Malaysia no longer stuck in middle-income trap?


KUALA LUMPUR: Malaysia is no longer stuck in the middle-income trap, as its gross national income (GNI) is now progressively growing towards the high-income benchmark as defined by the World Bank, says Datuk Seri Idris Jala.

Attributing the positive development to the various reforms undertaken via the multi-year economic transformation programme (ETP), the CEO of Performance Management and Delivery Unit (Pemandu) points out that Malaysia’s GNI at US$10,570 (RM42,340) per capita last year is now only 15% away from the high-income-economy benchmark of US$12,475 per capita.

This compared with a gap of 33% between Malaysia’s GNI of US$8,280 per capita in 2010 and the then high-income economy threshold of US$12,276 per capita.

“As a result of the things we have been doing since 2010 and up to now, we have become completely unstuck (from the middle-income trap), with the gap (in Malaysia’s per capita GNI against the high-income threshold) now narrowed down to just 15%, compared with 33% in 2010,” Idris, who has been leading Pemandu, which is an agency under the Prime Minister’s Department, since 2010, said.

“The gap was even wider before 2010, and we could never close the gap for many years, resulting in many economists and financial experts proclaiming that Malaysia is stuck in the middle-income trap, and would not be able to become a high-income nation by 2020 unless we become unstuck,” he said in his keynote address on the Public Private Partnerships panel discussion here yesterday.

The panel discussion, jointly organised by research and publishing company The Business Year and education services provider Brickfields Asia College, was themed “Innovation as Driver for Local Economic Empowerment”.

According to Idris, Malaysia had managed to transform its economy, as a result of implementing innovative strategies. He said the Government remained confident of closing the GNI per capita gap and achieving the high-income target by 2020.

Under the ETP, the target was to achieve a GNI per capita of US$15,000 by 2020.

Meanwhile, in addition to GNI growth, Idris said Malaysia was also making good progress in the fiscal-sustainability space, as evident in the narrowing of the Government’s budget deficit and the continued manageability of its debt level.

The reduction of Malaysia’s fiscal deficit to 3.2% of gross domestic product (GDP) last year from 6.6% of GDP in 2009, for instance, was an indication of a stronger and more sustainable financial position. The country’s fiscal-deficit-to-GDP ratio was expected to reduce further to 3.1% by the end of 2016.

The Government debt-to-GDP level, on the other hand, would remain below the self-imposed limit of 55%. It stood at 53% last year.

“We have reduced subsides and implemented the goods and services tax (among the various economic reforms) to achieve fiscal sustainability,” Idris said.

“We have also put in a lot of effort to stimulate private investment growth” he added, noting that private investment growth had outpaced public investment since the launch of the ETP.

Idris said while there were still challenges in implementing economic reforms, Pemandu would continue to monitor closely the progress made by various government ministries.

“We are tracking all the investment projects one by one … we want to make sure that all these projects are being implemented just as we said they would,” Idris said.

On the moderate growth of the country’s economy and gradual pace of fiscal-deficit reduction, Idris said these were a result of deliberate policy to ensure that Malaysia did not grow at the expense of accumulating more debts, or had its budget deficit cut drastically at the expense of the country’s economic growth.

Through this balancing act, Idris said, Malaysia had managed to stay in the “safe zone” in terms of debt-to-GDP and fiscal deficit levels while maintaining a steady growth path. – Cecila Kok The Star

But in the same article, Danny Quah, professor of economics and international development at the London School of Economics, disagreed that Malaysia had moved past the middle-income trap.

Quah maintained his position on Saturday, at a panel discussion organised by Sunway University in Petaling Jaya.

He told the university’s students that Malaysia had been going after “low-hanging fruits” in policymaking, resulting in it being trapped in the middle-income status.

“We are now in a situation where we are in a good place, but we’ll not get past it to gain fully developed country status in Malaysia’s own mould,” he said.

Quah is of the view that Malaysia has become complacent about its achievements, and that the nation suffers from what economists call the “natural resource curse”.

The economist pointed out that only about one million out of the 30 million people in the country are paying income tax, noting that this small fiscal base would be unsustainable moving forward.

The problems are an unclear direction, lack of leadership commitment, high-level plans that are not practical, rigid implementation, a silo mentality and work approach, public demands and inputs not adequately obtained, poor accountability, and a lack of transparency and trust deficit.

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Landed residential properties much sought after with resilent demand, Market insights


CBRE|WTW managing director Foo Gee Jen (pic) said that in spite of confidence issues among property buyers, there was still good demand for “the right products,” especially for landed units.

PETALING JAYA: Demand for landed residential units is still promising despite the current property glut, said an official from a local real estate services provider.

CBRE|WTW managing director Foo Gee Jen (pic) said that in spite of confidence issues among property buyers, there was still good demand for “the right products,” especially for landed units.

“Despite the issue with the confidence levels, some developers are still registering good sales for landed and affordable homes. High rise developers meanwhile are having to offer a lot more freebies, with some even offering their own financing.

“But you don’t see that for landed property as the demand is still there,” he said at a press conference announcing the joint venture (JV) between real estate agencies CH Williams Talhar & Wong Sdn Bhd (WTW) and CBRE last week.

He emphasised that one of the biggest issues facing the current property sector is not oversupply, but instead a mismatch of supply and demand.

“Developers are putting the wrong products in the market and this is not what the masses want. The demand is there but it’s not the correct product. So the question is, how long will the market take to absorb (these products)?”

As an example of a mismatch between demand and supply, Foo cited low-cost housing in areas that were not accessible to the proper target audience.

“For instance, there are low-cost properties built in Bukit Beruntung. But the daily toll and fuel cost of travelling to Kuala Lumpur for work is heavy for the type of people living in such homes.

“Also, there are so many high-end shoebox units now and Malaysia is unlike Singapore or Hong Kong. We still have plenty of land. If you’re putting the right property in the right location – you’ll still see a long queue of people attending the launches.”

CBRE, the world’s largest commercial real estate services firm and a Fortune 500 company, announced yesterday that it had acquired a significant interest in Malaysia’s largest real estate service provider, WTW, WTW Real Estate Sdn Bhd and WTW Property Services Sdn Bhd.

The business will rebrand as CBRE|WTW effective immediately, with WTW holding a 51% stake in the JV. WTW network of 13 offices in Peninsula Malaysia.

CBRE Asia Pacific chief executive officer Steve Swerdlow said the collaboration was consistent with the firm’s strategy to grow in South-East Asia.

“At a time when planning is underway to link Malaysia and Singapore via high speed rail and with the Asean Economic Community and the Trans Pacific Partnership facilitating greater collaboration for both countries and their wider partner countries, this offers many opportunities for cross border activities when they arise.”

With CBRE as a strategic partner, Foo said the firm can now help its clients expand their activities beyond Malaysia, providing them with more options through a diverse means of expertise. “Conversely we can be a party to help bring greater meaningful inbound investments into the Malaysian market via the CBRE global network.”

By Eugene Mahalingam The Star

Top Story -market insights
An outlook on Malaysia’s property market

May 26, 2016
According to PropertyGuru’s Malaysia Property Market Sentiment
Survey Report H1 2016, things are expected to improve in 2016 as people
are warming up to the idea of purchasing properties.  

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Fintech – disruptive technology


https://players.brightcove.net/4405352761001/default_default/index.html?videoId=4903561099001

http://www.thestar.com.my/business/business-news/2016/05/21/fintech-disruptive-technology/

Businesses are embracing it by coming up with their innovations and startups

A BUZZWORD growing in popularity in the financial world today is “fintech”, short for financial technology, which in a nutshell refers to the use of technology to deliver faster and cheaper financial services.

Going by some predications, fintech could take a big chunk of business away from traditional banks as it is being run by smaller more nimble start-ups. But the debate is still out there as to how much that chunk will be. In Malaysia in particular, fintech’s presence is still nascent and small. Fintech transactions totalled a mere US$6.37mil this year compared with a global figure of US$769.3bil, according to Statista, an online statistics provider.

It however predicts that fintech transaction values to grow to US$14.4bil by 2020. A significant number of fintech companies, especially those in the digital payments space, actually work alongside local banks.

Still, fintech is not to be taken lightly. Top bankers themselves are speaking of its imminent threat to their business. Former Barclays CEO Anthony Jenkins referred to it as banking’s “Uber moment” to describe technological advances that could see bank branches close down and people laid off.

Last April, Jamie Dimon the CEO of the US’ largest bank JP Morgan in his letter to shareholders warned that “Silicon Valley is coming.” “There are hundreds of start-ups with a lot of brains and money working on various alternatives to traditional banking,” Dimon wrote.

On the home front, just last month prominent banker Datuk Seri Nazir Razak echoed such views. Speaking at the Star Media Group’s PowerTalk: Business Series held at Menara Star, Nazir opined that fintech companies are disrupting banking.

“Bankers must respond to this Uber moment. People actually dislike banks today, since the global financial crisis. Recent data suggests that in the US, the cost of banking intermediation has not changed for 100 years in real terms. This simply means banks have not gotten more efficient over the years, so its right that banks get attacked by ‘Silicon Valley’, which has identified banking as an industry that is very ‘ripe’ or juicy to disrupt.”

Even the central bank is echoing these views.

In his maiden keynote address at an Islamic finance conference in Kuala Lumpur last week, Malaysia’s newly-appointed Bank Negara governor Datuk Muhammad Ibrahim gave a grim reminder to banks of the threats posed by fintech. In particular, Muhammad quoted from a report by McKinsey that 10% to 40% of banking revenue is possibly at risk by 2025 due to innovations outside banking institutions that are able to offer a significant pricing advantage and that technologically-driven applications had spread to nearly every segment of the financial sector, with the number of fintech start-ups having doubled in the last year. “Fintech is challenging the status quo of the financial industry,” he said.

To be fair, Malaysian banks are quick to point out that while fintech does represent a disruption to business, they are embracing the movement, by coming up with their own fintech innovations or by working with fintech startups.

So what is fintech?

In a nutshell, fintech is an economy of companies using technology to improve efficiencies and effectiveness in the financial services industry. To illustrate the offerings of fintech companies, consider the business model of homegrown start-up MoneyMatch, which is modelled after UK-based TransferWise which began in 2011 and today moves US$10bil a year through its platform.

MoneyMatch has created a platform to match individual buyers and sellers of currencies, with the attraction of both sides enjoying better exchange rates than what banks and even money changers offer. The rate used by the MoneyMatch site is the middle rate of the currency exchange spread. So an individual for example, willing to buy US$100 for his travels will be matched with someone wanting to change his US$100 into ringgit. The parties will be matched on this application and then proceed to make their exchange in an agreed location. MoneyMatch is also entering the area of cross border fund transfers.

“For example, someone in Singapore wishing to transfer money to Malaysia can be matched with someone here wishing to send an equal amount of money across the Causeway. Hence the parties can make the respective transfers to local accounts of their choice after an exchange of information. This means the transfer is done minus any cross-border transfer fees,” explains MoneyMatch co-founder Naysan Munusamy, who had spent many years as a forex trader with a number of banks before venturing out to start MoneyMatch.

Peer lending

One key growth area in fintech is peer to peer or P2P lending, online platforms that match borrowers with lenders, bypassing the traditional financial institutions. The business had even attracted big names such as Goldman Sachs. The most notable name in this space is Lending Club, which had launched its service as far back as 2007 and became the US’ largest technology IPO in 2014, raising around US$1bil.

Lending Club claims that its platform – which enables borrowers to get unsecured loans of US$1,000 to US$35,000 – has now helped originate close to US$16bil in loans.

Locally, last month the Securities Commission (SC) launched a regulatory framework for P2P lending, paving the way for small and medium-sized companies to access this new avenue of debt funding. Under SC’s rules though, individuals are not allowed to raise money on the local P2P platforms. Rather it is meant to only fund projects and businesses and a number of safeguards are in place. For example, those behind the operator of the P2P platform need to pass the “fit and proper” test; the rate of financing cannot be more than 18% (as that would be deemed predatory lending) and that the P2P operator has to disclose information related to the issuer and the risk assessment and credit scoring parameters adopted by the operator. There is no authorized P2P platform in Malaysia yet as parties wishing to run such platforms have to submit their application to the SC soon.

In China, P2P lending has virtually exploded. As a recent report by Citibank highlights, “China is past the tipping point”, with fintech companies having similar number of clients as the major banks. The report notes that China is the largest P2P lender in the world, with transactions topping US$66bil, compared with the US with only US$16.6bil.

Regulating fintech

But there are problems. Some unregulated P2P platforms in China had run scams. Others helped fuel an equity roller-coaster by offering funding for stock investments. This led to the Chinese benchmark index rallying more than 150% in the 12 months to last June before abruptly crashing. The Chinese authorities are now cleaning up the P2P sector.

So what are the risks of fintech regulation in Malaysia? And do companies like MoneyMatch need be regulated and licensed?

In an emailed reply to StarBizWeek, Bank Negara says: “Fintech start-ups that engage in activities under the purview of the central bank must comply with existing laws”. Bank Negara explains that regulated businesses include banking, insurance or takaful, money changing, remittance, operating a payment system or issuing payment instruments.

“A fintech company that engages in any activity that falls within the definition of a regulated business must be properly authorised to do so under the relevant laws.

“As an example, collecting deposits via a fintech platform would require approval from Bank Negara.

“A fintech company that is authorised to conduct a regulated business under the laws that Bank Negara administers will be subject to the oversight of Bank Negara pursuant to those laws.”

What this indicates is that Bank Negara is going to regulate fintechs the same way it does banks. But exactly how, it still isn’t clear.

But the good news is this: Bank Negara says it is engaging with firms in this space (and presumably that includes the likes of MoneyMatch), “to understand and where appropriate facilitate their business and provide guidance on aspects on regulation that would be applicable to them.”

Bank Negara adds that it is in the process of formulating a framework that “encourages innovation without undermining financial stability, the integrity of the financial system or the adequate protection for financial consumers.”

The SC has also been pushing for fintech innovation to develop in Malaysia. Last year, Malaysia became the first country in the region to introduce the regulatory framework for equity crowd funding. (While P2P is about companies raising debt, crowd funding is for entrepreneurs to sell equity to investors.)

The SC has also launched aFINity@SC, a fintech community aimed at industry engagement and more recently launched the P2P financing framework, which is aimed at addressing the funding needs of small businesses.

Chin Wei Min, the SC’s new head of innovation and digital strategy, says: “We think fintech can provide solutions to some of the unserved and underserved needs in the capital market.”

Chin adds: “We are also mindful of the risk, fraud and all the pitfalls. We continue to enhance our engagement model. We want to remain very close to the industry.”


Fintech’s hiccups

Some recent developments in the fintech space, however, point to weaknesses in fintech companies. LendingClub, the poster boy company for P2P lending has seen its shares tumble, wiping out about a third of its market value.

This came as it faces scrutiny after its founder and CEO resigned following an investigation into improper loan sales.

The US Treasury has released a report criticising the P2P lending business, recommending it to be more tightly regulated. Some commentators are liking P2P lending to the early days of the subprime mortgage bubble of 2006-07.

It is more likely though that the experiences of fintech in mature markets like China and the US will serve as good guides as to how this business will grow in this part of the world, with the requisite regulations put in place.

And the jury is still out as to whether traditional banks here will lose significant parts of their businesses to fintech start-ups.

Or as one industry observer puts it, fintech is more likely to usurp the business of the shadow banking market here, as some unserved borrowers now have the option to move away from loan sharks or “Ah Longs” and into the crowd funding or P2P platforms. But after that, banks could be next.

By Risen Jayaseelan, Wong Wei-Shen, a Zunaira Saieed The Star


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Investments to pour into Malaysia, Boston Scientific plant in Penang to be ready by 2017


 

BATU KAWAN: Malaysia is targeting to attract RM40bil worth of investments from the manufacturing and services sectors this year.

Malaysian Investment Development Authority (Mida) chief executive officer Datuk Azman Mahmud said that of the RM40bil, about RM800mil would be for the medical device segment.

“For the first quarter of the year, we have approved RM651mil investments for the medical sector, compared to RM194.7mil achieved in the same period of 2015.

“The approved medical device investments would create 1,610 job opportunities,” he said.

Azman said this after the ground-breaking ceremony of Boston Scientific new plant at the Batu Kawan Industrial Estate.

The RM40bil investments would come mainly from the United States and Europe, according to Azman.

“We are now negotiating for these investments,” he added.

Deputy Minister of International Trade and Industry (Miti) Datuk Lee Chee Leong represented Minister Datuk Seri Mustapa Mohamed at the event to officiate the groundbreaking ceremony.

Lee also read out Mustapa’s speech.

In the speech, Mustapa said in 2015, the exports of medical devices increased by 15% to RM15.5bil from 2014.

“According to the National Export Council (NEC), revenues from the export of medical devices are projected to grow to RM26bil by 2020.

“In this regard, industry players in Malaysia will be able to enhance their exports by capitalising on the liberalisation of markets such as Asean, facilitating access to the region’s 620 million strong market,” Mustapa said. Also present at the event was Penang Chief Minister Lim Guan Eng.

Boston Scientific’s new medical device manufacturing plant, which will involve investments running more than hundreds of millions of ringgit, is scheduled to be operational in the fourth quarter of 2017.

By David Tan The Star/ANN


Boston Scientific plant in Penang to be ready by 2017 

GEORGE TOWN: Boston Scientific’s new medical device manufacturing plant in Batu Kawan Industrial Park, which will involve investments running more than hundreds of millions of ringgit, will be operational in the fourth quarter of 2017.

Boston Scientific vice-president (operations) Dave Mitchell told StarBiz the group would move production equipment into the facility in the second quarter of 2017.

“The plant will be operational in the fourth quarter of 2017, and we expect to ship our first “Made-in-Malaysia” product before the end of 2017,” Mitchell said in an e-mail.

The construction of the facility will begin in the first half of 2016 and scheduled for completion in the second half of 2017.

Mitchell said the site and facility were designed to accommodate at least 10 years of growth, including new products, additional volume and added capabilities, which might include research and development (R&D) or distribution.

“We anticipate having more than 400 employees at the Penang site within four years of operation, with room to grow significantly beyond that.

“Initially we will focus on building manufacturing capability and capacity in the Penang facility.

“We have the space and ability for additional capabilities at the site, including both R&D and distribution,” he said.

On the outlook of the global medical device market, Mitchell said that according to research firm Euromonitor, in 2016 the medical device industry was expected to record strong growth of almost 6% to reach US$315bil.

“Unlike the traditional markets such as Western Europe and the US, the Asia-Pacific medical device market is projected to to grow and gain a wider market in 2016,” he said.

Boston Scientific was founded in 1979 and is the worldwide developer, manufacturer and marketer of medical devices.

Its products and technologies are used to diagnose or treat a wide range of medical conditions, including heart, digestive, pulmonary, vascular, urological, pelvic health, and chronic pain conditions.

The group has 23,000 employess in 40 countries.

By David Tan The Star/ANN

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Malaysia’s ringgit has done a stunning about-face as China starts buying Malaysian bonds


The market is saying that this recovery in oil prices will be pretty positive for the Malaysian economy,” said Kelvin Tay, chief investment officer for southern Asia Pacific at UBS Wealth Management in Singapore.

SINGAPORE: Malaysia’s ringgit has done a stunning about-face this year, with surging capital inflows turning it into Asia’s best-performing currency from the region’s worst in 2015.

Still, few expect the ringgit to regain all the ground lost last year, as inflows may have peaked as Malaysian risk assets are starting to look pricey to investors and analysts.

The ringgit strengthened 10 percent against the U.S. dollar in January-March, its largest quarterly gain since 1973, Thomson Reuters data shows.

In 2015, the ringgit had its worst year since 1997, shedding 18.5 percent on the back on plunging oil prices, anticipated higher U.S. interest rates and a financial scandal at state-owned 1Malaysia Development Berhad (1MDB).

Driving the currency’s U-turn is the return of foreign investors, who have poured into Malaysian stocks and bonds on better crude oil prices, a surprisingly resilient economy and easier monetary policies from major central banks.

“The market is saying that this recovery in oil prices will be pretty positive for the Malaysian economy,” said Kelvin Tay, chief investment officer for southern Asia Pacific at UBS Wealth Management in Singapore.

In February, exports rose faster than expected. Sales of electrical and electronic products, the biggest item, increased 8.9 percent from a year earlier.

JACKED-UP HOLDINGS

Through the week ended April 1, foreign investors bought a net 5.5 billion ringgit ($1.4 billion) of Kuala Lumpur stocks this year, data from the research arm of Malaysian Industrial Development Finance showed. Last year had total outflows of 19.5 billion ringgit, it said.

Offshore investors have raised their local bond holdings by 11.8 billion ringgit in January-March, central bank data shows, with increased interest in longer-tenor debt. For all of last year, foreigners slashed holdings by 11.1 billion ringgit.

The cautious stance of Federal Reserve Chair Janet Yellen on U.S. rate hikes has caused investors to seek higher yields in Asia, aiding flows into Malaysia.

“This combination of an attractive currency valuation and higher yields in a world of low or negative interest rates is drawing foreign investors back to the local Malaysian market,” said Eric Delomier, Asia fixed income investment specialist for Capital Group of the U.S.

Analysts and investors have concerns, including valuations of Malaysian assets and leadership of the central bank as its internationally-respected governor, Zeti Akhtar Aziz, retires at the end of April, and her successor has not been named.

Malaysian bonds seem “a bit rich,” said Maybank Investment Bank’s fixed income analyst Winson Phoon in Kuala Lumpur. Earlier this month, the 10-year yield fell to 3.77 percent, the lowest since February 2015.

SMALL INFLOWS AHEAD?

“I don’t expect to see a repeat large inflows in months ahead, although the direction should remain slightly positive,” Phoon said.

On share valuations, “Malaysia is actually not particularly cheap or attractive, compared to other markets,” Tay of UBS said. “We don’t think earnings growth has actually improved among Malaysian corporates.”

Local stocks were trading at about 17.3 times the past 12 months’ earnings, according to Thomson Reuters data. That compared with 11.8 times for Indonesian stocks, according to exchange data.

Zeti has led Bank Negara Malaysia (BNM) since 2000, and investors are hoping for a successor with her credibility to help Malaysia’s standing at a time of political crisis for Prime Minister Najib Razak, chairman of 1MDB’s advisory board.

“Given the near-term challenges to a new BNM governor, oil prices and festering political risk from 1MDB, among other things, the ringgit’s upside is limited,” said Andy Ji, Asian currency strategist for Commonwealth Bank of Australia in Singapore.

His year-end target for the ringgit is 3.70 per dollar, 16 percent appreciation from its 2015 closing. Late Friday, the ringgit was at 3.90.- Reuters

China starts buying Malaysian bonds

Ong: ‘The Chinese government is keen to buy more Malaysian bonds

KUALA LUMPUR: China’s government has started buying more Malaysian government securities (MGS) and this inflow of new foreign money could rise to 50 billion yuan (RM30bil) in total, according to International Trade and Industry Minister II Datuk Seri Ong Ka Chuan.

In an exclusive interview with The Star, Ong said a senior representative of the Bank of China told him about this development recently when he met with the bank on issues pertaining to the use of yuan and ringgit in Malaysia-China direct trade.

“This could be one of the key factors contributing to the strength of the ringgit lately. China’s purchase of our MGS, which I am under the impression could rise to 50 billion yuan, will be very positive for our currency as it shows China’s confidence in our economy,” Ong said.

Other factors that had contributed to the strength of the ringgit in recent weeks included the recovery of crude oil prices, softer US dollar and the successful debt rationalisation of 1MDB, he added.

If China were to buy RM30bil worth of MGS, it would mean supporting 8.5% of Malaysia’s debts in the current MGS market. According to Bank Negara’s website, the value of outstanding MGS stood at RM352.06bil as at April 5, 2016.

Meanwhile, Malaysia’s debt markets saw inflows of RM11.5bil, versus RM1.4bil of outflows in February. The March foreign inflow was the largest monthly inflow since May 2014, according to a Nomura research note on April 7.

The inflows pushed foreign holdings of MGS to a historical high of RM171.5bil, the Japanese research house said. As a result, foreign ownership in outstanding MGS has risen to 48.7%.

Ong noted that Chinese Premier Li Keqiang had pledged to support the Malaysian economy – which was hit by a slowdown, local political problems, heavy outflow of funds and consequent plunge of the ringgit – when he visited Kuala Lumpur last November.

On Nov 23, the Chinese leader announced at a local forum that China would buy more MGS, issue yuan bonds in Kuala Lumpur and grant local institutional funds a quota of 50 billion yuan under the Renminbi Qualified Foreign Institutional Investor programme to invest directly in Chinese equities in the mainland.

The following day, the ringgit reacted positively gaining about 1% and the currency stabilised at around 4.25 to a US dollar in early December. MGS also gained.

“I was told China would use its reserves to buy our bonds. Its international reserves are high, at US$3.21 trillion (RM12.5 trillion) in March. With this development, I don’t think our ringgit will fall to 4.46 again,” said Ong.

Last month, Bank Negara said there were now more foreign governments and central banks holding MGS. A total of 29% was held by these two groups and 13% by pension funds.

The presence of these long-term investors is seen as reducing the risk of Malaysia facing sudden and massive outflows of capital in the event of unfavourable conditions, just like what had occurred last September, which saw the ringgit weakening to a multi-year low of 4.46.

Foreign inflow into the local stock market might be another factor that has boosted the ringgit. According to a Credit Suisse report, Malaysia saw a record net foreign equity inflow of RM6.1bil in March, which contributed to the ringgit’s 10.3% rise against the dollar in January-March 2016. At late trades on Friday, the ringgit stood at 3.9096.

Due to the recent new inflows, Bank Negara’s foreign exchange reserves had risen to RM412.3bil (US$96.1bil) as at March 15 from RM408.5bil (US$95.1bil) as at Jan 15.

This reserves figure is an important buffer against capital flows and has an impact on the ringgit and the sovereign credit rating of the country. Moody’s recently noted this buffer has improved.

Ong also said China would like to see Malaysia conducting roadshows in the mainland so that there is better understanding of Malaysia’s fundamentals and its bonds.

“The representative of Bank of China also told me the Chinese government is keen to buy more MGS, but they also hope our central bank could go there to market our MGS. I have conveyed this to Bank Negara. It is up to them to act,” says Ong.

Ong, who is also MCA secretary-general, noted that China’s huge direct investments had also boosted the ringgit’s sentiment.

The ringgit rose sharply in March partly due to the conclusion of the sale of 1MDB’s energy assets to China’s state-owned China General Nuclear Power Corp for RM9.83bil, as the absorption of all the debts of Edra Global Energy Bhd has reduced the systemic risk to pubic finance, banking system and economy.

Ong is confident that Kuala Lumpur is able to attract more major Chinese investments into the country this year due to Malaysia’s strong bilateral ties with China as well as the many free trade agreements – including the Trans-Pacific Partnership Agreement – Malaysia has signed with various countries and groupings.

By Ho Wah Foon The Star

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MH370 families file biggest lawsuit in Malaysia


 

KUALA LUMPUR: Seventy-six next of kin of the passengers on board  Flight MH370 have launched the biggest suit in the courts here against Malaysian Airline System Bhd and four others over the plane’s disappearance.

With the deadlines to do so up by today, the group  made up of 66 Chinese nationals, eight Indians and two Americans  filed the suit last Thursday, naming MAS, Malaysia Airline Bhd (MAB), Department of Civil Aviation (DCA) director-general, Royal Malaysian Air Force (RMAF) and the Government as defendants.

They are claiming for negligence, breach of contract, breach of statutory duty and breach of Montreal Convention against MAS

Lawyer N.Ganesan representing Indian, Chinese and American families said this is the biggest lawsuit against MAS in Malaysia as it involves a large number of families as plaintiffs.

In the statement of claim filed last Thursday, the families alleged that the plane’s disappearance on 8 March 2014 was caused by MAS’ negligence and the national carrier had breached the Montreal Convention by causing the injuries and death of all 239 passengers and crew..

Besides MAS, the families also named the director-general of the Department of Civil Aviation (DCA), Royal Malaysian Air Force (RMAF), and the government.

They claimed that DCA, RMAF and the government had conspired with MAS in conducting the investigation in a “grossly negligent manner” to delay the search, causing the death of all the passengers and crew.

They also contended the government and MAS had acted fraudulently and in a dishonest manner by hiding information about MH370’s disappearance from the public, and the families of passengers and crew.

The 76 next of kin are seeking damages and losses they suffered after their loved ones went missing.

“The families opted to file the lawsuit here because they have confidence in our court,” said Ganesan when met at the High Court here.

He also pleaded with the government not to move to strike out the lawsuit.

“This lawsuit deserves a day in court, and all the families deserve a fair trial,” he said.

When asked if the families were given consent by the MAS administrator under the MAS Act to initiate the lawsuit, the lawyer said they were denied consent. “They had previously said in the media that they would act in ‘good faith’ to determine fair and equitable compensation.”

“What they said was they were inviting next of kin to initiate lawsuits against them.”

Ganesan disclosed that an American law firm, Hod Hurst Orseck, will be joining the families’ legal team.

“They are the experts in civil aviation. We will be having the firm’s partners, Steven Marks and Roy Altman with me and lawyer Tommy Thomas.”

“When necessary, we will be filing for leave to the court for them to be conducting the trial,” he said.

Last week, 12 families of passengers from Malaysia, Ukraine, Russia and China sued MAS and the government for damages, shortly before the two years deadline for initiating a civil suit under the Montreal Convention.

Sources: The Star news and Free Malaysia Today

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Global growth retreats


US Dollar-euro parity in sight


To raise or not to raise: the uS Federal reserve Building in Washington, DC. the probability of a rate-hike in December now exceeds 80% – delivering the first rise in borrowing costs

THERE we go again. Even before the ink is dry, global growth forecasts are downgraded once more.

Paris-based OECD’s (rich nations’ think tank) November Economic Outlook attributes a slump in the growth of world trade (brought about partly by China’s slowdown) as the major factor behind the sluggishness of the global economy.

It was only in October that IMF estimated world GDP will grow 3.1% in 2015 and 3.6% in 2016, in the face of slowing global trade at 2.8% this year (3.9% in 2016).

Now, OECD thinks global growth will ease to 2.9% (3.3% in 2014) and recover modestly to 3.3% in 2016.

Even these, I think, are optimistic. Bear in mind that growth in world trade had slackened in recent years (falling behind global GDP growth which is unusual and not a good sign) and has stagnated since late 2014. It is expected to grow only 2% this year against 3.4% in 2014 and a much faster rate in the early years of the decade: “World trade has been a bellwether for global output, and that global trade growth observed so far this year have in the past been associated with global recession.”

Meanwhile, further GDP slowdown in emerging market economies (EMEs) is weighing heavily on global economic activity. In addition, sluggish trade and subdued investment and low productivity growth are checking the momentum of recovery in the rich nations.

Indeed, there are already signs that many advanced economies are unlikely to reach anywhere near their potential output, despite continuing easy money. Over the medium term, the risks of recession and deflation have become more probable than indicated by the IMF.

Because of recent headwinds, the probability of recession in eurozone and Latin America has risen beyond 30% and 50% respectively, with Japan now in recession.

Simultaneously, the probability of deflation in eurozone and Latin America now exceeds 30%, while Japan is already experiencing significant deflationary tendencies.

This raises the spectre of secular stagnation (what Harvard’s Larry Summers refers to as the inability of an economy to grow to reach its full potential) at a time when policymakers are running out of firepower – fear that the policy tools available to combat deflating forces are becoming increasingly blunt.

The immediate risks

As I see it, many factors are shifting the global economy into a secular slowdown. Immediate risks include:

> Continuing deficient global demand in the face of excess capacity: The rich nations as a whole are in growth recession, with the US pulling-up the others which are struggling to jump start anaemic output. The eurozone is in extended stagnation; growth if any is low (in Germany) and uneven; indeed, the region is flirting with deflation.

Consumer prices have turned increasingly negative in Q3’15. Abenomics is faltering, moving Japan into recession (-0.7% in Q2’15 and -0.8% in Q3’15). IMF predicts the biggest contributors to global growth in 2015-2020 are the faster growing EMEs. Among the top 10, only two are rich nations (US & UK); heading the list are China (accounting for nearly 30%), India (15%) and US (10%); the remainder being (in descending order) Indonesia, Mexico, South Korea, Brazil, Nigeria, UK and Turkey.

> Falling commodity prices: Energy, food and metals prices have fallen significantly over the past year. As a whole, commodity prices are now down 51% from its peak on April 29, 2011. Oil price has fallen 61% since June 14 and is languishing very near US$40 a barrel last weekend. Gold price lost 9% so far in 2015, dropping to a 5-year low at below US$1,065 per troy ounce on Nov 18.

Already, weary investors have begun to sense an end to the raw materials rout, as prices for most dipped below production costs. But few expect a quick rebound. The historical record: after commodity prices tipped over in 1997, it took 21 months to correct the fall. In 2000-01, it was 13 months.

After collapsing in 2008, commodity prices hit bottom in just eight months. This time, the index has been falling for four years and still counting. Nothing preordains a turnaround. Studies of commodity prices dating back to the 19th century found that cycles have been known to last 30-40 years.

So, don’t raise your hopes. Off-setting these “cuts” are currency weaknesses in many commodity-exporting nations since most commodities are priced in US dollar – thus translating to higher revenues in local currency, at least for now.

> China slowing down; so are EMEs and BRICS: Latest data points to an Asia where growth is stabilising in the region of 5%, reflecting very low growth in the more advanced Asian nations as a whole, where growth was at 1.5% annually (with South Korea and Taiwan expanding about twice as fast).

Asian EMEs are decelerating from close to 8% in 2011 to 6.5% or less in 2015. China is down to 6.8% this year but India is doing well at 7.3%. Similarly, the Asean 5 (Indonesia, Malaysia, Philippines, Thailand and Vietnam) is also slowing down, from 6.2% in 2012 to 4.6% expected this year.

Within the region, performance is mixed: Thailand is doing rather badly at 2.5%; while growth in Vietnam will accelerate to 6.5%, with the Philippines not far behind at 6%.

Both Malaysia and Indonesia will each grow at around 4.5% this year and not much more next year. Expectation is that growth in Asean 5 will likely stabilise in 2016 at between 4.5%-5%.

The BRICS (Brazil, Russia, India, China and South Africa) will continue to slacken considerably, growing at less than 2%, dragged down by severe recession in Russia and Brazil and hardly any growth in South Africa. EMEs now face a host of problems constraining their ability to grow.

Plummeting commodity prices, BRICS’s slowdown and investor flight are exposing deep-rooted weaknesses requiring fundamental economic overhauls, but made difficult by domestic politics and corruption. China’s successful transition towards a slower, but a more sustainable growth path will benefit growth all round, despite disruptions generated by rebalancing reforms, notwithstanding China’s sizable buffers available for it to cope.

> Rising US interest rates: The spectre of Fed uncertainty over the rate uplift that has spooked world markets will soon end, hopefully. The probability of a rate-hike in December now exceeds 80% – delivering the first rise in borrowing costs for nearly a decade. Expectation is for a quarter of 1% rise, with gradual but orderly small bites over the coming year. No big deal really, considering that Federal funds rate is already close to zero (below 0.2%) today and the yield on 5-year US Treasuries is only 1.65% per annum.

> Strengthening US dollar: The consensus is for US dollar to continue to strengthen, reflecting its relatively strong economy and prospects of a near term rate-hike in the face of economic weaknesses world-wide. The US dollar index (against six of its peers) has tipped past 99.6 (up 10.3% so far this year) for the first time since April.

Odds are for euro to be at parity with the US dollar; it has already touched 1.05. Tge euro has depreciated 13% so far this year.

The Chinese yuan is stable since this summer’s policy change. It is now likely that the yuan will be included in the SDR basket of elite currencies before year-end – in practice, bestowing on it reserve currency status.

Against a basket of EME currencies, however, the JP Morgan US dollar index is up 13.7% over the year; the Brazilian real is down 30.1% so far this year (until December 10); Malaysian ringgit, -20.2%; Turkish lira, -18.6%; Mexican peso, -12.1%; and Indonesia rupiah, -9.9.

Most certainly, Malaysia’s strong economic fundamentals don’t deserve a near 30% currency downgrade over the past year – it’s over-depreciated by at least 10%-15% after discounting the “bad” politics.

US President Obama (in Malaysia recently) is right to emphasise the critical importance of accountability and transparency, and the need to root out corruption in government.

> Destabilising politics and conflict: G-20 continues to struggle to come up with workable viable steps to reshape an increasingly dour economic outlook. They also face a host of new troubles, from political problems to security crises, raising doubts about preventing the global economy from falling into a long-term funk. Now, the growing refugee crisis in Europe and renewed fears of widespread terrorism after the Paris, Sinai (Egypt) & Bamako (Mali) attacks are proving difficult to fix. Soon enough, these heinous acts will become a pressing economic and business issue, bringing with it far reaching pressures on recovery efforts on the global economy.

What then, are we to do

So it’s not surprising that global economic prospects are repeatedly marked down in recent years. Add to this calls to join-in the war to fight terrorism with its multi-faceted business implications.

What’s worrisome is the rising risk of a world economy persistently mired in sub-par growth – as though hysteresis (impact of past experience on subsequent performance) has taken hold, with the attendant unacceptably wide income disparities, serious security issues, and persistent unemployment.

There is also the need to address the “large-scale displacement of people” with far reaching humanitarian development dimensions. Given that the global economy is still faced with much economic slack and very low inflation (indeed, even deflation), the complex challenges ahead will require continued monetary accommodation and fiscal support, notwithstanding frequent disruptions arising from China’s and EMEs’ reform transition, in the face of financial market volatility emerging from the pending Fed rate lift-off and the prospective strengthening of the US dollar.

Warren Buffett is known to have said: only when the tide has receded can you see who has been swimming naked. Cheap QE money has spoiled EMEs. Traditionally, debt busts in EMEs are centred on their sovereign US dollar denominated bonds.

Today’s “naked” EMEs reside in the corporate sector, mostly exposed to local currency bonds.

Their total private debt now far exceeds 100% of GDP, even higher than it was among the rich nations on the brink of the 2008 financial crisis. In the face of a debt crunch, they can become unduly vulnerable, especially for EMEs with a difficult and uncertain future.

Clearly, tepid and uneven growth raises the risk that can tip an economy into recession. Easy times have come & gone. Much soul searching lies ahead.

By Lin See-Yan What are we to do? 

Former banker, Harvard educated economist and British Chartered Scientist Tan Sri Lin See-Yan is the author of ‘The Global Economy in Turbulent Times’ (Wiley, 2015). Feedback is most welcomed; email: starbiz@thestar.com.my.







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