradicated yet in the Middle East due to the ongoing Israel-Hamas war.

Hence, higher inflationary pressure and an increase in geopolitical risk premium are deadly concoctions that may lead to stagflation which in turn can spark a potential risk-off episode in the global financial markets.

In the lens of technical analysis, the ratio chart of S&P 500 over Gold (XAU/USD) together with its monthly RSI momentum indictor of the S&P 500 / Gold (XAU/USD) ratio has displayed a significant underperformance of S&P 500 against Gold (XAU/USD) since February 2024 (see Fig 1).

Similar observation has been detected in the past during the peak of the Dot.com bubble in August 2000 before the S&P 500 staged a major correction of 35% over the next two years.

Therefore, the recent heightened demand for Gold (XAU/USD) is likely reinforced by portfolio tail-risk hedging activities as well.

Medium-term uptrend remains intact

Fig 2: Gold (XAU/USD) medium-term & major trends as of 22 Oct 2024 (Source: TradingView, click to enlarge chart)

The price actions of Gold (XAU/USD) have been trading firmly above its rising 20-day and 50-day moving averages since 9 August 2024 supported by a parallel ascending trendline support seen in the daily RSI momentum indicator (see Fig 2).

These observations suggest that medium-term upside momentum remains intact for Gold (XAU/USD).

Watch the US$2,590 key medium-term pivotal support for the potential continuation of the impulsive up move sequence for the next medium-term resistances to come in at US$2,850/886 and US$2,933 (also the upper boundary of the medium-term ascending channel from 15 February 2024 low).

On the flipside, failure to hold at US$2,590 negates the bullish tone for a multi-week correction sequence to unfold within its major uptrend phase to expose the next medium-term supports at US$2,484 and US$2,360 (also the 200-day moving average).

Indonesia's palm oil stock is expected to remain at around 2.5 million metric tonnes at end-2024 after output was affected by dry weather last year, the country's main palm oil industry association Gapki said on Tuesday.

Palm oil product exports by the world's largest producer in August rose 15% from a year earlier to 2.38 million metric tonnes, Gapki data showed, lowering its end-August palm oil stock to 2.45 million tonnes from 2.51 million tonnes a month earlier.

That was Indonesia's the lowest monthly stockpile since March 2019, Gapki data showed.

Gapki expects the stockpile to remain at that level as production of palm oil this year, Secretary General M Hadi Sugeng Wahyudiono told reporters, noting output was affected by a dry weather pattern in 2023.

Output in August was up slightly from a year earlier but overall production from the start of the year was down by 5%.

"Until the end of the year, most likely the (output) will remain 5% lower ... This year the total production of crude palm oil and crude palm oil output is estimated at 51 million tonnes," Hadi said.

Domestic consumption of palm oil is driven by its use in biodiesel blending.

Agriculture Minister Andi Amran Sulaiman on Tuesday reaffirmed the new government's commitment to implement a mandatory 40% mix of palm oil-based fuel in diesel, known as B40, starting from January.

Indonesia currently has a 35% mandatory mix of biodiesel.

Expanding the mix to 40% will increase domestic palm oil consumption by two million tonnes, Gapki chairperson Eddy Martonneo said.

Source: The edge markets

Germany's federal and state governments' tax revenues rose 6.9% in September compared with the same month last year, the finance ministry said on Tuesday.

The federal and state governments' tax revenue reached a total of 86.2 billion euros ($93.54 billion) last month, according to the ministry's monthly report.

This follows a 5.3% rise in tax revenues in August and a 7.9% decrease in July. Lacklustre economic growth has made for a very volatile tax take this year.

Tax revenue rose by 2.9% from January through September when compared with the same period last year, and reached 626 billion euros.

For full-year 2024, analysts forecast tax revenue will increase to 863.68 billion euros, up 4.1% from the previous year, according to the report.

The new tax estimate will be published on Thursday.

The German economy unexpectedly contracted 0.1% in the second quarter, and the finance ministry does not currently see a strong economic recovery on the horizon: "The short-term economic outlook remains gloomy," it said in the report.

In its latest forecast, the German government expects the economy to contract by 0.2% this year, which is likely to make it for the second year running the only member of the Group of Seven major industrial democracies to post shrinking output.

Next year, the economy is expected to grow by 1.1%, then by 1.6% in 2026. That is based on the assumption that private consumption will support economic momentum and disposable income will be on an upward trend, the ministry said.

Source: The edge markets