(Dec 24): Malaysia’s utilities stocks still have room to run as electricity demand surges from the proliferation of data centres and electric vehicles, Apex Securities said and told investors to "overweight" the sector.

Data centres alone would require more than 5GW by 2035, Apex Securities said in a sector initiation note. As data centres operate even through the night, the demand would account for over one-third of the total demand and exceed the entire commercial sector in 2023, it noted.

“The surge in data centre growth has reinvigorated electricity demand,” Apex Securities said. For strategy, the house has Malakoff Corp Bhd (KL:MALAKOF) and Tenaga Nasional Bhd (KL:TENAGA) as its top picks for the sector.

Shares of Tenaga, which has a near-monopoly on the country’s electricity distribution, and other utilities have rallied this year on the back of strong economic growth that boosted demand for power.

News reports of new power-hungry data centres mushrooming in Malaysia have also boosted investor sentiment and most analysts are also bullish on Tenaga and Malakoff.

Electric vehicles

Meanwhile, a slew of policies including import duty exemptions and income tax reliefs as well as the expansion of charging infrastructure have also lifted sales of electric (EV) and hybrid vehicles.

“As adoption continues to gain momentum, EVs are expected to play an increasingly critical role in shaping future electricity demand,” Apex said.

Replacing just 5% of the petrol consumption with EVs would result in more than 6,800GWh of demand, equivalent to 5.5% of the total annual electricity demand in 2023, according to the research house’s estimates.

“These estimates underscore the significant impact that EV adoption could have on Malaysia's electricity demand,” Apex said. “As the nation progresses toward its EV adoption targets, it is crucial to prepare the electricity grid for this additional load.”

Other beneficiaries

“The sector is set for robust growth, driven by rising electricity demand from data centres, the electrification of vehicles, and the ongoing energy transition,” the house said.

The entire electricity supply chain would benefit from the demand, such as cables and wire suppliers like Southern Cable Group Bhd (KL:SCGBHD) and underground utilities engineering firm UUE Holdings Bhd (KL:UUE), Apex noted.

Solar panel installers such as Solarvest Holdings Bhd (KL:SLVEST), Samaiden Group Bhd (KL:SAMAIDEN) and Pekat Group Bhd (KL:PEJAT) are also well-positioned to capture opportunities from the growing adoption of solar energy, it added.

Source: Theedgemarkets

TOKYO (Dec 24): Bank of Japan (BOJ) policymakers agreed in October to keep raising interest rates if the economy moves in line with their forecast, but some stressed the need for caution on uncertainty over US economic policy, minutes of the meeting showed on Tuesday.

The debate highlights how overseas economic risks, particularly those surrounding the new US administration's policies, will be key to how soon the BOJ will hike rates.

While the Oct 30-31 meeting was held before Donald Trump's victory in the Nov 5 presidential election, BOJ board members warned of renewed market volatility and potential big changes to US policy as key risks to the outlook, the minutes showed.

"We can spend time scrutinising US developments, including those after the US presidential election, as we had already been expecting to raise rates at a moderate pace," one of the members was quoted as saying in the minutes.

Contrary to their concern over external risks, the board was mostly optimistic on domestic economic conditions. Many on the nine-member board said prospects of higher wages would support consumption and keep Japan on track to sustainably hit the BOJ's 2% inflation target, the minutes showed.

"Wage growth is likely to remain elevated in next year's spring wage negotiations" between firms and unions, a few members were quoted as saying.

The BOJ left interest rates steady at 0.25% at the October meeting but projected inflation to move around its 2% target in the coming years, signalling that it was on track to hike borrowing costs in the near-term horizon.

While the board confirmed the view the BOJ would continue to raise rates if its economic and price projections were met, many called for vigilance to various risks, the minutes showed.

"We must guide monetary policy cautiously given heightening uncertainty at home and abroad," one member was quoted as saying in explaining why the BOJ should stand pat in October.

"The BOJ must spend time and be cautious" in deciding when to raise rates as Japan has not seen its policy rate exceed 0.5% for the past three decades, another opinion showed.

The BOJ kept rates unchanged at a subsequent meeting in December to await more data on whether wages would retain their upward momentum next year, and to gain more clarity on US president-elect Donald Trump's policies.

The BOJ ended negative interest rates in March and raised its short-term policy target to 0.25% in July. It has signalled a readiness to hike again if wages and prices move as projected.

All respondents in a Reuters poll taken earlier this month expected the BOJ to raise rates to 0.50% by end-March, although they had been divided on whether the move would come in December, January or March.

Source: Theedgemarkets

[Quick Facts]

[News Details]

[Today's Focus]

Consumer mood remains above the long-term average

The Czech consumer confidence indicator shed 1.2 points to 100.4 in December, remaining just above its long-term average. The business confidence indicator decreased by 0.4 points to 96.9 in the same month, with the country's underperforming industry proving the main drag. Both indicators came in below market expectations.

The share of consumers expecting the overall economic situation in Czechia to worsen over the next 12 months has increased slightly, and the proportion of consumers who believe that the current period is not appropriate for large purchases has increased. In contrast, the number of households assessing their current financial situation as worse than in the previous year fell slightly.

When looking at the business domain, confidence picked up again in the service sector (+1.5 points) and slightly in trade (+0.4 points). Meanwhile, the mood in industry dropped by 2.4 points to 88.5 in December, setting a clear downward trend. Confidence in the construction sector remained unchanged at an elevated level, reflecting the recent upswing in demand for residential property.

Services continue to gain; the industry loses out

Source: CZSO, Macrobond

Overall, the December survey corrected the previous month's uptick for both consumers and businesses. Consumers expressed increased concerns about the economic outlook. The lousy mood in industry relates to the havoc in the European automotive sector and the continued industrial misery in Germany. Indeed, these are challenging conditions for the future performance of the Czech economy. Meanwhile, service providers see better times ahead, which may foster price inertia in this segment.

No fundamental turnaround in sight

The dichotomy between a well-performing consumer and an underperforming industry is set to continue. With Czech industry closely linked to that of Germany, this recent weakness is likely to persist given that barriers to Europe's economic performance are predominately of a structural nature. It seems that leaders in Europe do not perceive such a peculiar situation as a pressing issue, and we've seen quite some resistance to the adoption of growth-oriented adjustments to regulations, policies, and investment incentives.

For now, no fundamental turnaround in industry can be seen on the horizon. We're reminded of the classical maxim Fiat iustitia, et pereat mundus – let justice be done, though the world may perish. Or in this case, let the world perish but preserve the regulations. A tough choice, perhaps.

Where does it stop?

Source: Macrobond