☕️ KWAP's 6.3% average annual return since inception

In our issue yesterday regarding the Auditor-General’s report, we wrongly referred to the federal agency PERHEBAT as Perbadanan Hal Ehwal Angkatan Tentera. It should be Perbadanan Hal Ehwal Bekas Angkatan Tentera. We apologise for the error.

1. MARKET SUMMARY 📈

All your interest rates should remain the same — BNM maintains OPR at 3%.

2. NUMBERS AT A GLANCE 🔢

From 2017 to last year, Malaysia exported approximately 234,000 tonnes of durian valued at RM5.17 bil, according to Mohamad Sabu, the Agriculture and Food Security Minister. Malaysian durian is now available in 41 countries worldwide. China stands out as the primary export destination, accounting for 73% of total exports — RM3.79 bil for 81,000 metric tonnes of fresh and frozen durian.

According to a recent report by Counterpoint Research, Apple's iPhone sales have drastically declined in China during the first six weeks of 2024. In the mentioned period, the sales of the iPhone dropped by 24%. The report suggests the decline in sales is due to tough competition from local smartphone companies like Huawei, Oppo, Vivo, and Xiaomi. Who is eating most of Apple’s pie? Huawei. Huawei smartphone unit shipments rose 64% year over year in the first six weeks of 2024. Huawei is seeing the early signs of a revival with the Mate 60.

The BlackRock iShares Bitcoin ETF (IBIT) has significantly increased its bitcoin holdings, surpassing MicroStrategy's stack with over 183,000 bitcoins. On Tuesday alone, IBIT acquired more than USD778 mil worth of bitcoin, adding 12,600 bitcoins to its holdings, breaking previous daily records. Trading volumes for IBIT exceeded 107 million shares, or over USD3.6 bil, setting a new high. With assets under management of about USD12 bil, IBIT remains the most popular bitcoin ETF, ahead of Fidelity’s FBTC at USD7.2 bil.

3. IN MALAYSIA 🇲🇾

Spotlight on retirement funds: EPF, KWAP
As of 31 Dec 2023, The Retirement Fund Inc. (KWAP) has a total gross fund size of RM190.3 bil, after adjusting for a cumulative withdrawal of RM20.5 bil for the partial funding of the government's annual pension obligations since 2018. Additionally, the Ministry of Finance (MOF) reported that KWAP’s unaudited consolidated fund totalled RM169.8 bil, marking a 305% growth with a compound annual growth rate of 9% since its establishment in 2007. Emphasising KWAP’s role as a long-term institutional investor, the ministry highlighted its objective to achieve sustainable maximum returns through dynamic investment strategies that align with its risk tolerance. The fund has generated an average annual return of 6.3%.

When Mohd Shahar Abdullah (BN-Paya Besar) enquired about the government’s plans for the Employees Provident Fund (EPF) to shift its focus from retirement-based benefits to a comprehensive social security scheme, MOF stated that EPF will prioritise ensuring the well-being of old-aged Malaysians to bring forth a more effective implementation of the country’s social security network. What a roundabout answer, MOF.

On religious sentiments

1. Jakim is considering proposals to sell alcoholic beverages via vending machines

   Suhaizan Kayat (PH-Pulai) raised a question about mechanisms to allow staff to work without handling alcoholic drinks, prompting Hasan Zulkifli (Deputy Minister of Islamic Affairs in the PM’s Office) to explain that the Islamic Development Department (Jakim) is discussing alcohol sales to be made via vending machines. What about perfumes or medicine with alcohol content?

   However, former law minister Zaid Ibrahim refutes the proposal by stating that by extension, “no Malay drivers should drive any vehicles carrying beer botters” (view his tweet here) and that the Finance Ministry needs to employ more non-Muslims as many businesses and commercial activities in the country are non-halal. Touche, Zaid. Well played.

2. ‘Jangan cabar Islam’ says notes scatted outside Nga Kor Ming’s parents’ residence

   Housing and Local Government Minister Nga Kor Ming’s mother discovered multiple notes threatening him to ‘not challenge Islam’ outside their residence in Ayer Tawau. A police report has been lodged and the minister pleads to the troublemakers not to distress his family, especially his elderly parents. Barbaric behaviour, but are we surprised? Not really. Earlier in Jan, Beruas MP Ngeh Koo Ham’s house was attacked by a molotov cocktail.

3. Sultan Selangor to end tenure as MKI chairperson

   Sultan Sharafuddin Idris Shah ended his tenure as the chairman of the National Council for Islamic Religious Affairs (MKI), which he has served since March 10, 2022.

Business

1. Proton starting the year strong
   Our national car maker sold 13,602 units in February alone, bringing Proton’s total sales over the first two months to 26,484 in 2024. This is a 3% increase compared to the same two-month period in 2023. Proton retains its position as Malaysia's second-most popular car brand, as its market share is forecasted to be 20.5%. The newest model, S70, saw a 60.5% surge in sales in February. 453 units were sold to overseas markets – Proton’s year-to-date export growth stands at 50.5%. Always good to #SapotLokal.

2. A bad year for Goodyear
   Goodyear Malaysia will close its plant in Shah Alam after 52 years of operation, effective June 30. The closure will impact 550 employees. Goodyear Asia Pacific president Nathaniel Madarang explains that it is part of the “Goodyear Forward” transformation initiative, which aims to streamline the company’s operations. The hope is to reduce annual costs by RM4.73 bil by 2025 to stay competitive in the market. Despite that, Goodyear will remain in the local market by importing tyres from its factories in Thailand, Indonesia, China, and Taiwan. Goodyear has been present in Malaya since 1929 and was Proton Saga’s first tyre supplier. Goodbye, Goodyear.

3. Malaysia wins WTO case against EU
   Plantation and Commodities Minister Johari Ghani stated that the European Union (EU) was found to have been unfairly discriminatory in imposing restrictions on Malaysia’s palm oil-based biofuels via its European Delegated Act. The EU agreed to comply with the World Trade Organisation’s (WHO) ruling before imposing any restrictions on the import of Malaysian palm oil biofuels.

4. AROUND THE WORLD 🌎

The Middle East Conflict: Economics Edition

• If you experienced a sketchy internet connection a few nights ago, we have the Red Sea to thank. The Houthis were probably responsible, albeit indirectly, for damaging undersea telecommunication cables in the Red Sea after it attacked and struck a cargo ship with missiles in February. The crew abandoned the ship after dropping its anchor. The vessel drifted for two weeks through an area of the Red Sea that’s densely populated with undersea cables before sinking last Saturday. 

  These cables running through the Red Sea are a critical route connecting Europe’s internet infrastructure to Asia, carrying about 25% of the traffic in the region. The owner of the cables, the South African company Seacom Ltd said it could not determine the cause of the damage until it is inspected. Repair works is expected to start in early Q2. Houthis have been attacking merchant and military ships in the southern Red Sea, ostensibly in support of Hamas as Israel wages war against it. 

• Alshaya Group, the Starbucks operator in the Middle East and North Africa with 1,300 locations, has eliminated 2,000 jobs, the company confirmed to Bloomberg. This cut, as it faces a boycott over the US coffee chain’s response to the Israel-Hamas war, saw its workforce reduced by 20%. Back in February, the company was reportedly in talks to sell a 30% minority stake in its Starbucks franchise business, perhaps suggesting that it needed external funding to weather the challenging conditions. 

  The Kuwait-based company was founded in 1890 and is one of the largest retail operators in the Middle East. It operates in the F&B, fashion, pharmacy, and entertainment industries. Other brands it holds include H&M, Shake Shack, and Pizza Express. 

The niche big billion-dollar business of making bicycle parts
Japanese automakers dominate the global automotive sector. TIL: It also dominates the manual, 2-wheeler segment. Meet the Japanese company Shimano, which is the world’s largest bicycle parts maker, founded in 1921 by ironworker Shozaburo Shimano. The company develops a wide range of parts, such as gears, transmissions, brakes and wheels, mainly for sports bikes (e.g. road bikes, mountain bikes) with an estimated global share of 85%. In 2023, the company recorded sales of JPY474.3 bil (USD3.2 bil) and net income of JPY61.1 bil (USD410 mil), a decline compared to 2022. The pandemic saw Shimano’s performance surging as there was a surge in demand for outdoor gear.

Nevertheless, it is still seeing increasing demand for bicycles in Asia and Latin America and is focusing on promoting sports bikes in Southeast Asia. To this end, the company invested USD165 bil to replace its old plant in Singapore, which was established in 1973. For the company (and for a lot more MNCs), its Malaysia Singapore plant is becoming central to its global operations. It even established a museum, Shimano Cycling World, in Singapore in 2014 to promote cycling culture. 

Deals

• Warner Music Group is making a bid for French digital music company Believe, valuing the company at EUR1.65 bil, outbidding another offer from a consortium, which was backed by the company’s board of directors. Believe works with musicians and music labels to help build up their brand via social media and put their work on streaming music platforms. Sounds like a very big social media agency managing artists. The offer by WMG of EUR17 remains below the price of EUR19.5 when Believe was listed on the Paris stock market in 2021. Check out some operational and financial highlights of Believe here. 

• UK’s financial sector is seeing more consolidation. Nationwide Building Society will acquire Virgin Money in the UK for GBP2.9 bil, which will create the UK’s second-largest mortgage and savings group, which would see the brand eventually disappear over six years. If the deal goes through, it would be the biggest  UK bank takeover since the Global Financial Crisis in 2008. Virgin Money is now the UK’s sixth largest retail bank with around 6.6 mil customers and Nationwide is the UK’s biggest building society with nearly 18 mil customers. Last month, Barclays announced it would take over hypermarket giant Tesco’s retail banking arm for GBP600 mil. 

  Learn: Difference between Building Society vs Bank

Shorts

1. (Unnecessary) Changes might come again at X (fka Twitter)

   In an interview, Elon Musk said X might stop showing the number of likes and reposts (fka retweet) people get on its timeline as he thought displaying it would make the platform look untidy. Last Oct, X removed all article headlines only to backpedal on the decision less than two months later. This is a perfect situation for Musk to learn not to fix it when it’s clearly not broken. 

2. Meta’s biggest customer: China’s Temu, with nearly USD2 bil spent
   The Wall Street Journal reported that Chinese company Temu was Facebook parent Meta’s largest advertiser in 2023, spending nearly USD2 bil and also made it to the top 5 advertisers on Google. Temu, a fierce rival of Shein, is owned by PDD Holdings, the parent company of giant e-commerce company Pinduoduo (market cap of USD156.4 bil, a bit smaller than Alibaba’s USD180 bil market cap). The company is going all-out to grow in US. However, its USD2 bil spent has little to show - its marketing spend is contributing an average of USD7 loss per order in 2023, observed sales falling in recent months and the number of Temu users in the US is declining too. 

3. One step closer to reviving the woolly mammoth
   The USD1.5 bil startup, Colossal Biosciences, announced it made a “momentous” breakthrough as it could unlock several fields of research, including creating the building blocks for a mammoth baby. The startup said it could create a mammoth-like, gene-edited creature through IVF by 2028. This elephant species is believed to have gone extinct about 10,000 years ago due to a warming climate combined with hunting by humans.

Weekend read: Semiconductor veteran turned VC raising USD200 mil to back IPO-able chip firms
This is Penang’s tech resurgence in the making. A semiconductor veteran-turned-venture capitalist, Lai Pin Yong, started BlueChip VC Sdn Bhd to back Penang-based semiconductor companies in 3 promising segments — advanced packaging, integrated circuit (IC) and niche equipment — and eventually to have them listed on Bursa Malaysia. The fund size of USD200 mil (RM956 mil) is aiming for at least 20% annual returns. Malaysia accounts for 7% of global trade flows of semiconductors and 13% of the global chip assembly, testing and packaging market, though it’s the less lucrative part of the value chain. May this endeavour uncover and create jaguh dunia instead of jaguh kampung.

5. FOR YOUR EYES 📺

1. Mr Money TV and former MP Dr Ong Kian Ming are back with another episode discussing the falling MYR, the Parliamnent’s new session and lain-lain.

2. Parenting guide to reduce your kids’ mobile addiction.

3. Bersatu seeks explanation for the missed opportunity to bring Taylor Swift to Malaysia. Bersatu Deputy President Ahmad Faizal Azumu echoed the same. Youth and Sports Minister Hannah Yeoh took a jab at Faizal, asking them to be consistent and stop protesting.