MARKET DATELINE

• PP 7767/09/2010(025354)

24 March 2010
Malaysia

Economic Update

The Bank Negara Malaysia 2009 Annual

Report
Economic Recovery Gains Momentum, Normalisation Of
Policy Will Continue

Executive Summary
‹ Bank Negara Malaysia (BNM) expects the economy to grow by between 4.5-5.5% in 2010,
slightly lower than the Prime Minister/Finance Minister’s aim of achieving a growth of 5-6%
announced on 24 February. Based on the various demand component forecasts, the underlying
real GDP forecast by the Central Bank for 2010 works out to be +4.65%. This is broadly
in line with our projection of a growth of 4.5% and we see no reason to change our forecast
at this stage, as the global economic recovery remains uneven, given sustained high
unemployment situation in the key developed countries, the gradual fizzling out of stimulus
spending, debt problems in some of the European countries, and deflation in Japan.

‹ In line with a recovery in the global economy, albeit uneven, the Central Bank projected that
the country’s real exports will increase by 7.7% in 2010, after contracting by 10.1% in 2009.
This is broadly in line with our expectation. On the supply side, BNM expects a broad-based
recovery in activities, from manufacturing to services, agriculture and mining sectors.
Construction sector will continue to expand, albeit at a more moderate pace.

‹ The Central Bank expects inflation to increase by between 2.0-2.5% in 2010, faster than
+0.6% in 2009, but will not be a major concern for policymakers. This is broadly in line
with our expectation. We believe inflation rate will likely inch up, on the back of stronger
domestic demand and higher crude oil and commodity prices.

‹ Whilst inflation is not a major concern, the threat of a fundamental recession is diminishing.
This implies that a very high degree of monetary stimulus is considered no longer warranted,
the Central Bank said. As a result, it has begun to normalise its monetary conditions by
raising the overnight policy rate (OPR) by 25 basis points to 2.25% on 4 March. We expect
Bank Negara to raise its OPR at a measured pace and by another 25 basis points in July
2010 to 2.5%. Thereafter, the OPR will likely stay at this level until the end of the year.

‹ Similar to our view, the Central Bank expects the current account in the balance of payments
to record a smaller surplus of RM103.8bn or 14.3% of GNI in 2010, compared with the
surplus of RM112.7bn or 17.0% of GNI in 2009. This will continue to fuel domestic liquidity
and provide a strong underlying support to the ringgit. In our view, the ringgit could
overshoot RM3.30/US$ temporarily due to inflow of speculative funds, as Asian currencies
(ex-Japan) strengthen against the US dollar on account of a stronger economic recovery in
Asia and a faster pace of policy normalisation, before settling at around RM3.30/US$ at end-
2010.
Peck Boon Soon
Please read important disclosures at the end of this report. (603) 9280 2163
bspeck@rhb.com.my

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 The Bank Negara Malaysia 2009 Annual Report

Real GDP To Grow By Between 4.5-5.5% In 2010

Bank Negara Malaysia (BNM) expects the economy to grow by between 4.5- BNM expects the economy
5.5% in 2010 (see Table 1), slightly lower than the Prime Minister/Finance Minister’s to grow by between 4.5-
aim of achieving a growth of 5-6% announced on 24 February. Based on the various 5.5% in 2010, slightly
demand components forecast , the underlying real GDP forecast by the Central Bank lower than the Prime
for 2010 works out to be +4.65%. This is broadly in line with our projection Minister/Finance
of a growth of 4.5% and we see no reason to change our forecast at this stage,
Minister’s aim of achieving
as the global economic recovery remains uneven, given sustained high unemployment
a growth of 5-6%
situation in the key developed countries, the gradual fizzling out of stimulus spending,
debt problems in some of the European countries, and deflation in Japan.

Table 1
Key Economic Indicators

2009p 2010f

Real GDP growth (%) -1.7 4.5 to 5.5

Aggregate domestic demand (real, %) -0.4 3.2
Exports of goods and services (real, %) -10.1 7.7
Federal Govt budgetary position (RMbn) -47.4 -40.5
(% of GDP) -7.0 -5.6
Public sector budgetary position (RMbn) -25.9 -8.0
(% of GDP) -3.8 -1.1
Inflation rate (%) 0.6 2.0 to 2.5
Unemployment rate (% of labour force) 3.7 3.6
Current account balance (RMbn) +112.7 +103.8
(% of GNI) +17.0 +14.3
Gross national savings (% of GNI) 31.3 35.2
External debt service ratio 6.5 n.a
(% of total export earnings)

f : Forecasts p : preliminary
Source : Bank Negara Malaysia 2009 Annual Report.

Nevertheless, we believe the prospects of a sustainable global economic We believe the prospects
recovery have improved significantly in recent months, despite various of a sustainable global
challenges that threaten to derail it. This is primarily on account of a combination economic recovery have
of factors, including aggressive policy stimulus around the globe where policymakers improved significantly in
are unlikely to roll it back prematurely, significant improvement in financial markets recent months, despite
and risk appetite of investors, and more importantly, asset prices have reached a
various challenges that
favourable inflection point. Unlike during the crisis, investors are no longer fearful
threaten to derail it
of catching a falling knife and more substantial weakness in asset prices will be taken
as investment opportunities. As a result, policymakers around the globe, with the
exception of Japan, have begun to exit their extremely loose policy and
emergency lending programmes, but the process remains gradual in our view.
This suggests that its impact on economic activities will unlikely be significant.

As a whole, we expect the pick-up in global economic activities to translate into We expect the economy
higher demand for the country’s manufactured goods and commodity products. This to expand by 4.5% in
will lead to higher production, investment and employment, and the economy will 2010, a rebound from
likely expand by 4.5% in 2010, a rebound from -1.7% in 2009. -1.7% in 2009

In terms of contribution, the pick-up in the economy will likely be driven by higher The pick-up in the
private sector demand. This is on account of a larger contribution from consumer economy will be driven by
spending to GDP, which is projected to pick up to 2.0 percentage points in 2010, from higher private sector
+0.4 percentage points in 2009. Similarly, private investment is projected to turn demand...

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around and contribute +0.1 percentage point to GDP growth in 2010, from a subtraction
of 2.6 percentage points in 2009. These, however, will likely be offset partially by
a slowdown in public sector’s contribution to GDP, which is projected to ease to 0.7
... offset partially by a
percentage point in 2010, from a contribution of 1.9 percentage points in 2009. This
slowdown in public sector’s
is attributed mainly to a cutback in the Government’s development expenditure, in
contribution to GDP and a
line with fiscal consolidation to reduce its budget deficit. In the same vein, net
exports are projected to subtract 2.7 percentage points from the GDP in 2010, subtraction from net

compared with a contribution of 1.1 percentage points in 2009, on account of a faster exports

increase in imports as domestic demand picks up.

Exports Will Likely Return To Positive Growth

In line with a recovery in the global economy, albeit uneven, the Central Bank The Central Bank
projected that the country’s real exports will increase by 7.7% in 2010, after projected that the
contracting by 10.1% in 2009. This is broadly in line with our expectation. country’s real exports will
Indeed, we believe the global economic recovery is gaining momentum as indicated increase by 7.7% in 2010,
by a pick-up in global manufacturing and services activities for the last seven after contracting by
consecutive months up to February (see Chart 1). Similarly, the OECD composite 10.1% in 2009
leading indicator’s 12-month rate of change strengthened to 9.6% in January, the
fifth successive month of increase and from +8.1% in December and +6.0% in
November (see Chart 2). The improvement was broad-based, suggesting that
prospects of OECD countries’ economies are likely to improve in the months ahead.

Chart 1 Chart 2
OECD Composite Leading Chart 5
Global Manufacturing And Activities
Indicator Points To A Brighter Economic Global
Picking Up ISM
Prospects

% 12-mth annualised rate of change Index

Index ISM
30 65
Manufacturing
25
60
20

➤
15 55

10
50

➤
5

0 45

-5
40
-10
Total OECD Japan US Euroarea China
35
ISM
-15 Services
-20 30
00 01 02 03 04 05 06 07 08 09 10 05 06 07 08 09 10

In the US, the economy grew at a stronger pace in the 4Q, underpinned by inventory The US economic recovery
rebuilding and an increase in business spending. This is gradually trickling down is gradually trickling down
to a better job market, as indicated by the employment of temporary workers, to a better job market
which picked up for the last five consecutive months up to February. As a result,
non-farm payrolls recorded a significantly smaller drop of an average of 31,000 jobs
a month in January-February, compared with a loss of 557,000 a month in 1H 2009.
Similarly, the personal consumption expenditure (PCE) strengthened to an annualised
rate of 2.1% in January, from +1.7% in December and after hitting a low of +1.1%
in November. Although the improvement in the housing sector has weakened
somewhat, it will unlikely pose a major drag to the US economic recovery.

In the same vein, we expect the Euroland’s economy to gradually recover, despite The Euroland and Japan’s
the emergence of sovereign debt worries of late, on the back of an improvement economies will recover in
in business confidence, while consumer confidence held up at the highest level in 2010, while China’s
more than a year. Given its export dependency, the Japanese economic recovery economy will likely
will likely be sustained into 2010 as well, in tandem with a recovery in exports. In
continue to expand in the
China, the country’s economy will likely continue to expand in the months ahead,
months ahead
after recording +10.7% yoy in the 4Q, on account of a recovery in exports and a
sustained increase in domestic demand. Meanwhile, the Chinese authorities have

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 stepped up their efforts to control credit expansion, particularly to local governments,
in a move to moderate the pace of asset price inflation and reduce the potential risks
of default.

As a whole, we expect a pick-up in global economic activities to translate into higher We expect the country’s
demand for the country’s manufactured goods and commodity products. Already, real exports to record a
worldwide semiconductor sales, one of the Malaysia’s key exports, strengthened to growth of 6.5% in 2010, a
47.1% yoy in January, the third consecutive month of increase and from +28.8% in rebound from -10.1% in
December. Also, the industry experts, the Semiconductor Industry Association and 2009
Gartner, projected worldwide semiconductor sales to record a growth of 10.2% and
10.3% respectively in 2010, a rebound from -9.0% in 2009. As a whole, we expect
the country’s real exports to record a growth of 6.5% in 2010, a rebound from
-10.1% in 2009.

Domestic Demand Will Become Stronger

In line with a pick-up in exports, which has translated into higher production, private The Central Bank
investment and employment, the Central Bank envisaged real aggregate envisaged real aggregate
domestic demand to recover to a growth of 3.2% in 2010, from -0.4% in domestic demand to
2009 (see Table 2). This is in line with our projection. The recovery is expected recover to a growth of
to be driven by an increase in private sector demand during the year (+3.3% in
3.2% in 2010, in line with
2010 versus -3.4% in 2009), on account of stronger consumer spending, which
our projection
is envisaged to strengthen to 3.8% in 2010, from +0.8% in 2009. This is broadly
in line with our expectation, as we expect consumer spending to grow at a stronger
pace of 4.8% in 2010, after slowing down to +0.8% in 2009. The pick-up in
consumer spending will be supported largely by improvements in the labour market,
a steady increase in disposable income and sustained consumer confidence. Indeed,
the private sector salary is expected to increase by 4.1% while the unemployment
rate is projected to be lower at 3.6% of total labour force. In addition, households
Consumer spending is
in the rural areas are expected to enjoy favourable income growth as commodity
envisaged to strengthen
prices are expected to remain firm during the year. Similarly, we believe high
to 3.8% in 2010
savings and rising consumerism as well as pent-up demand will continue to provide
support to consumer spending in the country.

Table 2
GDP By Demand Aggregates (2000=100)

BNM RHBRI
2009p 2010f 2010f
(% growth in real terms)
Real aggregate demand 1 -0.4 3.2 3.2
Private expenditure 1 -3.4 3.3 5.5
Consumption 0.8 3.8 4.8
Investment -21.8 0.7 10.0

Public expenditure 1 7.7 2.7 -2.1

Consumption 3.7 -2.7 -2.5
Investment 12.9 9.3 -1.5

Exports -10.1 7.7 6.5

Imports -12.5 11.7 9.9

Gross Domestic Product -1.7 4.5 to 5.5 4.5

1
: Excluding stocks p : Preliminary f : Forecast
Source : Bank Negara Malaysia 2009 Annual Report

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This will likely be supported by a turnaround in private investment, which is Private investment is
projected to grow by 0.7% in 2010 by the Central Bank, after suffering a sharp projected to grow by 0.7%
contraction of 21.8% in 2009. Although we also expect the private investment to in 2010, after suffering a
bounce back in 2010, our projection is higher at 10% due partly to the lower base sharp contraction in 2009
effect, as private investment contracted sharply in 2009. The pick-up in private
investment will be in line with the strengthening domestic and external demand, as
investors resume their investment amid improving global economic conditions.

These, however, will be offset partially by a slowdown in public sector spending, Public investment is
which is projected to ease to 2.7% in 2010, after rising by 7.7% in 2009, in line with projected to grow at a
fiscal consolidation. Consequently, public investment is projected to grow at a more moderate pace in
more moderate pace of 9.3% in 2010, after rising by 12.9% in 2009, as the previous
2010, in line with fiscal
year’s investment was boosted by the implementation of the two economic stimulus
consolidation
packages. Growth will be driven mainly by higher capital spending of the general
government and the RM5bn worth of projects from the second stimulus package.
We, however, expect public investment to contract by 1.5% in 2010, in line with a
cutback in development expenditure by the Federal Government due to fiscal
Fixed capital formation is
consolidation (see Tables 3 & 4). Still, fixed capital formation is envisaged to
envisaged to increase by
increase by 5.5% in 2010 (versus our projection of +3.0%), a rebound from -5.5%
5.5% in 2010, a rebound
in 2009. Meanwhile, BNM expects public consumption to contract by 2.7% in
from -5.5% in 2009
2010, compared with +3.7% in 2009. This is broadly in line with our expectation,
in tandem with the Government’s austerity drive.

Table 3
Federal Government Finance

2009 p 2010 B
RM bn % change RM bn % change

Revenue 158.6 -0.7 148.4 -6.4

Total Expenditure 206.6 +5.2 189.5 -8.3
Operating Expenditure 157.1 +2.3 138.3 -12.0
Gross Development Expenditure 49.5 +15.6 51.2 +3.4
Loan Recoveries 0.5 0.6
Overall balance -47.4 -40.5
% of GDP -7.0 -5.6
Sources of financing:
Net domestic borrowing 56.9 -
Net external borrowing1 -6.3 -
Realisable asset1 and adjustments -3.2 -

Source : Bank Negara Malaysia Annual Report 2009

1
: A positive (+) sign indicates a drawdown in the accumulated realisable assets
p : Preliminary
B : Budget

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 Table 4
Consolidated Public Sector Financial Position

2008 2009e 2010f 2009e 2010f

Current Account: (RM bn) (%, change)

General Government1
Revenue 2 128.4 121.2 115.7 -5.6 -4.5
Operating Expenditure 165.0 172.5 157.8 +4.5 -8.5
Current Account Surplus of NFPEs3 119.4 143.4 143.9

Current Balance 82.7 92.1 101.7

% of GDP 11.2 13.7 14.0

Development Account
Development Expenditure (net)4 124.4 118.0 109.7 -5.1 -7.1
General Government 50.5 52.2 55.1 +3.4 +5.6
NFPEs3 73.8 65.8 54.6 -10.8 -17.0

Overall Deficit/Surplus -41.7 -25.9 -8.0

% of GDP -5.6 -3.8 -1.1

1 Comprises Federal Government, state governments, statutory bodies and local governments.
2 Excludes transfers within general government.
3 Refer to 30 NFPEs in 2004 onwards.
4 Adjusted for transfers and net lending within public sector.
f Forecast e Estimate
Source : Bank Negara Malaysia Annual Report 2009

A Broad-Based Recovery In Supply Activities

On the supply side, BNM expects a broad-based recovery in activities, from

manufacturing to services, agriculture and mining sectors. Construction sector will
continue to expand, albeit at a more moderate pace.

Value added in the manufacturing sector is projected to bounce back and expand The manufacturing sector
by 6.5% in 2010, from -9.3% in 2009 (see Table 5). Growth will likely be driven by is projected to bounce
a pick-up in output of export-oriented industries, on the back of an improvement in back and expand by 6.5%
global demand for the country’s exports. Similarly, output of domestic-oriented in 2010, from -9.3% in
industries will likely pick up, on account of an improvement in consumer spending and 2009
private investment. The projection is broadly in line with our view, as we expect
manufacturing production to expand by 7.5% in 2010.

Table 5
Real GDP Growth By Industrial Origin (2000=100)

BNM RHBRI
2009p 2010f 2010f
% Annual growth
GDP -1.7 4.5 to 5.5 4.5
Agriculture 0.4 3.1 2.3
Mining -3.8 2.5 1.2
Manufacturing -9.3 6.5 7.5
Construction 5.7 3.7 3.1
Services 2.6 4.9 4.5

(p) : Preliminary (f) : Forecast

Source : Bank Negara Malaysia 2009 Annual Report

The broad services sector is projected to grow at a faster pace of around +4.9%
in 2010, compared with +2.6% in 2009, in line with higher consumer spending and
trade activities. Also, the Government’s efforts to promote the sector and a sustained
increase in tourist arrivals as a result of an improvement in confidence will boost
activities in the sector. As a result, activities in transport & storage sub-sector are

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projected to turn around during the year. Outlook for communications sub-sector is The broad services sector
also positive, spurred by increasing demand for mobile broadband and data services. is envisaged to grow at a
The services sub-sectors that are dependent on domestic consumption, such as faster pace in 2010, in line
wholesale & retail trade and accommodation & restaurants, are projected to register with higher consumer
stronger growth rates. BNM also expects activities in finance & insurance and real spending and trade
estate & business sub-sectors as well as output of utilities to pick up, in tandem with activities
an improvement in business activities during the year. Our forecast is broadly in line
with the Central Bank’s forecast as we expect services sector to expand by 4.5%
in 2010.

BNM expects the agriculture sector to bounce back to +3.1% in 2010, after slowing BNM expects the
down to +0.4% in 2009. This is on account of a pick-up in palm oil production due agriculture sector to
to the recovery in yield of fresh fruit bunches and an increase in matured planted bounce back to +3.1% in
areas. Similarly, the production of rubber will likely bounce back during the year, 2010, after slowing down
as better pricing will encourage increased tapping and after going through three to +0.4% in 2009
consecutive years of decline. This projection is largely in line with our expectation.

Similarly, mining output is projected to record a growth of 2.5% in 2010, Mining output is projected
after two consecutive years of contraction and compared with -3.8% in 2009. This to record a growth in
is mainly on account of a pick-up in the production of crude oil and liquefied natural 2010, after two
gas (LNG) due to higher demand. Also, several new oil fields are expected to start
consecutive years of
production, while the expansion of MLNG Dua is expected to raise production of LNG
contraction
during the year.

In contrast, construction activities are projected to moderate to 3.7% in Construction activities are
2010, from +5.7% in 2009, in tandem with a slower increase in the Government’s projected to moderate, in
development expenditure. As a result, the growth in civil engineering sub-sector is
tandem with a slower
envisaged to moderate during the year. This, however, will likely be mitigated by
increase in the
a pick-up in construction activities in the residential property sub-sector as demand
G o v e r n m e n t ’ s
conditions have improved and property developers are coming up with more launches,
development expenditure
while construction activities in non-residential property sub-sector are still ongoing.

Normalisation Of Monetary Conditions Has Begun And Will Likely

Continue, Albeit At A Measured Pace

On the inflation front, the Central Bank expects inflation to increase by between The Central Bank expects
2.0-2.5% in 2010, faster than +0.6% in 2009. Nevertheless, given that output is inflation to increase by
recovering from low levels, the resultant pressure on inflation from the narrowing between 2.0-2.5% in
output gap is expected to be limited, said the Central Bank. Similarly, the core 2010, faster than +0.6%
inflation rate is likely to exhibit a modest upward trend and is not expected to be
in 2009
a source for policy concern. This is broadly in line with our expectation. We believe
inflation rate will likely inch up, on the back of stronger domestic demand.
Higher crude oil price, which is projected to fluctuate at between US$80-100/barrel
in 2010, compared with an average of US$62/barrel in 2009, and commodity prices
will also contribute to a pick-up in prices. In addition, the Government plans to
We expect inflation rate
gradually remove some of the subsidies in order to reduce its financial burden.
to inch up to +2.0% in
Already, the Government has allowed sugar price to be increased by 20 sen and it
2010, on the back of
has removed the subsidy for white bread at the beginning of the year. As a whole,
we believe inflation will likely trend up to 2.0% in 2010, from +0.6% in 2009. stronger domestic demand

Meanwhile, the Government said that it had scrapped its petrol subsidy restructuring and rising crude oil and

scheme, which it plans to implement in May, following negative feedback from the commodity prices
public and it has no plan to raise or reduce retail petrol prices for now.

Whilst inflation is not a major concern for policymakers, the threat of a fundamental We expect Bank Negara to
recession is diminishing. This implies that a very high degree of monetary stimulus raise its OPR by another
is considered no longer warranted, according to the Central Bank. Also, maintaining 25 basis points in July
interest rates at too low a level over an extended period could encourage excessive 2010 to 2.5% and the OPR
risk taking behaviour, and the unhealthy build up of financial imbalances. As a will likely stay at this level
result, BNM has begun to normalise its monetary conditions by raising the overnight until the end of the year
policy rate (OPR) by 25 basis points to 2.25% on 4 March. We expect Bank Negara

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 to raise its OPR at a measured pace and by another 25 basis points in July
2010 to 2.5%. Thereafter, the OPR will likely stay at this level until the end of the
year. We do not expect the Central Bank to raise interest rates at every policy
meeting given expectation of an uneven global economic recovery. Given that this
is a normalisation of policy, the Central Bank indicated that its monetary policy will
remain accommodative and supportive of the economy. We believe a mild and
gradual increase in interest rates from an extremely low level would unlikely affect
consumer spending and business activities in a material way.

Smaller Current Account Surplus, But Will Continue To Provide

Support To The Ringgit

The Central Bank expects the current account in the balance of payments to The current account in the
record a smaller surplus of RM103.8bn or 14.3% of GNI in 2010, compared balance of payments is
with the surplus of RM112.7bn or 17.0% of GNI in 2009 (see Table 6). The narrowing projected to record a
trend projected by BNM is largely in line with our expectation. In tandem with a pick- smaller surplus of
up in economic activities, imports are expected to rise faster than that of exports. RM103.8bn or 14.3% of
This will lead to a smaller merchandise trade account surplus in 2010. At the same
GNI in 2010, compared
time, we envisage the deficit in the income account to widen during the year, as non-
with the surplus of
resident controlled companies repatriate higher dividend on the back of improving
RM112.7bn or 17.0% of
corporate earnings. These, however, will likely be mitigated by an improvement in
GNI in 2009
the services account, which is projected to record a larger surplus during the year,
in line with a pick-up in travel receipts. Similarly, repatriations of salaries and wages
by foreign workers are likely to drop, in line with the Government’s policy of reducing
the employment of foreign workers. As a result, we expect the current account
surplus of the balance of payments to narrow more significantly to around
RM97.1bn or 13.8% of GNI in 2010.

Table 6
Balance Of Payments

BNM RHBRI
RM bn 2008 2009p 2010f 2010f

Goods 170.6 141.5 141.6 133.2

Exports (f.o.b) 664.3 554.2 615.2 601.2
Imports (f.o.b) 493.8 412.7 473.7 468.0

Services balance 0.2 3.2 -0.7 1.1

(as % of GNI) .. 0.5 -0.1 0.2

Income -23.7 -12.6 -19.9 -22.2

(as % of GNI) -3.3 -1.9 -2.7 -3.1

Current transfer -17.5 -19.4 -17.1 -15.0

Current account balance 129.5 112.7 103.8 97.1

(as % of GNI) 18.1 17.0 14.3 13.8

Financial account -118.5 -82.9 n.a -35.5

Errors & omissions -29.9 -15.8 n.a -25.0

Overall balance -18.3 13.8 n.a 36.6

Outstanding reserves 317.4 331.3 n.a 367.9

(US$ bn) 91.5 96.7 n.a 111.5
(mths of retained imports) 7.6 9.7 n.a 9.3

p : Preliminary f : Forecast
Source : Bank Negara Malaysia 2009 Annual report

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Still, the current account surplus remains sizeable and will contribute to a build-up The ringgit could
in the country’s foreign exchange reserves and fuel domestic liquidity in the financial overshoot RM3.30/US$
system. This will continue to provide an underlying support to the ringgit. The temporarily due to inflow
movement of the ringgit, however, has been volatile in recent months, as investors of speculative funds,
adjust to changes in policy and the pace of economic recovery. This was further before settling at around
complicated by concerns over Greece’s deficit problem that has weighed down the RM3.30/US$ at end-2010
euro. As a whole, the ringgit could overshoot RM3.30/US$ temporarily due
to inflow of speculative funds, as Asian currencies (ex-Japan) strengthen against
the US dollar on account of a stronger economic recovery in Asia and a faster pace
of policy normalisation, before settling at around RM3.30/US$ at end-2010.

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herein in any manner whatsoever and no reliance upon such statement by anyone shall give rise to any claim whatsoever against
RHBRI. RHBRI and/or its associated persons may from time to time have an interest in the securities mentioned by this report.

This report does not provide individually tailored investment advice. It has been prepared without regard to the individual financial
circumstances and objectives of persons who receive it. The securities discussed in this report may not be suitable for all investors.
RHBRI recommends that investors independently evaluate particular investments and strategies, and encourages investors to seek
the advice of a financial adviser. The appropriateness of a particular investment or strategy will depend on an investor’s individual
circumstances and objectives. Neither RHBRI, RHB Group nor any of its affiliates, employees or agents accepts any liability for any
loss or damage arising out of the use of all or any part of this report.

RHBRI and the Connected Persons (the “RHB Group”) are engaged in securities trading, securities brokerage, banking and financing
activities as well as providing investment banking and financial advisory services. In the ordinary course of its trading, brokerage,
banking and financing activities, any member of the RHB Group may at any time hold positions, and may trade or otherwise effect
transactions, for its own account or the accounts of customers, in debt or equity securities or loans of any company that may be
involved in this transaction.

“Connected Persons” means any holding company of RHBRI, the subsidiaries and subsidiary undertaking of such a holding company
and the respective directors, officers, employees and agents of each of them. Investors should assume that the “Connected Persons”
are seeking or will seek investment banking or other services from the companies in which the securities have been discussed/covered
by RHBRI in this report or in RHBRI’s previous reports.
This report has been prepared by the research personnel of RHBRI. Facts and views presented in this report have not been reviewed
by, and may not reflect information known to, professionals in other business areas of the “Connected Persons,” including investment
banking personnel.

The research analysts, economists or research associates principally responsible for the preparation of this research report have
received compensation based upon various factors, including quality of research, investor client feedback, stock picking, competitive
factors and firm revenues.

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Lim Chee Sing

Director

RHBRI is a participant of the CMDF-Bursa Research Scheme and will receive compensation for the participation.
Additional information on recommended securities, subject to the duties of confidentiality, will be made available
upon request.

This report may not be reproduced or redistributed, in whole or in part, without the written permission of RHBRI and
RHBRI accepts no liability whatsoever for the actions of third parties in this respect.