Archive for category Finance

Why Malaysia may have hit bottom

Leslie Shaffer
4th November 2015

Malaysia’s hard-hit stock market is getting a less-than-ringing endorsement with one of the world’s leading lenders telling investors that things aren’t likely to get any worse.

“There have been numerous globally attention-grabbing headlines on Malaysia this year, which we believe have increased political uncertainty and risk in investing in Malaysia,” analysts at Deutsche Bank said in a note Monday.

“However, going forward, we do not expect this to increase.” Read the rest of this entry »

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Malaysia’s 1MDB Scandal: Political Intrigue, Billions Missing and International Scrutiny

Wall Street Journal
Oct. 23, 2015

Investment fund is under investigation in five countries

HONG KONG — A scandal involving a government investment fund in Malaysia is drawing world-wide attention and has led to calls at home for the ouster of the country’s prime minister. It is also affecting U.S. diplomacy in a strategically important part of Asia. The fund, 1Malaysia Development Bhd., or 1MDB, is under investigation in five countries.

It is a story of political intrigue, backroom politics and billions of dollars in missing money. At the center of it all is Prime Minister Najib Razak, who founded 1MDB. A Malaysian government probe found that nearly $700 million moved through banks, agencies and companies linked to 1MDB before being deposited into Mr. Najib’s alleged private bank accounts ahead of a close election. The source of the money is unclear, though in August, Malaysia’s anticorruption body said the funds were a donation from the Middle East. The donor wasn’t specified.

Here’s a primer on Malaysia, 1MDB and the scandal that has drawn the interest of investigators from around the world. Read the rest of this entry »

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Malaysia’s Najib caught between politics and the economy

Hafiz Noor Shams
Financial Times
20th Oct 2015

Scandal-stricken premier faces tough choices between pleasing voters and keeping fiscal balance

Najib Razak, Malaysia’s beleaguered prime minister and finance minister, is being pulled in opposite directions by conflicting imperatives.

One is political. Voters, dismayed by a slowing economy and allegations of personal corruption and other irregularities at state fund 1MDB — vigorously denied by Mr Najib and the fund — are piling on the pressure for an increase in public spending.

The economic imperative, however, demands spending cuts, as depressed energy prices and slowing growth threaten to reverse the benefits of fiscal reforms enacted over the past several years. Read the rest of this entry »

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A Case of Brazil Blight? Scandal-Hit Malaysia Risks Lost Decade

Shamim Adam
October 16, 2015

Meet Malaysia, the new Brazil.

Nearly felled by the Asian financial crisis in the late 1990s, the Southeast Asian nation recovered to become a global commodities juggernaut, known for its stable government and investor-friendly policies. Now, with its premier enveloped by a multi million dollar funding scandal, Malaysia risks being infected with the kind of economic malaise that has struck its emerging market counterpart in South America.

Prime Minister Najib Razak, 62, has denied any wrongdoing. But as investigations continue and opponents like previous premier Mahathir Mohamad call for his resignation, the danger is the leadership stays in fire-fighting mode. The economy is already hit by a slowdown in prices for oil and natural gas, and Najib is expected to make bigger handouts to the poor in the budget on Oct. 23. Could Malaysia slide into a “lost decade”?

“Malaysia risks not just being left behind, but falling off the radar all together, especially with foreign investors,” said Jim Walker, managing director at Hong Kong-based Asianomics Ltd. and former chief economist at CLSA Asia-Pacific Markets. “People are definitely shying away from Malaysia,” he said, and the politics of Malaysia is “by far the biggest threat”. Read the rest of this entry »

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BNP Paribas Holds Nerve in Shorting Malaysia as Ringgit Surges

Lilian Karunungan
October 16, 2015

A rebound in Malaysia’s ringgit will prove short-lived as the factors that made it Asia’s worst performer this year show few signs of going away, according to an investment arm of France’s largest bank.

“We’re in a situation where nothing’s changed, so therefore the only conclusion we have is that Malaysia remains a market to be short,” said Mark Capstick, a London-based fund manager at BNP Paribas Investment Partners, which oversees 532 billion euros ($605 billion). “We’re short right across the board,” he said, adding that assets being bet against include the ringgit as well as the nation’s local-currency and global bonds.

While the ringgit has appreciated more than 6 percent in October to rank among the top five in emerging markets, it’s been dogged by a persistent drop in oil prices, slowing Chinese growth and a probe of fund transfers into Prime Minister Najib Razak’s bank accounts. Malaysia’s currency is rebounding from a 17-year low reached in September as the receding prospect of a U.S. interest-rate increase in 2015 revives demand for higher-yielding assets worldwide.

Like BNP Paribas, Pacific Investment Management Co. is also sticking to its guns and maintaining bets that the ringgit’s slide will resume. Pimco, which oversees $1.52 trillion, reported Oct. 1 it had short positions on emerging-market currencies including the ringgit, Thai baht and South Korea’s won. Read the rest of this entry »

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Zeti should be brutally honest on what ails Malaysia, says global financial mag

The Malaysian Insider
9 October 2015

Bank Negara Malaysia governor Tan Sri Zeti Akhtar Aziz should be brutally honest about the issues plaguing the country, said Euromoney in its October edition, as the ringgit continues its freefall and the economy begins to stutter.

The business and finance magazine said all this while, Zeti had been using words like “domestic factors” to describe the problems besetting the country, instead of saying that the predicament lies with debt-laden state owned firm 1Malaysia Development Fund (1MDB) and the RM2.6 billion donation in Prime Minister Datuk Seri Najib Razak’s personal accounts.

“Zeti has demonstrated through 15 matchless years of service that she is not one to pull her punches under political pressure.

“Now is not the time for her to start doing so. It would effectively mean that the BNM she tirelessly champions has not advanced at all.

“Zeti could go harder on what really ails the country. As Malaysia’s most trusted public official, she possesses something that the political class are in dire supply of – respect and moral authority,” the magazine said. Read the rest of this entry »

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Malaysia’s woes illustrate emerging market malaise

by Gillian Terzis
Australian Business Review
5 OCT, 2015

Markets around the world have endured a wild ride in recent times, as global events conspire to spook investors into rash decision-making. Nowhere is this phenomenon more pronounced than in emerging economies.

Take, for instance, Malaysia’s economic struggles. The Malaysian ringgit has been one of the poorest performing currencies in the world, shedding 26 per cent against the US dollar this year and plumbing to a 17-year low of 3.9 ringgit against the greenback. An analyst note from Merrill Lynch illustrates that in some respects, Malaysia appears in weaker shape than it was in 1997 at the time of the Asian financial crisis. For instance, household debt as a share of GDP is now at 86 per cent, compared with 46 per cent in 1997; public debt as a percentage of GDP has climbed from 31 per cent in 1997 to 54 per cent today.

The steep correction in commodity markets hasn’t helped the country either. The commodities upon which Malaysia is heavily reliant (palm oil, petroleum, and rubber) have endured precipitous declines, with little reprieve in sight. The probable downward trajectory of crude oil prices in the short to medium term is certain to inflict even more pressure on the beleaguered currency.

Moreover, the rhetoric and actions undertaken by Malaysia’s federal government are likely to disabuse one of any optimism, no matter how cautious, for the country’s economic outlook. It has been alleged by the Wall Street Journal that RM2.6 billion ($840 million) had been transferred into the personal accounts of Prime Minister Najib Razak from companies connected to 1Malaysia Development Berhad, a heavily indebted state-owned strategic development company. Razak has since shut down an investigation into his administration’s alleged graft and mismanagement of state funds.

Unsurprisingly, these revelations have weighed on investor sentiment, with foreign investors withdrawing some RM11.7bn out of equities markets to date. The country’s bond markets are also a source of vulnerability, with big moves recorded in the lead up to the maturation of RM8.2bn of government debt on October 15. (Commentators have expressed concerns about the country’s rapidly waning currency reserves.) Read the rest of this entry »

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Ringgit Retreats as Malaysian Budget Woes Add to China Concern

by Y-Sing Liau
October 2, 2015

The ringgit fell and stocks retreated as concern Malaysia may miss its target of balancing the budget by 2020 hurt a currency already reeling from a worsening slowdown in China and allegations of corruption against Prime Minister Najib Razak.

The fiscal shortfall may be “in the region” of 1 percent of gross domestic product at the end of the decade, compared with a current deficit of 3.2 percent, the New Straits Times reported Thursday, citing comments by Najib to fund managers and investors in New York. Malaysia derives 22 percent of government revenue from oil-related sources and its finances have been sapped by a 49 percent drop in Brent crude over the past 12 months.

The ringgit fell as much as 1.2 percent before closing 0.3 percent down at 4.4152 a dollar in Kuala Lumpur, according to prices from local banks compiled by Bloomberg. It’s dropped 21 percent so far in 2015, trailing only the Brazilian real, Turkish lira and Colombian peso among 24 emerging markets tracked by Bloomberg amid a deepening slowdown in China and the prospect of higher U.S. interest rates. Read the rest of this entry »

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Ringgit rout fails to revive Malaysia exports

Steve Johnson
Financial Times
1st October 2015

Amid vigorous debate as to whether slumping currencies still have the ability to stimulate significant emerging market export growth, the recent example of Malaysia is fascinating.

During the Asian financial crisis of 1997-98, the collapse of the ringgit led to a sharp and almost instantaneous rise in exports.

Export growth accelerated from zero in mid-1997 to more than 40 per cent by early 1998, according to analysis by Hak Bin Chua, Asean economist at Bank of America Merrill Lynch.

As a result, Malaysia’s current account balance swung from a deficit of 12.4 per cent of gross domestic product in the second quarter of 1997 to a surplus of 18.7 per cent of GDP by the end of 1998.

“The J-curve effect, the temporary worsening [of the trade balance] following the depreciation, was short or even negligible in 1997,” says Mr Chua.

Since September 2014 the ringgit has plunged once again, tumbling to its lowest level against the dollar since the 1997 episode.

Yet, as Mr Chua observes, “the depreciation has not strengthened exports or improved the trade balance at all. There is no ‘J’ so far, only a flat ‘U’.” Read the rest of this entry »

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Congratulations in order for Malaysia moving up two spots in global competitiveness ranking but commiserations also for “perfect storm” of crisis of confidence with no light at end of tunnel

Congratulations are in order for Malaysia moving up two spots in terms of global competitiveness, ranking 18th from last year’s 20th position in the Global Competitiveness Report 2015-2016 released by World Economic Forum (WEF).

Malaysia is now ranked ahead of Belgium (ranked No. 19 ) and Luxembourg (No. 20). Malaysia was ranked No. 20 last year with a score of 5.16, behind Belgium (ranked No. l8 with score of 5.18) and Luxembourg (ranked No. 19 with score of 5.17).

There is a confusion however as according to the World Economic Forum (WEF) Global Competitiveness Report 2015-2016, although Malaysia is placed No. 18, it shares the same score of 5.2 with Belgium and Luxembourg both of whom also scored 5.2.

Be that as it may, congratulations should not be begrudged Malaysia’s ranking, although commiserations are also in order for Malaysia’s “perfect storm” of a crisis of confidence in the government with no light at the end of the tunnel. Read the rest of this entry »

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Will the next two months be as disastrous for Malaysia as the past two month?

Will the next two months be as disastrous for Malaysia as the past two months?

Before the Prime Minister, Datuk Seri Najib Razak launched an offensive against his enemies inside and outside of UMNO two months ago, Malaysians were already quite punch-drunk with a myriad of scandals of high-level political corruption which included the two mega-scandals of 1MDB and the RM2.6 billion “donation” in Najib’s personal banking accounts, the blocking of the whistleblower website Sarawak Report, a notice to Interpol for the arrest of editor of Sarawak Report, Claire Rewcastle Brown, the three-month suspension of the Edge publications, and a slew of police actions under Section 124 of Penal Code against purported international plotters to “topple” Najib as Prime Minister.

On 28th July, Najib launched a multi-pronged offensives which included:

• abrupt sacking of his Deputy Prime Minister, Tan Sri Muhyiddin Yassin and Minister for Regional Development, Datuk Seri Shafie Apdal for continuing to raise questions about the 1MDB scandal which Muhyiddin in his last speech as DPM to the Cheras UMNO Division said had ballooned from a RM42 billion to “over RM50 billion” scandal;

• the sacking of Attorney-General Tan Sri Gani Patail, with a charge sheet appearing subsequently giving support to the speculation that Gani was preparing to prosecute Najib for corruption over the 1MDB scandal when his action was pre-empted by Najib’s summary dismissal in the nick-of-time; and

• sabotage of Parliamentary Public Accounts Committee (PAC) investigations into the 1MDB scandal by the elevation of the Chairman and three committee members as Minister and deputy ministers, causing PAC investigations into 1MDB scandal to grind to a halt for more than three months until the four vacancies are filled in the October meeting of Parliament.

Read the rest of this entry »

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Does Malaysia’s ringgit face 1997 all over again?

Leslie Shaffer
Sept. 25, 2015

The sell-off in the Malaysian ringgit, already among the world’s worst performing currencies, may run further amid a toxic mix of shaky economic fundamentals and the spreading of what is being called the country’s worst-ever political crisis.

The ringgit has fallen around 40 percent over the past year, with the U.S. dollar fetching around 4.34 ringgit on Thursday. That’s the Malaysian currency’s weakest against the greenback since late 1997, when the dollar at one point fetched as much as 4.88 ringgit.

“There remains significant downside risk even after the sharp ringgit correction,” Hak Bin Chua, an analyst at Merrill Lynch in Singapore, said in a note Wednesday, noting that he sees little comfort from claims Malaysia is much stronger than in 1997, when it took a wallop from the Asian Financial Crisis (AFC). Read the rest of this entry »

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From candidate as Tiger Economy to candidate for junk bonds – how far Malaysia has fallen under Najib!

From candidate as a Tiger Economy in the early nineties to a candidate for junk bonds – this is an indication of how far Malaysia has fallen under the premiership of Datuk Seri Najib Razak.

In two decades, Malaysia has transformed from a “darling” to a “villain” of the international media in our “transformation” from a model nation into a rogue state.

What has happened?

We seem to have the most useless and incompetent Cabinet in the nation’s history, unable to deal with the grave issues of the state at its meeting yesterday, especially the Sept. 16 Red Shirts Rally organized by UMNO which in fell swoop desecrated the concept and vision of Malaysia on the 52nd Malaysia Day anniversary and Najib’s own signature policy of 1Malaysia on the importance of racial peace, social harmony and national unity.

Nor was the Cabinet brave enough (with Najib absent, as the Prime Minister had left secretly for his UN, US and UK trip) to deal with two current issues which occurred after the last Cabinet meeting on 9th Sept, viz: (i) the Al Jazeera 101 East current affairs programme on “Murder in Malaysia” on new evidence on the brutal murder of Mongolian Altantuya Shaariibuu; and (ii) the New York Times report that a US federal grand jury is examining allegations of corruption and money laundering involving Najib and people close to him under the Department of Justice’s Kleptocracy Asset Recovery Initiative. Read the rest of this entry »

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Do Malaysia, South Africa Deserve Junk? Moody’s Model Says Yes

by Lyubov Pronina
September 24, 2015

Six developing nations including Malaysia and South Africa deserve to follow Brazil into junk status, if credit-default-swaps traders are to be believed.

Two weeks after the Latin American country’s credit rating was lowered, CDS investors are punishing other emerging markets facing similar challenges, sending their implied sovereign ratings at least five levels below their official grades, according to data from Moody’s Corp.

Malaysia is A3 at the company, though traders see it six levels lower at Ba3. South Africa, which is a Baa2, is viewed as a B1 borrower. Three Aa3 nations including China are perceived by the markets as deserving the lowest investment grade. Read the rest of this entry »

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Investors harbour doubts over Malaysia’s stock market rescue plan

by Emily Chow and Umesh Desai
Wed Sep 23, 2015

Investors have voiced doubts over potential conflicts of interest posed by Malaysia’s plan for an equity fund to buy “undervalued” shares, reflecting their growing unease as a scandal over an indebted state fund engulfs Prime Minister Najib Razak.

Last week, Najib announced a series of measures to support the economy. Chief amongst them was a plan to infuse 20 billion ringgit ($4.6 billion) into defunct equity fund called ValueCap so that it can buy underperforming shares.

Analysts and investors have raised questions of propriety over the idea of a state-directed fund picking stocks to support. Read the rest of this entry »

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Call for true national government with a strong technocratic background to address current economic crisis

Yesterday, the Prime Minister Datuk Seri Najib Razak announced the reactivation of ValueCap with a fund size of RM20 billion, which will be used to invest in selected stocks on Bursa Malaysia.

An injection of RM 20 billion may prop up the market briefly. The Chinese tried this approach with limited success.

Malaysia may find that this is a futile step that will prop up prices of GLCs and UMNO linked companies briefly. However, these steps will not result in lifting the GDP growth rate, enhancing investment, creating jobs, propping up employment or checking inflation.

It is a palliative step with no likely impact on the economic prospects or correcting the economic fundamentals.

Indeed, there may be a backlash effect – artificially propped-up share prices may induce share investors, both local and foreign, to cash in and take the proceeds out of the country, thus adding to the capital flight that is being experienced. Read the rest of this entry »

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Malaysia Acts to Save its Markets from Crisis

By John Berthelsen
Asia Sentinel
September 14, 2015

Najib says this should do It

Rising economic and political problems could render Najib’s moves ineffective

Malaysian Prime Minister Najib Razak’s announcement that a revived government equity investment firm intends to pour RM20 billion (US$4.6 billion) into shoring up the country’s stock market may face serious headwinds in a flagging economy.

“Malaysia’s market is much thinner than China’s so RM20 billion could make quite a bit of difference. On a fundamental basis the ringgit is grossly oversold and probably Malaysian equities are too,” said a Hong Kong-based financial analyst who covers Malaysia. “The problem is that fundamentals fly out of the window when there is growing concern about the probity of the political elite and the direction of policy. Malaysia has to resolve the 1MDB debacle before the market and the currency can stabilize and recover. That was supposed to happen in January and we are still waiting, which reflects entirely the poor economic and political management of the country.” Read the rest of this entry »

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Three measures which Najib should announce tomorrow to address economic crisis

The Prime Minister cum Finance Minister, Datuk Seri Najib is expected to announce tomorrow measures to strengthen the economy as falling commodity prices and the ringgit currency plumbs near 18-year lows.

I call on Najib to include in his announcement tomorrow the following three measures to address the economic crisis:

Firstly, to suspend the Goods and Services Tax (GST) as it is choking domestic consumption apart from increasing the cost of doing business in difficult economic times;

Secondly, to embark on a regime of government economic austerity, starting with halving the number of 10 Ministers in the Prime Minister’s Department to five. Read the rest of this entry »

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Malaysia’s economic frailty is all too familiar

David Pilling
Financial Times
September 2, 2015

The country is facing comparisons with the 1997 Asian financial crisis

Malaysia is in the middle of a political maelstrom. But the country’s worries do not stop with the scandal affecting Najib Razak, the prime minister. Weak oil prices, a creaking Chinese economy and the prospect of higher US interest rates have all hit Southeast Asia’s third-biggest economy simultaneously. Could this be a re-run of the 1997 financial crisis?

Critics will call such a scenario alarmist. In many ways, Malaysia appears to be in better shape than it did before the last Asian financial crisis. It has had consistent current account surpluses, as opposed to deficits in the run-up to 1997. Its foreign exchange reserves, though depleted, are nearly double the four months’ export cover it had in 1996, the year before the precipitous fall of the Thai baht triggered capital flight all over Asia. Malaysia was not the worst affected back then. That honour went to Indonesia. Even so, Malaysia’s economy shrank more than 6 per cent in 1998. Read the rest of this entry »

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Acknowledgement by IGP Khalid that “no confidence” move against Najib is neither criminal nor police concern will allow a proper and less inhibited discussion of alternatives to the present Najib administration

The country is sick and in crisis.

Today sees the rout of the Malaysian ringgit which fell to a record 17-year low of 4.26 to a US dollar and another record low of 3.08 against the Singapore dollar.

Malaysia’s foreign exchange reserves fell 19% since the start of the year, dipping below the US$100 billion for the first time last month since 2010, fueling speculation that Bank Negara is digging into the reserves to shore up the currency.

It has fallen to US$94.5 billion on August 14 from US$96.7 billion on July 31.

The lower a country’s forex reserves, the less it is able to do to shore up a sinking currency.

Meanwhile, capital outflows from the country are accelerating, to three times the size of capital investments in the country in Q1.

The reserves slid four times as fast as Indonesia, whose rupiah is the second worst-performing currency in the region. Read the rest of this entry »

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