What's wrong with Malaysia in terms of GDP per Capita? (2012)

Addressing the issue, which Finance Malaysia thinks was critical at a time of globalization heats up, Malaysia needs to formulate and take action immediately without much hesitation. But, before we jump into action, we need to know the root of the problem. Right?

Exactly, we must find out the reason why we left behind other countries in terms of GDP per capita, which refers to the country's gross domestic products at purchasing power parity (PPP) per capita. According to Wikipedia, it was the value of all final goods and services produced within a country in a given year divided by the average population for the same year.

Why not using nominal GDP to measure national wealth?

Comparison of national wealth are also frequently made on the basis of nominal GDP, which does not reflect differences in the cost of living. Using a PPP basis is arguably more useful when comparing generalized differences in living standards on the whole between nations because PPP takes into account the relative cost of living and the inflation rates of the countries, rather than using just exchange rates which may distort the real differences in income.

Singapore is now the richest country in the world.
Where is Malaysia?

According to sources, some of the factors contributing to Singapore's forecast performance are its 'human capital' -- a skilled and educated labour force, the dynamic business environment, openness to trade, capital mobility and foreign direct investment. Also, it is worth noting that there is a global eastwards shift in economic activity -- Singapore is perfectly positioned to take advantage of this.

However, everything is not going well for Malaysia, although we are Singapore's closest neighbour. In terms of GDP, we moving nowhere for past few years amid competitive global environment. But, in terms of population, we believe we accelerated for past one year after government legalized some 1.6million foreign unskilled labourers. Please noted that they are non-taxpayers who consume all the benefits funded by us Tax payers.

On the other side, our brightest and brilliant are forced to mass migrate to other countries. This is a fact which is dampening the future of our country. It's sad because Malaysia supposedly was high on the list in terms of GDP per capita, given the plenty of natural resources that we had and strategic position we located in. Why?

The main reason lies within us, Malaysians. Don't blame the government. Don't blame other countries. Don't blame the statistic. Just blame ourself, Malaysians. A government was formed by its own people, and elected by us. All the while, we have this wrong mentality that we are blessed with valuable resources which can last us for a long long time. Does that mean that we do not need to compete?

Facebooking is a new norm in workplace now.

If you were to ask, Finance Malaysia would take the blame on our mindset, especially youngsters nowadays. Most of them didn't bother about the country and their future. These people go to work for the sake of working only. They follow instructions, without reinventing the way we work. How are we going to excel? Don't even think about competing. It's about time to change for a better tomorrow.

Europe’s Woes Flood Wall Street—But Not the Economy? (May 2012)

After months of buildup, Europe’s sovereign-debt crisis has finally wreaked havoc on the U.S. stock market, as a wave of anxiety has prompted a major sell-off on Wall Street. We’ve seen a dramatically “risk off” environment with the Dow Jones Industrial Average dropping 3.52% — the biggest one-week decline since November — and the S&P 500 falling 4.3%. Among the hardest hit stocks were small caps and tech, with the Russell 2000 and the Nasdaq Composite falling 5.4% and 5.3%, respectively. To further underscore the risk-off environment, the yield on the 10-year Treasury still appears to be searching for a bottom, finishing at 1.702%, but falling below 1.700% intraday this week — a modern-era low.

Spring Swoon?

History may not be repeating itself, but it certainly is rhyming. Like the spring of 2010 and the spring of 2011, investors’ fears are coming to fruition and we are once again experiencing a “spring swoon.” Stocks are selling off and junk-bond spreads are widening, as concerns about the euro-zone crisis are weighing heavily on investors. While some strategists believe Germany may be softening its stance, yields on some EU periphery nations are skyrocketing and rumors abound that the European Central Bank is preparing for a Greek departure from the European Monetary Union. The problem seems to be fundamental to the structure of the EU and therefore there are no easy solutions: while there is one shared currency, there is no true central government with one shared ability to levy taxes or issue debt that all countries are responsible for.

A federal Europe and closer fiscal integration is the ideal solution but it does not appear to be close at hand. The fiscal compact was agreed to in principal in December 2011, which is an important step toward that goal, but it is still awaiting approval by some euro-zone members.

However, the U.S. economy continues to chug along, albeit slowly. Initial jobless claims remain well below 400,000. The Consumer Price Index was flat for April. In fact, the “oil choke collar” has disengaged, with crude oil falling nearly 5% this week to finish at $91.48 per barrel. New residential construction was higher than expected in April as well. One area of disappointment was leading economic indicators, which were slightly negative for the first time in six months, down 0.1% versus expectations of a 0.1% gain. This is largely attributable to a decrease in the number of building permits and an uptick in the number of unemployment claims.

Looser Credit

Last week’s release of the minutes from the Federal Open Markets Committee’s April meeting offers further insight into the U.S. economic picture. While generally bullish in its observation of measured economic growth, the FOMC highlighted a bright spot for the economy that may have been overlooked: banks are loosening credit standards. As reported in the minutes, “Bank credit slowed in March but expanded at a solid pace in the first quarter as a whole. The Senior Loan Officer Opinion Survey on Bank Lending Practices conducted in April indicated that, in the aggregate, domestic banks eased slightly their lending standards on core loans—C&I, real estate and consumer loans—and experienced somewhat stronger demand for such loans in the first quarter of 2012.” The Fed’s poll includes 60 large domestic banks and 24 U.S. branches and agencies of foreign banks.

And lower yields mean lower borrowing costs, which are stimulative. This lower cost of borrowing combined with long-awaited and much-needed easing of credit standards could be the one-two punch that the U.S. economy needs to continue to expand.

It is imperative that the situation be monitored closely but with the recognition that, for longer time horizons, higher-quality risk assets with substantial yields such as dividend-paying stocks continue to be attractive investment options. Dividends, which offer the benefit of getting paid to wait for better market conditions, may help steer portfolios until we see calmer seas.

Source: Allianz Global Investors

Who can Save GREECE? (Feb 2012)

It's the time again for Greece to convince its counterparts that they are serious in cutting budget deficits. By doing so, Greece was to put on the lifeline (bailout) by European Union (EU) once again. The discussion of whether to save or not to save Greece had been dragging for one week time now. Why?

In Chinese, we say "we cannot see people die by not lending our hand". That's why China said they will help when the time arrives. The question is when is the right time? Until Greece go bankrupt? Or,  until Greece left EU?

Who can save Greece?

The answer to this very important question is very obvious. In Christian, they always emphasize on "we should take responsibilities on what we did", right? So, the solution lies in Greece hands. Not the country, but, the citizen, the people of Greece. It's time for them to come back to reality. Let's take Malaysia as a benchmark, they are working fewer hours than us, yet they are earning much better than us. GDP per capita of Greece is more than twice of our figures. How are they going to sustain whatever they are having now, such as attractive pension scheme and healthcare?

Technically, Greece already bankrupt with Debt to GDP of over 140. What does this mean? For every RM1 they earn, they spent RM1.40. It's overspent, it's over leveraged. It's time for Greece to unite together, shoulder the responsibilities with their Government, by taking pay cut, reform the pension scheme and healthcare system. By doing so, then only Greece can come out from debt crisis. Although the period is difficult, they must did it, don't procrastinate anymore. The longer they drag, the debt may snowball until a stage where "too big to burst".

Finance Malaysia really hopes Greece can come out of the bad times by themselves proudly. This goes to Italy, Belgium, Ireland, and Portugal too. We shall support Greece by visiting the beautiful country (of course, until all the riots were end).

Western Debt Crisis: Bursting of Volcano? (Sept 2011)

We cannot deny that we are in for another round of hard times since 2008 global financial crisis. Some experts are saying that we are facing the Great Depression wave coming in the next few months, if no concrete efforts put in by global leaders. Meanwhile, some experts think that opportunities arises again and put off the double-dip recession speculation.

The downgrading of US's AAA rating re-ignite the fears over the sustainability of its sovereign debt. However, please be mindful that US rating remains extremely sound and reflecting a very low risk of default in the long term, still. USD remain the preferred and most widely traded currency in the foreseeable future, and there is no reason to worry about.

Sovereign Risk scaring investors away?

Meanwhile, in Eurozone, the situation remains very complex and greater political will is needed to maintain Euro as regional currency. Between Eurozone breaking up and resolving the situation, which one is easier? Of course, the economic and financial cost of the Eurozone breaking up seems far higher.

Undoubtedly, the "Volcano" is active again now and may burst anytime from now. Unless, we poured ice on it to prevent the crisis. Sorry, we needs ICE-BERG (great efforts) to get through it. Otherwise, we may just let it burst, and start all over again. Not a bad idea though, right?

I can say it that way because I am living in Asia right now. Luckily, Asia is much more resilient comparing to its western friends, partly due to the 1997 Asia financial crisis which make our banking system strong and pro-active now. Our lessons were being taught to western countries this round. Hopefully, they know the root of the problem and tackles it painfully.

Post-Japan Disaster: After Timber, it's Glove Sector?

As per our previous posts (How Should Investors trade after the Japanese Disaster?), we wrote about timber counters, and it's proven the right sector investors should look at. And, below is the performance of those mentioned counters.

www.financemalaysia.blogspot.com

All of them outperformed KLCI, which recorded -2.20%. Why WTK outperformed its peers? Simple answer is its cheaper share price and better liquidity. In fact, TaAnn and WTK is the main focus because they export 80-90% of their products to Japan. This puts them in the limelight of stocks investors should look at for the moment.

Why should you look at Glove sector next?

After timber, glove sector should outperformed the generally weak market sentiment. Investors are scared. Those who already bought was stuck-in there. Those who already sold was staying sidelined. And, those who dare to buy now is focusing on timber stocks only - and today glove.

Main reasons were:

1. Demand for medical glove is expected to increase substantially. After the disaster, Japan should be facing another problem - outbreak of diseases. Because of the wet and dirty condition after tsunami, diseases tends to spread easily and this could intensify the demand for gloves being used by medical personnel and public in general.
2. Stronger USD. One of the setback for our glove makers is weakening of USD which could harm the export market to US. Post-Japan disaster, USD was expected to strengthen in line with "flight to safety" strategy employed by global investors. This is an advantage, or in fact, the turning point for our glove makers.

www.financemalaysia.blogspot.com

With these two important factors, glove sector should be on investors' radar in the near future. Indeed, you do not have much choice in this kind of market where everything seems going down hill. Either you stay sidelined, or brace the storm to invest in these counters. And, my personal stock-picks would be Supermax due to its attractive valuation and good liquidity.

Finance Malaysia urged all Japanese to stay strong, and we will support you from afar. We are living in the same planet. We are 1 actually.

How far could Oil price RISES?

As usual, another episodes of tension in the Middle East pushes global oil prices higher, and surpassing $100 per barrel this time. We did seen this kind of scenario before in the Middle East during 1973-74, 1979, and the Iraq war in 1990. Are there any different this time?

Libyan leader Muammar Qaddafi

By Credit Suisse, 

We believe the rise in oil prices is manageable. Each 10% rise in oil prices only takes about 0.1% off global GDP and 0.2% off US growth. With Western wage growth muted, central banks are unlikely to raise rates on account of oil alone.

Our analysts see oil prices below $100 pb this year, supported by the following reason which differs from previous oil crisis:-

1. There is enough spare capacity in the global oil market to deal with supply-side disruptions as long as they are not too extreme
2. The energy intensity of global GDP has fallen by around 40% over the past 40 years
3. There is unlikely to be the same inflationary follow-through as in the 1970s
4. Oil producers are spending their windfall gains

Yahoo Finance: Oil prices since 28th Feb 2011

Potential Losers

Among the countries that are both significant energy importers and where energy accounts for a large part of the CPI basket, we would highlight India, Czech Republic and Poland. We note that China has the fiscal strength to subsidize higher energy prices, while other countries (namely India and Thailand) may not.

Potential Winners

In our view, the potential winners are countries that are net energy exporters and that have a positive output gap. This highlights Russia, Columbia, Australia, Canada, Malaysia and Norway.

The outlook for oil prices...

We believe that the oil price should fall from here. Saudi Arabia is likely to release some of its oil reserves into the market as it perceives a high oil price to be supportive for the Iranian government. Our house view is that oil price could falls below $100. We would only be concerned if the political unrest in the Middle East were to spread to Saudi Arabia.

* This is just an excerpt from Credit Suisse Research report dated 1 March 2011. This may not informative enough for readers to come to a conclusion.

Related Posts:
When would asset bubbles in Emerging Market "Burst"?

Global Food Crisis, a Repeat of 2008?

KLCI is grappling up for a successful 4 days in a row this week, and perhaps today is the 5th day of record breaking level. However, I am concerned about the health and the sustainability of the market, after reading a report by Food and Agriculture Organization of the United Nations (FAO). And, one of the popular Mandarin Dailies highlighted the potential food crisis as its main topic today. Finance Malaysia did some analysis, and would like to comment on the issue which could be a hot topic for many nations very soon, including Malaysia.

In fact, international prices of most agricultural commodities have increased in recent months, some sharply. This has led to a level near to its peak in June 2008.

What causing the prices to increased?

• worsening outlook for crops in key producing countries, which require large draw downs of stocks and result in tighter global supply and demand balances
• of course, weakening USD, which continues to sustain the prices of nearly all commodities
• continuous money pouring in for commodities investing too (spicing up speculations)

Fault of commodities investors?

Globally, investors are trying to hedge against inflation, trying to make profit as much as possible. These return hunger investors prompt investment banks to structure and roll-out commodities or resources fund, which invest in commodities related shares and futures. In fact, the world is trading according to the market price, which is the said futures contract. Consequently, commodities investors indirectly pushing up the prices. Are you one of those investors?

Source: FAO website

Repeat of 2008 global food crisis

Although food reserves are larger now after the 2008 lesson, a series of unexpected downward revisions to crop forecasts in several major producing countries pushes world prices to an alarming stage and at a much faster pace than in 2007/08.

As such, Finance Malaysia expects global food crisis is building its momentum now. A repeat of 2008 global food crisis will led us to experience the same scenario listed below, let's be prepared:

• Surging oil price, etc petrol, soy oil, palm oil
• Surging sugar price (people rushing to hypermarkets everyday)
• Surging wheat price (subsequently bread, mee, kuey teow...)
• Riot and demonstrations held weekly, if not daily
• Governments struggles to contain inflation

Source: Various, FAO website

Special Coverage: Web of Europe’s Crisis

$1 trillion rescue package by European Union.
Global share markets reacting positively towards EU latest move.
Euro gains 2.7% in one day boosted by EU and IMF.
European markets posted best one day gain this year.

Sounds GOOD?

This is the power of UNITY showed by EU countries during this round of financial meltdown. After a frantic talk on Monday, European officials agreed the 16 euro nations would put up $572 billion in new loans and $78 billion under an existing lending program. Meanwhile, IMF will pump in another $325 billion, adding up to a rescue package of nearly $1 trillion.

However, many economists and analysts are still concern as to how the money would be dispensed and on what terms. A lot of them citing the euro rescue won’t solve the main problems plaguing the economies of Greece, Spain, Portugal, Ireland and Italy, which is low growth and weak balance sheets.

Let’s enlarge the chart below (you must) to have a clear picture of the debt-ridden countries, taken from www.nytimes.com

Now, you still believe that EU nations are really so UNITED?

The reality is that the Germans, French and the rest of Europe have little choice, but to bail out the troubled members to prevent them from failing. With cross-border banking and borrowing, many countries on the periphery of Europe owe vast sums to one another, as well as to richer neighbors like Germany and France. A default by a single nation would send other countries tumbling.

Who is the “Tai-Ko” (number 1)?
Congratulations to GREECE, who owes:

• $9.7 billion to Portugal
• $8.5 billion to Ireland
• $6.9 billion to Italy

Second layer of Debt:
Portugal owes $86 billion to Spain.
Nearly 1/3 of Portugal’s debt is held by Spain.
With unemployment at 20%, Spain is among the weakest economy in Europe.

And, Spain owes:

• $31 billion to Italy
• $30 billion to Ireland
• $28 billion to Portugal

Third layer of Debt:
Collectively, these PIIGS owes:

• $704 billion to Germany
• $911 billion to France
• $418 billion to Britain (Here’s how Britain also came into picture)

Interestingly, Italy owes France $511 billion, or 20% of French GDP!!!
Now, I am not surprise that “French fries Italy’s Pizza”…

Conclusion: German and France are FORCED to bail out PIIGS.