The RAM-CTOS Business Confidence Index showed that the improvement in sentiment was led by the positive outlook for sales and profitability.
PETALING JAYA: Negative chatter in the economy has not derailed the optimism of Malaysian businesses, according to a report, as firms’ confidence in the outlook increased for the second consecutive quarter.
The RAM-CTOS Business Confidence Index (BCI) rose to 54.8 in the second quarter of 2023 (2Q23) as compared to 51.4 in the previous quarter.
In contrast, the BCI ended the year 2022 with a reading of 46.2 in the fourth quarter. A reading of above 50 indicates positive sentiment.
“This (reading of 54.8) indicates businesses remain sanguine about prospects for the next three months,” stated the joint report by RAM Holdings Bhd and CTOS Digital Bhd
.
The BCI is a survey on forward looking business sentiment and topical issues faced by the Malaysian small and medium enterprises (SME) community.
The report was published two days after S&P Global Market Intelligence highlighted that Malaysian manufacturers remained optimistic regarding the year-ahead outlook for output. This is amid hopes that demand would pick up in the second half of 2023 (2H23) and provide a boost to sales.
However, the overall degree of optimism eased to the softest since July 2021 as businesses noted concerns regarding the timing of the hoped-for recovery.
S&P Global Market Intelligence also reported that Malaysia’s purchasing managers’ index (PMI) dipped to 47.7 in June, marking a contraction in manufacturing activities for the 10th straight month.
The BCI found that the improvement in sentiment was led by the positive outlook for sales and profitability, with the latter finally reverting to a positive reading of 51.6 after languishing in pessimistic territory over the last three quarters.
Following a round of price increases in late 2022 to maintain margins, the cost pressure faced by businesses may have started to ease this year.
CTOS group chief executive officer Erick Hamburger highlighted signs of businesses expanding their operations, despite mixed economic data and negative newsflow on global demand.
“CTOS SME subscribers accessed 5% more credit reports in 2Q23 compared to 1Q23 to evaluate new customers, which is a good indicator that they are ramping up operations and productivity, in line with the improved 2Q23 BCI sentiment.
“The average CTOS SME score has also risen by two points from 307 in 1Q23 to 309 in 2Q23, which means that the average Malaysian SME have a “Good” credit standing which is important to get access to credit,” he said in a statement.
With sales picking up in 2023, firms may be able to shift from being merely in survival mode to growing their business again, the report said.
Meanwhile, across the listed companies universe, analysts are expecting the tide to turn for corporate earnings in 2H23.
Speaking with StarBiz, Rakuten Trade head of equity sales Vincent Lau said listed companies should generally see improved earnings across the board in the third and fourth quarters.
It is noteworthy that corporate Malaysia delivered an overwhelmingly disappointing earnings performance in the January to March 2023 period.
In a note last month, RHB Research said an alarming 44.6% of companies reported results below expectations, due to subdued top-line growth and cost pressures.
Lau, however, noted that corporate earnings are historically weak in the first quarter.
“Earnings of technology stocks should have bottomed out and should bounce back, moving forward. Other sectors should also see earnings improvements.
“In 2H23, we would also have more clarity on the direction of the overnight policy rate in Malaysia and the federal funds rate in the United States, as well as the six state elections.
“This should help attract inflow of foreign funds and raise our weightage on the MSCI Emerging Market Index,” he said.
In an earlier note, TA Research has also said the equity market would likely recover in 2H23, even though market jitteriness could prevail in the third quarter.
The recovery in FBM KLCI would partly be fuelled by stronger corporate earnings in 2H23.
“We opine the following five themes are worth considering over the next twelve months and propagate to buy-on-weakness.
“The five themes are blue chips; defensive; digitalisation, domestic infrastructure and property; as well as energy and utilities,” it said.
Last week, Kenanga Research said that there is “deep value” in the local market.
“While we believe the local market has bottomed out, it is more likely to decisively break out from the doldrums under two conditions, namely a dovish pivot by the United States’ Federal Reserve and a market-friendly outcome of the six impending state elections,” it said.
Kenanga Research defined a “market-friendly” outcome as one that does not erode the confidence of the unity government’s partners in the leadership of Datuk Seri Anwar Ibrahim.
“We pick banks, telcos and planters for value play,” it said.
