AtOneGoFinancial Blog: October 2021

Sunday, October 31, 2021

Initiatives to help micro businesses, SMEs recover lauded

PETALING JAYA: Some Budget 2022’s initiatives are seen as instrumental to the recovery of local small and medium enterprises (SMEs), namely microcredit loans at a 0% interest rate, deferment of income tax instalment payments, Reinvestment Allowance (RE), and the RM40 billion Semarak Niaga.

Associated Chinese Chambers of Commerce and Industry of Malaysia (ACCCIM) treasurer-general and SMEs committee chairman Koong Lin Loong said the microcredit loans up to RM75,000 at 0% interest rate for the first six months of the loan tenure, with a six-month moratorium, is a good initiative by the government and a beneficial move to support and assist micro businesses. It is a continuity of last year’s Prihatin SME Plus.

Besides, under Bank Negara Malaysia’s Funds for SMEs, the Targeted Relief and Recovery Facility has been upsized by RM2 billion from RM6 billion.

“It is a popular demand by SMEs. I think RM2 billion is too low because SMEs has entered the recovery phase. It is an important phase for SMEs to go forward. If the government can assist SMEs, they can go forward then there will not be more retrenchment and bankruptcy,“ Koong told SunBiz.

He said the ACCCIM had been fighting for postponement of income tax instalment payments, which the government finally approved.

“Businesses should apply for a deferment of income tax instalment payments for MSMEs (micro, small and medium enterprises) for six months until June 30, 2022. It is a good way to save cash flow. The revision of monthly tax payment is a laudable move by the government, in which, all businesses are allowed to amend the estimated income tax payable on the 11th month before Oct 31, 2022,“ he said.

During the pandemic, many businesses incur losses. Previously, an accumulated unabsorbed business losses tax treatment could be carried forward for seven consecutive years of assessment. Now it has been reviewed to a maximum of 10 consecutive years of assessment.

“This means businesses can set up future taxable profits for 10 years. It is beneficial to businesses.”

He advised SMEs to be aware of the tax benefits made available by the government.

“If SMEs take this opportunity to automate and modernise the business facility, they will be entitled to RE, the RE has been extended for two years. I advise SMEs to apply for all the funds and tax benefits announced in the budget. If SMEs go for renovation or refurbishment of premises to comply with Covid-19 SOPs, they will be entitled to a maximum of RM300,000 tax deductions.”

He said several funding measures for startups announced by the government were innovative.

“For example, the government’s support for crowdfunding and peer-to-peer lending platforms with an allocation of RM80 million in matching grants for the Malaysia Co-investment Fund. In addition to the investment by Bank Pembangunan Malaysia Bhd totalling RM100 million.

“Besides, fundings for high gearing businesses or companies facing leverage problems are innovative moves such as the allocation of RM2.1 billion to support equity and quasi-equity investment schemes led by SME Bank in collaboration with Teraju and BSN with a fund worth RM600 million for all businesses. However, we have yet to know the execution processes for these funds,“ he said.

Malaysian Associated Indian Chambers of Commerce and Industry secretary-general Datuk Dr AT Kumararajah said while the budget has been expansionary, it will only succeed if applied to the most needed, the boost that SMEs were hoping for.

The RM40 billion Semarak Niaga which includes the RM14.2 billion will hopefully be targeted towards the SMEs that need the cash flow urgently. The RM14.2 billion out of the RM40 billion for SemarakNiaga is another welcome shot for the SMEs to bounce back in 2022. The government has managed an expansionary budget in the immediate term and coupled it with necessary structural reforms like fiscal discipline and public sector expenditure reforms in the medium term is a step in the right direction.

The establishment of the new SPV for the big companies for recapitalisation is hopefully not a rescue but will capitalise high impact companies.

“The SPV must also be created for MSMEs as they need it most. Besides, we need a new credit evaluation system,“ he told SunBiz.

Other laudable initiatives are the six months tax relief which will give businesses the needed cash flow ease. The tax relief for SOP compliance is welcomed as the cost of doing business will be less. The Syarikat Jaminan Pembiayaan Perniagaan is a good move with wider coverage.

“The government must look at a new paradigm in reaching out to the businesses especially the SMEs and micro-business community,“ he said.

Without pandering to the conventional thought of fiscal discipline, he said, continued support must be made available to the business community with targeted reliefs and the susceptible individual with an adequate support system. He said SMEs needs single-window support which has been done partially with the SPV for recapitalisation.

“Government must do more towards building consumer confidence as 70% of our GDP is domestic driven. The very fact that the fear is lingering, the threat that there is an unyielding wave coming is not good for business and consumer sentiment, because as far as big decisions are concerned, on the spending as well as on investment, this kind of environment creates fear and does not give confidence to consumers as well as businesses.

“Also, the public-private partnership 3.0 must be enhanced and less reliant on the government. The post-covid economy must be led by the private sector and powered by the government,“ he said.

He said the distress financing model from the government must be re-evaluated and come up with a new financing model that rules out banks as the solution.

Small and Medium Enterprises Association Malaysia central chairman Datuk William Ng said the budget is pro-growth and is timely in supporting businesses, especially SMEs, in recovery post-pandemic.

“We’re glad that the government has heeded our plea for a wage subsidy for the rehiring of workers. This is crucial as most SMEs who are in a recovery mood are cash strapped to procure raw materials and to re-hire workers. This has now been announced as JaminKerja with a subsidy of up to 30%.

“For SMEs who are cash strapped, we are happy that the government has announced measures such as instalment for corporate income tax, as well as additional funds of up to RM40 billion under the SemarakNiaga initiative,“ he said in a statement.

Business communities heaved sighs of relief that there were no new taxes imposed on businesses when most businesses are struggling and are only now getting on their feet.

“However, we remain hopeful that our proposal for 30% of government procurement to be allotted to SME vendors will still be considered by the government for implementation in 2022. This would not involve additional budget or funds from the government as the procurement is for products and services required by the government,“ he said.

Malaysian Industrial Development Financial Bhd group managing director Datuk Charon Wardini Mokhzani said supporting and boosting business activities especially for the MSMEs has been given strong emphasis.

“Access to financing with various loans and financing and credit guarantee schemes have been made as one of the key initiatives to ensure businesses especially MSMEs will be able to recover and thrive after enduring a difficult period this year.”

Source: The Sun Daily

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Tax Matters – Budget 2022 measures to spur economic revival

AT RM332.1 billion, Budget 2022 is the largest budget in the history of Malaysia. The clear focus of this budget is to revive the economy and to selectively help the sections of society that require immediate assistance through a direct cash injection of RM8.2 billion to 9.6 million recipients.

Assistance to businesses and individuals has been given in via cash transfers, grants, loans, guarantees, moratoriums, and through the taxation system.

Major tax measures to help the revival

Individuals

Disposal of real properties and real property companies shares held by individuals for investment purposes will no longer attract Real Property Gains Tax if the sale takes place after the fifth year. This will certainly invigorate the property market which is currently in its doldrums. Since this is effective from Jan 1, 2022, it may be advisable to defer the transactions to post Jan 1, 2022.

Special relief of RM2,500 for purchase of smartphone, personal computer or tablet will be extended until Dec 31, 2022. This is an addition to the existing RM2,500 lifestyle relief. In case you buy a smartphone costing more than RM5,000, you can claim a relief up to RM5,000 and the previous condition that you can only buy computers once in three years is no longer there.

Employee contribution to the Employees Provident Fund can be maintained through election at 9% instead of 11% until June 2022. Tax relief for Socso contributions is increased to RM350 and will include contributions for the Employment Insurance System.

You will be able to purchase cars at a lower price due to a 100% exemption on CKD assembled cars, 50% exemption for CBU imported vehicles for six months up to June 30, 2022 and a 100% sales tax (CKD)/customs duty (CKD and CBU) exemption for electric vehicles from 2022 to 2025.

Corporates

Extension of period to utilise business losses from seven to 10 years will be welcomed by businesses who suffered losses during the pandemic period. There is no time limitation to use unutilised capital allowance and investment tax allowance.

Reinvestment allowance has been extended up to year of assessment 2024 which will certainly help subsidise and spur manufacturing and selected agricultural businesses to reinvest in plant, machinery, and industrial buildings.

Extremely profitable companies generating taxable income of more than RM100 million will be subject to a one-off prosperous tax of 33% on the excess of RM100 million. In the event such companies are attempting planning measures to accelerate the income into 2021 before the introduction of this tax, please be mindful of the anti-avoidance provisions which the Inland Revenue Board will invoke in case such moves are not commercially explainable. Similarly, if such companies attempt to defer the income from 2022 to 2023 purely for tax purposes, you will be in trouble.

Foreign sourced income

From Jan 1, 2022 onwards, foreign sourced income received in Malaysia will be taxed in Malaysia. This applies to both individuals and corporates. In case the foreign sourced income suffers tax overseas, the Malaysian taxpayer should be able to claim tax relief through the double tax agreements or unilateral tax credits.

However, there are many complicated issues in this matter and an example would be although Malaysian dividends are not taxed, foreign dividends received in Malaysia will be subject to tax from 2022 and there could be more than one level of taxation on the foreign dividends.

Similar complications could exist for interest income, rental income, business income and other income.

Other important measures

In order to discourage Malaysians from consuming sugary drinks, excise duty has been extended to include sugary premixed drinks, such as 3-in-1 sachets.

To bring the taxation regime of the vape industry on par with the cigarette industry and to increase the government coffers, excise duty is now imposed on gel/liquids used in vape pens. The vape industry needs to get its act together quickly to comply with the excise duty which will be implemented in 2022.

SMEs have been given numerous tax and non-tax benefits in this budget, and among them is the deferment of the income tax instalment payment for six months up to June 30, 2022, and new SMEs established and operate from July 1, 2020 to Dec 31, 2022 will be allowed a maximum rebate of RM20,000.

An important change in stamp duty is that the cap of RM200 for contract notes for trading listed shares has been removed. The stamp dutyalso has been increased from 0.1% to 0.15%. Those who undertake high value transactions will feel the pinch.

This article was contributed by Thannees Tax Consulting Services Sdn Bhd managing director SM Thanneermalai.

Tight fiscal headroom raises eyebrows

Sime Darby Property launches Hamilton City in Malaysia Vision Valley 2.0

PETALING JAYA: Sime Darby Property Bhd has launched Hamilton City in Nilai, Negri Sembilan to strengthen its commitment to develop the new growth corridor in Malaysia Vision Valley 2.0 (MVV 2.0).

The 2,723-acre Hamilton City is a full-fledged managed industrial township in MVV 2.0 focusing on medium to heavy manufacturing-based industries to drive direct investments into the development as well as to generate socio-economic improvement in the township.

MVV 2.0 is an integrated economic region complementing the development of Greater Kuala Lumpur and National Conurbation and is identified as one of the 17 Promoted Development Zones prioritised under the National Physical Plan. Spurred by four economic drivers namely high-technology manufacturing, wellness tourism, skill-based education and research, and specialised services, MVV 2.0 aims to position itself as a global industrial player.

Hamilton City will be developed by Sime Darby Property in four phases, with Phases 1, 2 and 4 focusing on medium and heavy industrial activities, while Phase 3 will be specifically developed for light industry comprising detached and semi-detached factories with a managed industrial park concept. The series of mixed industrial developments will suit different businesses, further driving the creation of thriving industry-led communities. It is also expected to create job opportunities for the population of 740,000 living within and around the township.

Sime Darby Property group managing director Datuk Azmir Merican said Hamilton City’s location in Nilai positions the industrial township as an attractive option for businesses seeking efficient production or warehousing options outside the Klang Valley as it is connected to essential infrastructure such as major expressways.

“We continue to grow the company’s industrial and logistics development segment by leveraging on rising global e-commerce trends and the market’s demand for better industrial warehousing products. Hamilton City features convenient access to the North-South Expressway and NSE Central Link, as well as the Nilai-Labu Expressway which will be opening in the future.

“These expressways will connect Hamilton City to major logistics hubs such as the Kuala Lumpur International Airport and Port Klang, a signature of Sime Darby Property Industrial products located in City of Elmina, Bandar Bukit Raja and Serenia City, among other locations,” he said.

Ringgit-baht settlement framework to be expanded effective Dec 1

PETALING JAYA: Bank Negara Malaysia (BNM) and Bank of Thailand (BOT) today announced the further expansion of the ringgit-baht settlement framework effective Dec 1, 2021, part of the continuous effort to facilitate wider use of local currencies for settlement of trade and direct investment between Malaysia and Thailand.

The latest framework includes an expansion of eligible users to include Malaysians and Thais who reside in either country, as well as additional foreign exchange policy flexibilities such as simplified documentation requirements.

BNM deputy governor Datuk Abdul Rasheed Ghaffour said: “This expansion would provide greater accessibility to ringgit- or baht-denominated financial services for individuals as well as businesses in both countries. The framework also now allows Thai individuals residing in Malaysia to avail themselves to these services. The expansion will boost future economic activities between our two countries.”

BOT deputy governor Mathee Supapongse said: “This latest expansion of the ringgit-baht settlement framework will benefit people and businesses in both Malaysia and Thailand. It will further facilitate cross-border financial transactions including through the recently launched cross-border QR payment linkage between our two countries. We believe this will pave way for wider use of local currencies and greater financial integration within the Asean region.”

The local currency settlement framework between Malaysia and Thailand was last expanded on Jan 2, 2018, after its initial launch on March 14, 2016 in accordance with the memorandum of understanding signed between BNM and the BOT on Aug 27, 2015.

For the latest expansion, BNM and BOT have appointed additional qualified commercial banks in both countries to participate in and further support the expanded ringgit-baht settlement framework. In general, the appointed banks are resilient and healthy, experienced in facilitating settlement of trade and direct investment between the two countries and have established strong business relationships with banks in the counterparty country.

The additional appointed banks in Malaysia are HSBC Bank Malaysia Bhd and Standard Chartered Bank Malaysia Bhd; while the existing appointed banks are Bangkok Bank Bhd, CIMB Bank Bhd, Malayan Banking Bhd, MUFG Bank (Malaysia) Bhd, Public Bank Bhd, RHB Bank Bhd and United Overseas Bank (Malaysia) Bhd.

Saudi Aramco Q3 profits soar 158pc on higher oil prices

A view shows branded oil tanks at Saudi Aramco oil facility in Abqaiq, Saudi Arabia October 12, 2019. — Reuters pic

RIYADH, Oct 31 — Saudi Aramc’s earnings rose 158 per cent year-on-year in the third quarter on higher oil prices and volumes sold as the global economy recovered, it said on Sunday.

Aramco’s net income was US$30.4 billion (RM126 billion) in the third quarter, up from US$11.8 billion in Q3 last year, with free cash flow more than doubling to US$28.7 billion. Shareholders will receive US$18.8 billion in dividends.

“The increase in net income was primarily the result of higher crude oil prices and volumes sold,” the Saudi oil giant said in its earnings statement.

It also cited “stronger refining and chemicals margins in Q3, which were underpinned by rebounding global energy demand and increased economic activity in key markets”.

The latest rise comes after profits nearly quadrupled in Q2 as the world economy bounced back from the Covid crisis, lifting demand and pushing oil prices back above US$80 a barrel.

“Some headwinds still exist for the global economy, partly due to supply chain bottlenecks, but we are optimistic that energy demand will remain healthy for the foreseeable future,” Aramco chief executive Amin Nasser said. — AFP

Source: Malay Mail

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Alibaba's 11.11 global shopping festival 2021 focuses on sustainability and inclusiveness

Alibaba’s 13th annual 11.11 Global Shopping Festival 2021 will be the largest global event ever conducted by China’s e-commerce giant Alibaba Group Holding Ltd. — Reuters pic

KUALA LUMPUR, Oct 31 — Alibaba’s 13th annual 11.11 Global Shopping Festival 2021, the largest global event ever conducted by China’s e-commerce giant Alibaba Group Holding Ltd, enriches the e-commerce ecosystem with a sustainability and inclusiveness approach this year.

Alibaba Group chief marketing officer Chris Tung said this year marks the largest festival to date with an emphasis on sustainability and inclusiveness for retailers, merchants and public consumers.

“This year, the festival focuses on inclusivity and sustainability featuring more than 290,000 participating brands, with over 14 million deals for more than 900 million consumers in China. This is an opportunity for more consumers to be engaged with more brands from all over the world.

“This will make it an even more meaningful one for all while aiming to play a vital and influential role in encouraging sustainable action and promoting inclusivity in society,” he said.

He said this in a press conference via zoom, in conjunction with the upcoming Alibaba 11.11 Global Shopping Festival 2021.

Tung said the group currently focuses on building up its value system for the community and the society at large with new initiatives centering on the sustainability of eco-friendly approaches and social good through the ‘Goods for Good’ programme.

“For the very first time, Tmall (an open business-to-consumer (B2C) platform) will be featuring a dedicated vertical to showcase energy-efficient and low-impact products. This includes issuing RMB100 million worth of ‘green’ vouchers, developing new products with lower carbon footprints with brand partners and creating plastic-free and recyclable packaging.

“Over the past 15 years, the Goods for Good programme has helped people more than 43 million times.

“Some of its noticeable projects included providing more than three million times of medical support, installing water purification systems in more than 200 rural schools, and providing nearly half a million free meals to elderly citizens living alone across the country,” he added.

Alibaba’s Goods for Good programme raises funds for good causes by enabling customers to donate a portion of the sales profit from their purchases to their chosen charitable organisation or project.

He added this year the group is also focusing on customer relationship management to provide members with better deals, services and access to different content and programmes in the e-commerce ecosystem.

“There are three main initiatives driven to support the merchants in the celebration, through livestreaming upgrade, improving the content marketing features on Taobao platform and launching new membership programmes as well as management capabilities to create more engagement opportunities with brand members,” he said.

Moreover, this year’s celebration provides bigger discounts and deals, earlier pre-sale orders and the debut of social sharing features to create more interactivity and impactful retail experiences.

Commenting on the success metrics for this year, Tung said Alibaba Group has been shifting its focus from pure Gross Merchandise Value (GMV) growth to sustainable growth.

“We are indeed optimistic about the overall results, but more importantly, we are committed to building the future for the economy and online consumption.

“We want to leverage the influence and reach of 11.11 to not only sell products but also to emphasise the importance of shifting to more sustainable consumption lifestyles,” he said. — Bernama

As rivals reopen, Hong Kong doubles down on virus isolation

Hong Kong’s decision to descend deeper into international coronavirus isolation as rivals reopen is causing consternation among managers at multinationals who see no end to a zero-Covid strategy. — AFP file pic

HONG KONG, Oct 31 — Hong Kong’s decision to descend deeper into international coronavirus isolation as rivals reopen is causing consternation among managers at multinationals who see no end to a zero-Covid strategy imposed by a leadership beholden to Beijing.

The southern Chinese business hub has kept the coronavirus at bay thanks to some of the world’s strictest quarantine rules with most arrivals undergoing 14 to 21 days of hotel confinement.

Competitors such as London, New York, Tokyo and Singapore have begun to live with the disease with face-to-face meetings, conferences and executive travel slowly returning.

But Hong Kong, which dubs itself “Asia’s World City”, has gone in the opposite direction.

And earlier this week officials further tightened the rules to try to secure a travel bubble with the mainland, even as China experiences its fourth outbreak in the past five months.

Chief Executive Carrie Lam has said restoring travel to the mainland is “more important” than reopening internationally and that the city needs to be even stricter than authorities north of the border to win Beijing’s trust.

That choice has sparked alarm as executives find themselves increasingly struggling to retain talent and replace those that are leaving.

AFP spoke to six senior managers at international companies to gauge whether — as one banking lobby group warned last week — Hong Kong’s long-term viability as a business hub is at risk.

All asked to remain anonymous so they could speak candidly, and painted a similar picture.

One basket

The pandemic began with praise for the way the city kept the coronavirus on the back foot and morphed into optimism that vaccinations would return some sort of normality this year.

But that has given way to fears that Hong Kong, like China, could remain closed off for much of next year.

“Everyone I talk to expects there will definitely be no quarantine lift until after the Winter Olympics (in February) and also perhaps not until Xi Jinping gets himself re-elected,” James, an Australian banker who has spent 30 years in Hong Kong, told AFP.

China’s leaders will hold a gathering in October at which President Xi is expected to secure a third term and there are growing expectations that Beijing will not risk a reopening of the borders until that sensitive date has passed.

Regular leaving parties and a sudden drop in waiting lists for international schools, James said, pointed to a small but steady exodus of foreign white-collar workers from Hong Kong “especially those with families”.

A managing director at a global investment bank who gave his name as John said he had spent 49 days in quarantine over the past 15 months and was now considering moving to either Singapore or London.

“We have staff every month relocating,” he said, adding it felt like Hong Kong’s government was putting “all the marbles... in one basket” by prioritising travel with China over the rest of the world.

And Philippe, who works at a global consultancy firm, described how a major competitor recently held a gathering of all regional heads in London.

“They all went except their guy based in Hong Kong,” he told AFP.

‘Unsustainable’

Among the stricter rules Hong Kong announced this week were an end to most of the few remaining quarantine exemptions, which included VIP business figures deemed crucial to the city’s operation.

Officials have also declared recovered coronavirus patients must spend a further 14 days in quarantine once they have been discharged.

That latter provision has sparked criticism that Hong Kong appears to be drifting away from a science-based health policy.

Ben Cowling, an epidemiologist at the University of Hong Kong who advises the government, said ending the small number of exemptions “will have enormous economic costs” but is at least “evidence-based”.

“But there doesn’t seem to be any epidemiological rationale for that additional 14 days,” he told AFP, adding that none of Hong Kong’s 10,000 discharged patients has caused an outbreak.

The new rules are the latest public health inconsistency to fuel suspicions in Hong Kong that the coronavirus is being used to keep the population down after democracy protests two years ago and a subsequent crackdown on dissent.

At present, 240 people can attend an indoor wedding banquet but more than four people eating sandwiches together in a park remains banned.

One American who works for an asset management firm said his family had to undergo mandatory quarantine when someone in his building tested positive.

He said he had gone from being an optimist at the beginning of the pandemic to a “deep pessimist”.

“Covid policy clearly overlaps with a lot of other political objectives,” he told AFP.

Asked what another year of restrictions might do to business, he replied: “It’s just unsustainable.” — AFP

China factory activity slumps in October on energy woes

Factory activity in China plunged more than expected in October, suggesting the industrial sector continued struggling as it grappled with tight power supply and surging raw material costs. — Reuters pic

BEIJING, Oct 31 — Factory activity in China plunged more than expected in October, official data showed Sunday, suggesting the industrial sector continued struggling as it grappled with tight power supply and surging raw material costs.

The key Purchasing Managers’ Index (PMI) — a gauge of manufacturing activity in the world’s second-largest economy — fell to 49.2 this month, down from 49.6 in September, said the National Bureau of Statistics.

This marks the second straight month in which China’s PMI has dipped below the 50-point mark separating growth from contraction.

A Bloomberg poll of economists had pegged the reading at 49.7, which would have been a slight improvement.

Although the country’s PMI contracted when the spread of Covid-19 — which first surfaced in the central city of Wuhan — forced most business activity to a halt, life has largely returned to normal as strict measures brought the outbreak under control.

But the NBS said Sunday: “In October, due to factors such as still-tight power supply and the high costs of some raw materials, the manufacturing PMI fell.”

Both the production and new-order indexes were in contraction, pointing to a weakening in supply and demand, senior statistician Zhao Qinghe said in a statement.

Meanwhile, the price index continued rising, reflecting higher purchase prices of raw materials such as petroleum and coal, as well as that of sales costs.

Non-manufacturing activity fell in October as well, official data showed, as authorities noted “the recovery of the service industry has slowed”.

China’s non-manufacturing PMI came in at 52.4, down from 53.2 in September.

While the reading still indicates expansion, helped by holiday activity at the start of October, the NBS added that the threat of local outbreaks continued to cast a pall over consumer sentiment. — AFP

US Fed set to begin stimulus taper amid sticky inflation

The Federal Reserve is set to begin removing a major plank of the stimulus policies it rolled out last year as the pandemic began. — Reuters pic

WASHINGTON, Oct 31 — The Federal Reserve is set to begin removing a major plank of the stimulus policies it rolled out last year as the pandemic began, a sign of the progress the US economy has posted since the historic downturn.

While the American central bank is always capable of surprises, its top officials have widely signalled that they will announce at their policy meeting next week the start of a drawback in their monthly purchases of bonds and securities, which they began as the economy collapsed in March 2020 to stop the crisis from becoming a catastrophe.

The world’s largest economy has undoubtedly come a long way from those dire days, but with an unpleasant passenger: Inflation, which has spiked throughout much of this year, and caused some economists to name the Fed’s easy money policies as an accessory.

Fed Chair Jerome Powell could touch on these topics when he speaks following the two-day Federal Open Market Committee meeting beginning Tuesday, and may also offer the central bank’s latest views on the state of the recovery.

“I think it’ll be one of the biggest surprises in a long time if they didn’t taper. They’ve been about as explicit as you can hope the Fed will ever get about a future action,” Michael Feroli, chief US economist at JP Morgan, told AFP.

Inflation as a test

Controlling inflation is one of the Fed’s top priorities, and its high level this year has tested the bank’s policy of keeping its benchmark interest rate at zero for longer than in the past to spur a return to full employment.

The latest sign of the wave came Friday when the Commerce Department — the central bank’s preferred inflation gauge-taker — reported prices rose 4.4 per cent year-on-year in September.

The most potent policy move the Fed could make against inflation is raising its lending rate off zero.

Powell has made clear that doing that will require a “substantially more stringent test” and only come after tapering the bond purchases has finished.

The Fed currently buys at least US$80 billion (RM331 billion) each month in Treasury bonds and at least US$40 billion in agency mortgage-backed securities. The purchases are intended to ease lending conditions as the economy weathers the pandemic.

Powell has previously said the buying could be wrapped up by the middle of next year, but details on the pace and composition of the taper, as well as its exact starting date, will have to wait for the meeting.

At the gathering, Powell could find himself caught between the demands of inflation hawks who want rates hiked sooner and doves who see the zero rate as beneficial, said Standard Chartered’s Head of North America Macro Strategy, Steve Englander.

“That’s going to be the... debate internally, with the hawks wanting some room to speed it up if inflation doesn’t come down and the doves kind of saying, you know, we have room to wait and see how things settle down,” Englander said.

‘Upside risks’

The Fed chair will likely signal what he makes of recent economic developments.

These include data showing third quarter growth slowed to an annual rate of 2 per cent from 6.7 per cent the prior period as the Delta variant of Covid-19 hit businesses, and the weak 194,000 jobs the economy added in September.

Lackluster data usually supports keeping monetary policy easy, but there’s evidence that stubbornly highs prices are getting to FOMC members.

At their last meeting in September, the committee forecast one interest rate hike next year and as many as three in 2023. In June, they predicted no rate hikes till 2023.

Tim Duy, an economics professor at the University of Oregon, said that although central bank officials have indicated the price increases will eventually fade, Powell may opt to strike a hawkish tone at the post-meeting press conference.

“While the Fed has been willing to tolerate inflation and embrace the transitory story, I think there’s much more concern that there’s upside risks to inflation and those upside risks will require a policy response sooner than the Fed anticipates,” Duy said. — AFP

G20 leaders endorse tax deal, pledge more vaccines for the poor

G20 state leaders pose during a family photo session at the start of the G20 summit in Rome, Italy, October 30, 2021. ― Reuters pic

ROME, Oct 31 — Leaders of the world’s 20 biggest economies endorsed on Saturday a global minimum tax aimed at stopping big business from hiding profits in tax havens, and also agreed to get more Covid vaccines to poorer nations.

Attending their first in-person summit in two years, G20 leaders broadly backed calls to extend debt relief for impoverished countries and pledged to vaccinate 70 per cent of the world’s population against Covid-19 by mid-2022.

However, with a crucial UN climate conference due to start in just two days, the G20 appeared to be struggling to throw its weight behind the sort of strong new measures that scientists say are needed to avert calamitous global warming.

Italy, hosting the gathering in Rome, put health and the economy at the top of the agenda for the first day of the meeting, with the more difficult climate discussions set for Sunday.

Underscoring the way the coronavirus crisis has up-ended the world, doctors in white coats and Red Cross workers joined the leaders for their traditional “family” photograph — a tribute to the sacrifices and efforts of medics across the globe.

Addressing the opening of the meeting, being held in a steel and glass convention centre, Italian Prime Minister Mario Draghi said governments had to work together to face up to the formidable challenges facing their peoples.

“From the pandemic, to climate change, to fair and equitable taxation, going it alone is simply not an option,” Draghi said.

The corporate tax deal was hailed as evidence of renewed multilateral coordination, with major corporations facing a minimum 15 per cent tax wherever they operate from 2023 to prevent them from shielding their profits in off-shore entities.

“This is more than just a tax deal — it’s diplomacy reshaping our global economy and delivering for our people,” US President Joe Biden wrote on Twitter.

With the world roiled by rising energy prices and stretched supply chains, Biden was expected to urge G20 energy producers with spare capacity to boost production, notably Russia and Saudi Arabia, to ensure a stronger global economic recovery, a senior US administration official said.

Dimmed hopes

Like many of the other G20 leaders in Italy, Biden will fly straight to Glasgow on Sunday for the United Nations’ climate summit, known as COP26, which is seen as crucial to addressing the threat of rising temperatures.

The G20 bloc, which includes Brazil, China, India, Germany and the United States, accounts for an estimated 80 per cent of global greenhouse gas emissions, but hopes the Rome meeting might pave the way to success in Scotland have dimmed considerably.

Chinese President Xi Jinping and Russia’s Vladimir Putin both decided to follow events only via video link and diplomats looking to seal a meaningful accord said both countries, as well as India, were resisting ambitious new climate goals.

British Prime Minister Boris Johnson acknowledged the G20 and COP26 talks would be difficult, but warned that without courageous action, world civilisation could collapse as swiftly as the ancient Roman empire, ushering in a new Dark Age.

“It’s going to be very, very tough to get the agreement we need,” he told reporters, standing next to the ruins of the Colosseum amphitheatre — a symbol of once mighty Rome.

Climate efforts

A draft communique seen by Reuters said G20 countries will step up their efforts to limit global warming at 1.5 degrees Celsius — the level scientists have said is necessary to avoid disastrous new climate patterns.

The document also acknowledges that current national plans on how to curb harmful emissions will have to be strengthened, but offered little detail on how this should be done.

Additionally, the leaders are set to pledge to halt financing of overseas coal-fired power generation by the end of this year, and to “do our utmost” to stop building new coal power plants before the end of the 2030s.

Apparently relishing in-person diplomacy after months of relative isolation, the leaders held numerous meetings on the sidelines, including discussions between the United States, Britain, Germany and France on Iran’s nuclear programme.

“It is great to see all of you here, after a difficult few years for the global community,” Draghi said, catching the largely upbeat mood amongst those present.

Far from the conference centre, known as ‘The Cloud’, several thousand protesters staged a loud, but peaceful demonstration in the city centre to demand action to stem climate change.

“We are holding this protest for environmental and social issues and against the G20, which continues undaunted on a path that has almost led us to social and ecological failure,” said protester Edoardo Mentrasti. — Reuters

World Bank’s Malpass says G20 must speed up work on debt of poor countries

World Bank President David Malpass called on leaders of the Group of 20 rich nations to speed up work on debt restructuring for low-income countries. — Reuters pic

ROME, Oct 31 — World Bank President David Malpass on Saturday called on leaders of the Group of 20 rich nations to speed up work on debt restructuring for low-income countries, including a freeze on debt payments and mandatory participation of private creditors.

Malpass told G20 leaders meeting in Rome that progress on dealing with the debt of the poorest countries has stalled and urgent efforts are needed to jumpstart the process.

G20 leaders pledged to step up their efforts to implement the Common Framework on Debt Treatments and stressed the importance of private-sector participation, but failed to include any language on a new debt standstill, according to the text of their communique, which was seen by Reuters.

Several countries including China — the world’s biggest creditor, accounting for 65 per cent of official bilateral debt — have opposed a new freeze in debt service payments.

Malpass, who this month called for adding a freeze in debt-service payments to the Common Framework, said developing nations face problems disrupting economic recovery including the Covid-19 pandemic and the scarcity of vaccines, as well as inflation, energy shortages and a breakdown of the supply chain.

“The multiple problems are causing devastating reversals in development,” Malpass said, citing rising poverty rates and increasing fragility in dozens of countries including Sudan, even as the debt of low-income countries rose 12 per cent during the pandemic, reducing their ability to invest in anything else.

“Progress on debt has stalled,” Malpass said. “I urge you to explicitly accelerate the implementation of the Common Framework, request transparency and reconciliation of debt, and require the participation of private creditors.”

Malpass said International Monetary Fund chief Kristalina Georgieva also favours a debt-payment standstill, but additional steps also are needed to balance the legal relationship between creditors and sovereign debtors. — Reuters

US, EU end Trump-era tariff war over steel and aluminium

The EU and United States will focus on negotiating a new global trade agreement to address worldwide excess steel and aluminium capacity mainly centered in China. — Reuters pic

WASHINGTON, Oct 31 — The United States and European Union have agreed to end a festering dispute over US steel and aluminium tariffs imposed by former President Donald Trump in 2018, removing an irritant in transatlantic relations and averting a spike in EU retaliatory tariffs, US officials said on Saturday.

Commerce Secretary Gina Raimondo told reporters that the deal will maintain US “Section 232” tariffs of 25 per cent on steel and 10 per cent aluminium, while allowing “limited volumes” of EU-produced metals into the United States duty free.

It eliminates a source of friction between the allies and lets them focus on negotiating a new global trade agreement to address worldwide excess steel and aluminium capacity mainly centered in China and reduce carbon emissions from the industries.

EU trade chief Valdis Dombrovskis confirmed the deal, writing on Twitter that “we have agreed with US to pause” the trade dispute and launch cooperation on a future global arrangement on sustainable steel and aluminium. Dombrovskis said the deal will be formally announced by Biden and European Commission President Ursula von der Leyen on Sunday.

US officials did not specify the volume of duty-free steel to be allowed into the United States under a tariff-rate quota system agreed upon with the EU. Sources familiar with the deal, speaking on condition of anonymity, have said annual volumes above 3.3 million tonnes would be subject to tariffs.

The deal grants an additional two years of duty-free access above the quota for EU steel products that won Commerce Department exclusions in the past year, US officials said.

The agreement requires EU steel and aluminium to be entirely produced in the bloc — a standard known as “melted and poured” — to qualify for duty-free status. The provision is aimed at preventing metals from China and non-EU countries from being minimally processed in Europe before export to the United States.

Europe exported around 5 million tonnes of steel annually to the United States prior to Trump’s imposition of the tariffs on national security grounds.

“The agreement ultimately to negotiate a carbon-based arrangement on steel and aluminium trade addresses both Chinese overproduction and carbon intensity in the steel and aluminium sector,” White House National Security Adviser Jake Sullivan told reporters, adding that the climate and workers can be protected at the same time.

US steel production, which relies heavily on electric-arc furnaces, is regarded as having far lower carbon emissions than the coal-fuelled blast furnaces prevalent in China.

Biden has sought to mend fences with European allies following Trump’s presidency to more broadly confront China’s state-driven economic practices that led to Beijing building massive excess steelmaking capacity that has flooded global markets.

The deal will eliminate Europe’s retaliatory tariffs against US products including bourbon whiskey, Harley-Davidson motorcycles and motor boats that were set to double on Dec. 1, US officials said.

“The end of this long tariff nightmare is in sight for US distillers, who have struggled with the weight of the tariffs and the pandemic,” Distilled Spirits Council President Chris Swonger said, also urging Britain to lift its tariff on American whiskeys.

Record steel prices

Raimondo said the deal will reduce costs for steel-consuming US manufacturers. Steel prices have more than tripled in the past year to records topping US$1,900 (RM7,900) a tonne as the industry has struggled to keep up with a demand surge after Covid-19 pandemic-related shutdowns, contributing to inflation.

US primary aluminium producers, which had dwindled to two companies by the time Trump imposed the tariffs, will be able to maintain their investments in reviving domestic capacity because the quotas are set at very low levels, well below pre-tariff volumes, said Mark Duffy, CEO of the American Primary Aluminium Association industry group.

American Iron and Steel Institute President Kevin Dempsey said the quota arrangement will help “prevent another steel import surge that would undermine our industry and destroy good-paying American jobs.”

“We urge the US and EU to take active steps to hold China and other countries that employ trade-distorting policies to account,” Dempsey added. “We also believe US-EU cooperation should focus on new trade approaches to address climate change, including through development of effective carbon border adjustment measures.”

Due to its exit from the EU, Britain’s steel exports remain subject to the tariffs, as are those of other US allies including Japan. The US Chamber of Commerce, which opposed the metals tariffs from the start, said the duties and quotas should be dropped from “close allies.” — Reuters

Saturday, October 30, 2021

EcoFirst to ride the affordable homes shortfall

PETALING JAYA: EcoFirst Consolidated Bhd has priced the majority of its new launches under RM500,000 per unit as it aims to tap into the shortages of affordable homes in Malaysia.

CEO Datuk Tiong Kwing Hee (pix) opined that the property sector outlook for 2022 remains challenging amidst the adverse impact from the Covid-19 pandemic situation in Malaysia.

“I believe the residential market will gradually recover in the H2’22, but prices will remain flattish despite the rising raw material prices. However, if the economic recovery picks up faster than anticipated, there will be pent-up demand in the property sector,” he said in a statement.

Tiong noted that Malaysia continues to see a demand and supply mismatch in the property market, and the property overhang situation in the country is something that property developers have been grappling with even prior to the pandemic.

Observing the local market, the majority of unsold residential units in Malaysia are priced between RM500,000 to RM1.5 million while unsold residential properties priced below RM500,000 are usually those located in outskirts areas. This sums up the property overhang situation in the country, in spite of an affordable residential homes shortage.

According to the Housing Bureau Statistics, there is an affordable home shortage of one million units particularly in the Klang Valley.

Tiong highlighted that EcoFirst is aware of the changing market trends and landscape and it is flexible to the current market needs and demand.

To this end, the group has engaged independent market study to gauge the demand-supply dynamics of the location, products and branding before embarking on new development projects.

For FY2022, the group is cautiously optimistic over its prospect as it focuses on developing high-value land in strategic areas with attractive pricing and development features tailored to the requirement of the mass-market segment.

“We’re also cautiously optimistic about a gradual recovery in the property development as Malaysia moves out from a pandemic to an endemic stage,” said Tiong.

Aerospace investment value hits RM3.8b, 40 projects approved

KUALA LUMPUR: The government has approved 40 projects related to the aerospace industry with a total investment value of RM3.8 billion from 2017 until June 2021, which created 4,563 job opportunities.

Minister in the Prime Minister’s Department (Economy) Datuk Seri Mustapa Mohamed said these jobs were mostly highly skilled jobs taken up by Malaysian technicians and engineers, leading the way forward for high value and skilled employment in the country.

“Going forward, the government will continue to promote and facilitate high quality foreign direct investments into Malaysia,” he said during the keynote address at a virtual webinar titled ‘Bolstering Malaysia Aerospace Industry in the 12th Malaysia Plan (12MP) held today.

Mustapa also expressed confidence that the aerospace industry would continue to be a vibrant and thriving industry in Malaysia in the years to come although the Covid-19 pandemic has challenged the nation.

Under the 12MP, the aerospace industry is anticipated to generate RM30 billion in revenue and more than 30,000 jobs by the end of 2025.

“The country is presently home to more than 230 aerospace-related companies supporting the Malaysian supply chain, making us the second largest aerospace hub in Southeast Asia,” he said. – Bernama

Export value of Malaysia’s chocolates rises to RM650 mln for Jan-Aug 2021 - Zuraida

NILAI: The export value of Malaysia’s chocolate jumped 11.0 per cent to RM650 million for the period of January-August this year compared to RM585 million in the same period last year.

Plantation Industries and Commodities Minister Datuk Zuraida Kamaruddin (pix) said despite the world being ravaged by COVID-19 that slightly hampered economic growth, the value of the country’s income from commodities, including cocoa products, was still increasing.

She said despite producing only RM7 billion worth of cocoa products, Malaysia was still able to produce them in large quantities as the global cocoa market was valued at RM120 billion.

“We hope we can achieve more, as Malaysia is a strategic country where we can produce more cocoa products. Hence, I’ve asked the Malaysian Cocoa Board to focus on products that can be marketed abroad.

“The potential of the cocoa market is huge and we have identified small-time entrepreneurs to be grouped as a support system for chocolate companies in the quest to increase national income,“ he told reporters after visiting the Cocoa Innovation and Technology Centre here today.

Zuraida said among the countries that exported the country’s chocolate were China, Korea and Indonesia, reflecting confidence in the quality of chocolate produced by Malaysian entrepreneurs was comparable to international standardx.

Meanwhile, she said so far 6,000 hectares were under cocoa cultivation in Malaysia, including in Sabah and Sarawak, which have 5,000 smallholders.

On Malaysia’s decision to accept 32,000 foreign workers for the oil palm plantation sector, Zuraida said Prime Minister Datuk Seri Ismail Sabri Yaakob was expected to sign a memorandum of understanding (MoU) with Indonesia during his visit there on Nov 10.

“Indonesia has 5,000 workers on standby and after the MoU is signed, the 5,000 workers will enter (the country) in phases and I hope by Nov 15, we will be able to bring them in,“ he said.

Commenting on Budget 2022, she said the allocation of RM2.5 billion for the commodity development programme showed the country’s concern in strengthening the development of rural communities and improving their living standards.

“This is because commodities play an important role in generating national income. So, some emphasis should be given to enable us to carry out activities to increase national income. It is also in line with the ministry’s direction in raising awareness of commodity products both locally and abroad,“ she said. .

Finance Minister Tengku Datuk Seri Zafrul Tengku Abdul Aziz, when presenting Budget 2022 yesterday, said an allocation of RM2.5 billion would be set aside with RM1.3 billion of the amount given to Felda involving rehabilitation packages and settlers’ development.

In addition, RM495 millioni would be allocated to Felcra participants and RM699 million for the development of smallholders for the rubber industry under Risda. -Bernama

AmBank: Budget 2022 spending translates to fiscal deficit of 6pc of GDP

Government servants watch Finance Minister Datuk Seri Tengku Zafrul Abdul Aziz speaking during the tabling of Budget 2022 in the Dewan Rakyat, October 29, 2021. — Picture by Shafwan Zaidon

KUALA LUMPUR, Oct 30 — Following the expansionary fiscal policy to support economic growth, the fiscal deficit projected in Budget 2022 would be at RM97.5 billion, said AmBank Group.

It said this translates to a fiscal deficit of six per cent of the gross domestic product (GDP) — lower than the 6.5 per cent — 7.0 per cent projected for 2021.

In line with the gradual reopening of the economy, the expansionary fiscal policy under Budget 2022 had focused on recovery, resilience, rebuilding and reforms.

“The focus now is on the fiscal reforms via the Medium-Term Fiscal Projection (MTFP), Medium-Term Revenue Strategy (MTRS), and Fiscal Responsibility Act (FRA) to manage sovereign credit rating risk.

“With the government being unable to address the fiscal situation at the moment, there is a need to design the medium-term narrative and fiscal transparency to address the worries of rating agencies.

“To this end, a rolling three-year projection would act as a solid guide and show the government’s commitment in addressing fiscal consolidation issues, reforms, and transparency,” it said in a note today.

AmBank said in view of the tax revenue conundrum, the statutory debt limit, namely the Malaysian Government Securities (MGS), Malaysian Government Investment Issues (MGII) and Malaysian Islamic Treasury Bills (MITB) was raised to 65 per cent of the GDP from 60 per cent previously.

This would mean that the government’s borrowing ability would be around RM140 billion-RM150 billion for 2022.

It noted that one of the key points of Budget 2022 is the 22.5 per cent increase in gross development expenditure to RM75 billion, which would benefit construction and infrastructure activities as well as trade and industry.

It said the headline inflation projected under Budget 2022 is at 2.1 per cent, much lower than Ambank’s projection of 2.6-2.8 per cent.

However, there are fears that inflation could be much higher than expected.

“Should the headline inflation rise, it would result in higher underlying inflation that can erode disposable income and demand from the falling purchasing power, and will eventually cause knock-on effects on business activities,” it said.

AmBank forecasted the GDP to grow between 5.4 per cent and 6.0 per cent next year, noting that Budget 2022 projected GDP growth to be at 5.5 per cent — 6.5 per cent.

As for 2021, it had lowered its GDP growth outlook to 3.0 per cent — 3.5 per cent from 5.5 per cent — 6.0 per cent previously, and noted that Budget 2022 projected the domestic economy to grow around 3.0 per cent — 4.0 per cent.

Strong growth for agriculture

Moving forward, AmBank expects to see strong agriculture growth, driven by higher palm oil output, the B20 biodiesel programme for transportation, and strong demand from China and India.

“The palm oil industry in 2021 is expected to experience a revenue loss of around RM11 billion — 12 billion due to labour shortages. However, the relaxation of cross-border foreign workers would support the industry favourably.

“Rubber, livestock and other agriculture products will also provide a positive impetus, and the government’s policy on the sustainability of agri-food and agri-commodity industries will further enhance the agriculture food security and benefit this sector,” it said.

Additionally, continued support for the broader-based recovery from export-led manufacturing activities would come from electrical and electronics as well as rubber and chemical-related products due to stricter global healthcare regulations and higher hygiene awareness.

The manufacturing sector’s activities would also be buoyed by the increase in gross development expenditure and accommodative monetary policy as well as non-monetary policies.

“Activities from construction/infrastructure as well as household-related products will add further positive impetus to this sector,” it said.

The sector is also expected to benefit from the increasing automation and digitalisation, as well as the potential ratification of the Regional Comprehensive Economic Partnership and the Comprehensive and Progressive Agreement for Trans-Pacific Partnership, it added. — Bernama

US stocks approach historically strong period but Fed taper looms

NEW YORK, Oct 30 — Investors are weighing whether momentum from the stock market’s record-breaking rally will continue in the last two months of 2021, a traditionally strong calendar period for equities but a stretch that may carry more risks than usual this year.

The S&P 500 has rallied 22.6 per cent year-to-date, its best January-through-October performance since 2013, and November and December tend to be among the strongest months for stocks.

This time around, however, the year-end period may have more than its usual share of pitfalls, as investors brace for the looming unwind of a US$120 billion-per-month Federal Reserve government bond buying programme that has helped stocks more than double from their March 2020 lows. Many are also keeping a wary eye on ructions in the bond market, as well as worries over looming inflation and a debate over tax legislation in Washington.

“If the appropriate items fall into place you could continue the seasonality of a year-end rally,” said Alan Lancz, president of investment advisory firm Alan B. Lancz & Associates in Toledo, Ohio.

November traditionally has started a bullish period for US equities. Since 1945, the S&P 500 has climbed an average of 6.8 per cent in the November-through-April period, the highest average change for any rolling six-month span, compared with an average 1.7 per cent gain from May through October, according to Sam Stovall, chief investment strategist at CFRA.

In particular, November and December have been the S&P 500’s second — and third-best months of the year since 1950, with the index rising an average of 1.7 per cent and 1.5 per cent, respectively, according to the Stock Trader’s Almanac. The benchmark index gained 6.9 per cent in October, helped by a better-than-expected start to the earnings season.

One major test for that run will come as the Fed begins to taper its bond buying programme, a move the central bank is expected to announce at the end of its monetary policy meeting next week. While officials have telegraphed plans to begin reducing bond buying as early as November, investors will be listening for signals that the recent surge in inflation may force the central bank to taper and eventually raise interest rates faster than expected.

The Fed’s communication about its view on how sustained the recent surge in inflation will be is critical to markets, said Anu Gaggar, global investment strategist at Commonwealth Financial Network.

“So far they have maintained that this is transitory, but if we see a change in the wording around that, that could potentially spook the market a little bit,” Gaggar said.

Investors are tracking volatility in the bond market, which has come as rates for short-term US government bonds soared in response to expectations that surging inflation will force the Fed and other central banks to tighten monetary policy more aggressively. While those recent moves have not weighed on stocks, surges in longer-dated Treasury yields could make equities less attractive for some investors.

In Washington, legislation to increase spending on infrastructure could boost some areas of the market, but investors are also wary of proposals that might create higher levies on corporate profits, income or investments. On Thursday, President Joe Biden was dealt a setback as the House of Representatives abandoned plans for a vote on an infrastructure bill.

Some high-profile investors see the potential for downside. BofA Global Research this week called for a year-end target on the S&P 500 of 4,250, about 7.5 per cent below current levels. BofA analysts pointed to extended valuations, “near-euphoric” sentiment and a bevy of risks to corporate profit margins, including potential tax hikes and labour inflation.

Lancz said that given the “phenomenal” stock gains in October, those returns might be “borrowing a little bit from what we might see in November and December.”

Still, market declines have been met with swift buying in 2021. The S&P 500’s biggest drop this year — a 5.2 per cent fall from early September to early October — was recouped in just 13 trading days.

“The market has, at every turn this year, surprised people,” said JJ Kinahan, chief market strategist at TD Ameritrade in Chicago. “Every time people leave it for dead, the buy-the-dip mentality has continued to be strong.” — Reuters

Move over Apple, Microsoft now the world’s most valuable company

Microsoft logo is seen on the smartphone in front of displayed Apple logo in this illustration taken, July 26, 2021. — Reuters pic

SAN FRANCISCO, Oct 30 — Apple Inc lost its crown as the world’s most valuable public company to Microsoft Corp yesterday, as the iPhone maker’s shares fell about 2 per cent.

Apple took a US$6 billion hit to its sales during the fiscal fourth quarter due to persistent global supply chain problems, leading to a miss on Wall Street expectations. Top boss Tim Cook said the impact will be even worse in the current holiday sales quarter.

“Compared to less hardware focused FAANG peers, Apple is also a lot more exposed to supply chain disruption,” said Sophie Lund-Yates, equity analyst at Hargreaves Lansdown.

Apple’s shares dropped 1.8 per cent to end the session at US$149.80, giving the company a market capitalization of US$2.48 trillion. By contrast, shares of Windows software maker Microsoft rose 2.2 per cent to a record high of US$331.62, ending the session with a market capitalization of US$2.49 trillion.

Apple, which has repurchased US$421.7 billion worth of shares over the years, had announced a massive US$90 billion share buyback in April. As a result, the outstanding stock pool keeps shrinking, and the company ended its fiscal fourth quarter with 16.4 billion shares.

Microsoft’s stock has surged 49 per cent this year, with pandemic-induced demand for its cloud-based services driving sales. Shares of Apple have climbed 13 per cent so far this year.

Apple’s stock market value overtook Microsoft’s in 2010 as the iPhone made it the world’s premier consumer technology company. The companies have taken turns as Wall Street’s most valuable business in recent years, with Apple holding the title since mid-2020.

Analysts say Apple has managed the supply chain issue well, but with Cook warning of more pressure, the door is open to a hit to its performance as the holiday season kicks in.

In contrast, Microsoft on Tuesday forecast a strong end to the calendar year. But it also warned that supply-chain woes will continue to dog key units, such as those producing its Surface laptops and Xbox gaming consoles. — Reuters

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