KENANGA INVESTMENT BANK BERHAD INTEGRATED ANNUAL REPORT 2024 WE ARE KENANGA OUR SUSTAINABILITY APPROACH LEADERSHIP STATEMENT HOW WE ARE GOVERNED OUR VALUE CREATION APPROACH FINANCIAL STATEMENTS SHAREHOLDERS’ INFORMATION ADDITIONAL INFORMATION 25 24 ECONOMIC REVIEW ECONOMIC REVIEW The global economy ended the year with uneven growth across regions. Emerging markets held up well, supported by resilient domestic demand and targeted policy measures, while advanced economies lagged behind. In the United States (“US”), growth persisted, but a cooling labour market and the delayed impact of earlier rate hikes tempered the pace of expansion. China’s recovery remained weak despite stimulus efforts, as weak consumer spending and geopolitical risks dampened sentiment, though policy support offered some stability. Tighter monetary policy and improved supply-demand dynamics helped ease global inflation. However, inflationary pressures persisted fuelled by geopolitical tensions, climaterelated disruptions, and policy uncertainty in the US. As growth slowed, major central banks pivoted towards monetary easing in the second half of 2024, with the Federal Reserve initiating rate cuts in September. The 10-year US Treasury yield declined, reflecting strong demand ahead of expected rate cuts. Malaysia’s economy grew 5.1% in 2024, accelerating from 3.6% in 2023, demonstrating resilience despite global uncertainties. Growth was underpinned by strong domestic demand, increased investment, and continued expansion in the services, manufacturing, and construction sectors. Despite higher consumer spending, diesel cost pass-throughs, and geopolitical shocks, Malaysia’s inflation averaged 1.8% in 2024—partly due to the delayed rationalisation of RON95 fuel subsidies. Meanwhile, Bank Negara Malaysia (“BNM”) maintained the overnight policy rate (“OPR”) at 3.00% throughout the year, balancing growth support with inflation management. While inflation remained contained, the ringgit strengthened in the latter part of 2024 after a prolonged period of weakness. A stable OPR, progress on fiscal consolidation, and expectations of Federal Reserve rate cuts supported the currency’s recovery, which ended the year at 4.47 against the US dollar. Sustainability in the Financial Landscape Beyond traditional economic indicators, 2024 also saw a growing emphasis on sustainability in the financial landscape, as climate considerations and regulatory shifts reshaped investment priorities. The growing urgency of climate change reshaped the financial services industry, impacting risk management, investment strategies, and regulatory frameworks. Malaysia, in particular, strengthened its commitment to sustainability through initiatives such as the National Energy Transition Roadmap (NETR) and the National Sustainability Reporting Framework. Financial institutions increasingly aligned with these efforts, reinforcing the transition to a low-carbon economy as a central focus of both policy and market expectations. Investor and regulatory pressures to adopt climate-related financial disclosures intensified, reinforcing the need for robust Environmental, Social, and Governance (“ESG”) integration across investment decisions and risk assessments. Sustainability considerations became embedded across capital markets, asset management, and corporate advisory services. The demand for green financing, ESG-aligned investment products, and sustainable wealth management solutions continued to rise throughout the year, reflecting a broader shift toward responsible investing. Clients seeking capital, whether through equity, bonds, or structured finance, were increasingly expected to demonstrate sustainability commitments, aligning with both investor preferences and regulatory expectations. At the same time, climate risks continued to shape traditional financial risk models. Sectors heavily exposed to environmental challenges, such as energy, agriculture, and real estate, faced heightened scrutiny. Financial institutions were compelled to incorporate climate stress testing and ESG risk assessments into their portfolio strategies. Sustainable finance instruments, including green bonds, sustainability-linked loans, and carbon markets, gained traction in 2024, reflecting businesses’ growing commitment to a low-carbon economy. Outlook for 2025 • Global Economy: A moderate growth is expected as emerging economies continue to normalise activity following strong growth in 2024 and taking into account the impact of the US tariff on global trade. Growth in advanced economies, however, is projected to slow significantly, reflecting the lagged impact of earlier interest rate hikes, persistent inflationary pressures, and ongoing global uncertainties. • Key Risks: The US tariff threats will reignite trade tensions, disrupting global supply chains and weighing on sentiment. A further escalation of the US-China trade war beyond tariffs would pose additional risks, while China’s slowerthan-expected recovery may continue to limit the upside to global economic growth. Nonetheless, continued expansion in key emerging markets, policy easing by central banks, government stimulus, and efforts to enhance ASEAN economic integration may offer some support. • Inflation Outlook: Global inflation is likely to resurface, driven by the impact of the US tariffs, which could elevate consumer prices and disrupt supply chains. Persistent geopolitical tensions and climate-related risks add to uncertainty. While inflationary pressures remain, central banks are expected to slow the pace of rate cuts rather than reverse course. • Malaysia’s Economy: GDP growth is forecast to moderate to 4.8% (2024: 5.1%), reflecting the impact of global economic uncertainty, a high base effect, and the normalisation of domestic activity. Growth will continue to be driven by domestic demand, supported by the services and construction sectors and ongoing policy measures. However, external risks remain a key downside factor, potentially reducing the GDP forecast by 0.3 to 0.5 percentage points if global trade tensions escalate. • Inflation in Malaysia: Inflation is projected to rise to 2.7%, driven by planned subsidy rationalisation, stronger wage growth, and external pressures. The rationalisation of RON95 subsidies and higher wages will push prices higher, while subdued global oil prices and China’s export redirection may help ease inflationary pressures. • Monetary Policy: Most major central banks will lean towards easing. The Federal Reserve is expected to cut rates cautiously amid ongoing uncertainty linked to the Trump administration’s policy direction. The European Central Bank is likely to ease further, while the Bank of England may pursue gradual cuts due to risk of stagflation. In Asia, the People’s Bank of China may reduce rates to spur demand, while the Bank of Japan is expected to hike rates as inflation becomes more entrenched. • BNM Policy Direction: BNM is expected to maintain the OPR unchanged at 3.00% throughout 2025. The central bank is likely to strike a balance between supporting growth and containing inflation, particularly in the context of structural reforms under the Madani government. However, policy flexibility may be required should external shocks materialise. • Ringgit Outlook: The ringgit is expected to remain resilient despite ongoing challenges and policy uncertainties associated with the Trump administration. While some weakness may persist in the first half of 2025, a recovery is anticipated in the second half as the Federal Reserve is expected to cut rates. Domestic fiscal consolidation efforts and BNM’s stable monetary stance should lend support to the ringgit, with a year-end projection of 4.45 against the US dollar. • Malaysian Government Securities (“MGS”): Demand for local bonds may soften due to heightened global uncertainty and subdued foreign investor appetite. The government’s fiscal consolidation plan suggests lower gross issuance estimated at RM165.0 billion to RM170.0 billion (2024: RM176.7 billion). Consequently, 10-year MGS yield is projected to rise to 3.83% by year-end, in line with movements in US Treasury yields and the anticipated impact of the Trump administration’s trade and fiscal policies. As we move into 2025, Kenanga will continue to focus on sustainable growth and creating long-term value for our stakeholders. With both global and local economic conditions evolving, we will remain agile in identifying opportunities, particularly in areas such as digital innovation, market development and areas where sustainability aligns with longterm business resilience. Looking ahead, the intersection of finance, technology, and sustainability will continue to shape market opportunities, though at a more varied pace across regions. While some markets maintain strong commitments to climate-conscious investment strategies and ESG frameworks, others are experiencing a reassessment of regulatory priorities. This divergence will require businesses and investors to remain flexible and responsive to shifting policy and market dynamics. In 2025, Kenanga’s focus will be on maintaining resilience, improving operational efficiency, and adapting to emerging trends. Our commitment to delivering tailored financial solutions will guide our approach as we strengthen our competitive position and ensure the flexibility needed to navigate the evolving market environment.
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