Bring in the workers

       MANY are not in favour of the government’s proposal to slash crude palm oil (CPO) export tax to between 4% and 6% and also, to slow down its B20 biodiesel programme to boost export earnings from the record high commodity prices.

       Malaysia’s capability to increase its palm oil exports is being put to question, particularly when most of its oil palm estates are losing unharvested crops due to the acute labour shortage issue.

       There is also no point for Malaysia to slow down its biodiesel mandates when most of the industry players are still struggling to meet up with the mandate requirements.

       Hence, for the benefit of the oil palm sector, the government must first prioritise on facilitating the recruitment of 32,000 foreign workers, particularly palm fruits harvesters. This will definitely help to alleviate the plantation companies and the smallholder sector, which are believed to be short of a whopping 100,000 estate workers.

       The government also needs to focus more on improving domestic palm oil production, which could further deteriorate if the acute labour shortage continues.

       Last year, CPO production dropped to 18.12 million tonnes from 19.14 million tonnes in the previous year.

       It would be more critical to quickly bring in the labour workforce to catch up with the harvesting round and productivity for local planters during the period when CPO price is trading above RM6,000 per tonne mark. Given the latest development, industry observers expect Malaysia’s B20 palm oil biofuel programme due for adoption by the end of this year, to be delayed further. Having said that, the government has mentioned that it would undertake the B20 programme stage-by-stage depending on its financial capabilities.

       The mandate to manufacture biofuel with 20% palm oil and 80% fossil fuel for the transport sector was first rolled out in January 2020, but faced delays following the movement curbs imposed to contain the Covid-19 outbreaks. Analysts opined that its peer, Indonesia will also delay its B30 biofuel programme to help stabilise the shortage in its domestic cooking oil supply.

       One thing for sure, all these uncertainties will allow CPO to stay at lofty levels with analysts revising the average price upwards at RM5,200-RM5,500 per tonne for 2022.

       Good growth but ...

       MALAYSIA’S GDP growth in the first quarter of 5% certainly surprised on the upside, which has been the norm in a number of instances when growth is projected for the economy.

       The rear view indicator of the economy surely gives some momentum to what the second quarter can deliver but the prognosis for this quarter is not as rosy as what the last quarter was.

       First off, the selld-own in global equities, headlined by the stock markets in the United States, will surely affect sentiment.

       While the stock market is often said to be a leading indicator for the next six months, what we are witnessing in the markets as they approach bear market territory is not pretty.

       Then is an absence of panic in the United States as the VIX, which is the “fear” indicator, show that there is no real frayed nerves among investors.

       The sell-down appears orderly for equities but in the cryptocurrency space, well that is where the “Tales from the Crypt” stuff is really showing.

       The is decimation and destruction among a number of digital coins and surely the younger generation of investors who have favoured those investments will be burnt. But in Malaysia, the decision to raise interest rates ahead of the gross domestic product was quite telling in the number of indicators released.

       Firstly, the foreign exchange reserves fell by US$1.9bil (RM8.36bil) over a two-week period. That is a big move is such a short time and Malaysia cannot wade against the global hawkish tide that has been sparked by the surge in inflation.

       Then there is the balanced of payments. The small rise even after a huge positive trade balance in the first quarter surely had confirmed the decision to raise interest rates.

       Protecting the value of the currency has to be of paramount importance. Interest rates returning to the previous record low levels from the ultra record-low plateau may mean people will increasingly have to pay more for the loans they have taken out.

       That is a consequence we have to live with given the explosion in household debt over the past decade. It is also time to send the message that the debt and loan-fuelled growth should not continue at the expense of returning to more sustainable growth drivers.

       Chip sweet spot

       IT is a well known fact that Malaysia is in a sweet spot when it comes to the semiconductor industry. Just ask those involved in the business in places like Penang and Kulim.

       Foreign investments are pouring in. Just last month, Nasdaq-listed printed circuit boards and radio frequency components manufacturer TTM Technologies Inc said it was investing US$130mil (RM572mil) to set up a plant in Penang.

       This comes after major firms are already spending billions of ringgit ramping up facilities in the northern region of the country. But with all the increased production taking place here and elsewhere, will there be a supply glut that could lead to depressed pricing of products and services.

       Indications are that orders for many Malaysian semiconductor players keep pouring in. Many listed semiconductor firms in Malaysia and Singapore are reporting stellar results and hinting at more growth.

       And as MIDF Research recently pointed out, “emerging technologies such as artificial intelligence, automotive electronics, augmented and virtual reality depend heavily on the semiconductor industry to provide the computing power necessary.

       “Therefore this sector is still set for explosive growth due to its adoption and integration, eclipsing all other sectors, including the financial and the industrial ones.”

       With the current equities sell-off, markedly more present in the technology sector, it does make listed semiconductor firms worth a look.

       More so those with healthy balance sheets, abundant free cash flows and attractive dividends. Just as important will be the level of technology owned and deployed by these firms. Those lower down the value chain are likely to be the most disrupted by the new supply coming into play while those with advanced processes and patents will see their “moats” protecting them from the competition.