Successful Nations Invest Heavily and Wisely

The most basic formula in economics

GDP is the sum of spending by consumers and government plus investment and net exports.

GDP = (C+G) + (I+X)

Investment (I) reveals the most about where the economy is heading.  Without investment, there would be no money for government and consumers to spend.  Investment includes total investment by both the government and private business.    Investment helps create the new businesses and jobs that put money in consumers' pockets.

Consumption is typically by far the largest share of the spending in the economy - more than half.  Investment is usually much smaller, around 20% of GDP in developed economies and 25% in developing economies, give or take.

Investment is the most important indicator of change

Investment is by far the most important indicator of change, because booms or busts in investment typically drive recessions and recoveries.  In the U.S., investment is 6 times more volatile than consumption, and during a typical recession it contracts by more than 10%, while growth in consumer spending merely slows down.

Successful nations versus those facing weak prospects

In successful nations, investment is generally rising as a share of the economy.  When investment is rising , economic growth is much more likely to accelerate.

Any emerging country is generally in a strong position to grow rapidly when investment is high - roughly between 25% and 35% of GDP - and rising.

On the other hand, economies face weak prospects when investment is low, roughly 20% of GDP or less - and falling.   

Much of what makes the emerging world feel chaotic reflects a shortage of investment in the basics.  

In developed economies, investment spending tends to be lower because basic infrastructure is already built.  So pay less attention to the level of spending as a share of GDP and more to whether is is rising or falling.   

Strong growth in investment is almost always a good sign, but the stronger it gets, the more important it is to track where the spending is going.  

Good and bad investment binges.

The best binges unfold when companies funnel money into projects that fuel growth in the future:  new technology, new roads and ports, or especially, new factories.  

Of the 3 main economic sectors - agriculture, services and manufacturing - manufacturing has been the ticket out of poverty for many countries.    

No other sector has the proven ability to play the booster role of job creation and economic growth that manufacturing has in the past.

As a nation develops, investment and manufacturing both account for a shrinking share of the economy, but they continue to play an outsize role in driving growth. 

An investment binge can be judged by what it leaves behind.  

Following a good binge on manufacturing, technology, or infrastructure, the country finds itself with new cement factories, fiber-optic cables, or rail lines, which will help the economy grow as it recovers.  

Bad binges - in commodities or real estate - often leave behind trouble.

• Investment does little to raise productivity when it goes into real estate, which has other risks as well:  it is often financed by heavy debts that can drag down the economy.   
• When money flows into commodities like oil, it tends to chase rising prices and evaporate without a trace as prices collapse.  

So, while investment booms are often a good sign, it matters a great deal where the money is going.

 

How do we rank countries?

Economic Growth and Happy Electorate

Economic growth did not necessarily translate into a happy electorate.  

• Political leaders around the world in the late 2010s were stunned to see that economic growth did not necessarily translate into a happy electorate.  Many political leaders were seeing public approval ratings reach record lows.
• On the other hand, many authoritarian leaders of countries with declining economies were reelected with record levels of support.

GDP and GNP

GDP is the traditional measure of the total output of goods and services per year.  Basically, GDP adds up the money we as consumers and companies and government entities spend over the course of the year.

GNP - gross national product - picks up where GDP leaves off and includes international expenditures in its summary of economic growth.  

• Money coming from foreign sales of products or services, make GNP a broader summary of a given economy.  
• Also included are payments and income from foreign stocks or interest payments on bonds that one country's government has sold to another.  This is an important consideration in the twenty-first century economy, where exporting nations like China and Saudi Arabia hold trillions of dollars in U.S. Treasury bonds.

GNP>GDP or  GDP>GNP

Sometimes GNP is bigger than GDP, and sometimes it is the other way around.  

• Countries like Ireland, which has a lot of foreign-owned companies, tend to give the country smaller GNP than GDP because the payments to foreign owners are deducted from the GDP figures.  
• On the other hand, since British, U.S. and Swiss residents tend to own a lot of companies abroad, their GNP is usually larger than their GDP because it includes income from foreign production that is not included in the domestic summary.

How do you compare GDP among countries with different currencies?  

It is difficult, because the value of economic activity in each country is denominated in currencies that are constantly changing in value.  

One method is simply take the value of each country's GDP at the end of the year and translate it into one common currency using official exchange rates.

• Unfortunately, using official currency exchange rates gives a skewed idea of many countries economic health.  
• Since the cost of similar goods and services isn't the same in every country, the total value of each countries' goods and services can vary widely.

Most economists and statisticians, try to adjust each country's GDP using a "real world" exchange rate.  

• This is commonly referred to as purchasing power parity or PPP.  
• It is an important calculation for anyone wanting to get a clear understanding of the real economic value of every country.  
• To determine which economy is the biggest in the world, for example, you have to adjust nominal GDP figures using PPP; otherwise the figures are of little value.

PPP is a simple calculation.  

One country's currency, such as the U.S. dollar, is chosen as the base currency.  

The dollar value of a selected basket of goods and services is then compared to the value of the same items in another country using traditional exchange rates.  In most cases, the two values won't be the same.

It is often difficult to come up with a perfectly reliable PPP.  The choice of items to be included in the basket used to determine PPP has to be made carefully.

The Big Mac Index

The Economist magazine, somewhat jokingly, came up with a PPP using the costs of Big Macs around the world.  

Since the Big Mac is identical in every country, and sold all over the world, the Big Mac Index has now become a reliable tool to see how prices vary around the world.

GDP per capita

It can also be useful to relate a country's total GDP to the number of inhabitants, giving us a more realistic view of how wealthy a country really is.  

GDP per capita, is often used to compare economic power among countries.  

By dividing each country's total economic output by the number of people living in the country, we get a more accurate idea of who is richer.  

Impossible to capture the complete picture

No measure of economic growth and economic power, however, is able to capture the complete picture.  

Quality of life

Quality of life, for example, isn't included in traditional measures of GDP.  

The GNP does not allow for the health of our children, the quality of their education, or the joy of their play.  

Neither GNP nor GDP gives us a truly complete picture of our economic health.  

UNHDI measures of Economic well-being (most popular)

The most popular accepted measure of economic well-being is the United Nations Human Development Index (UNHDI), which rates countries according to their levels of health, education, and income. 

The UNHDI measures such areas as 

• life expectancy, 
• access to education and adult literacy, 
• years of schooling, 
• equitable distribution of income, 
• GDP per person adjusted by PPP, 
• health care and 
• gender equality.  

Countries that pay a lot of attention to quality-of-life issues like education and health care - like Norway, Australia and Switzerland - appear high on the list.

Gross National Happiness Index

Some countries, such as Bhutan, have tried to look less at tangible measures and more at happiness, instituting a Gross National Happiness measure in 1972.  

Although happiness and well-being are notoriously difficult to measure, tracking opinion polls, search request data, and social media activity give us valuable information that can be used to determine which country can justifiably chant, "We're number one!"

Successful Nations Invest Heavily and Wisely

Investment is the critical spending driver of growth and a high and rising level of investment is normally a good sign.

For a country, investment running 

• below 20% of GDP foretells of shortages and gridlock; 
• above 40% is excessive and often presages a serious slowdown.

The sustainable sweet spot for investment is between 25% to 35% of GDP, and it can last for many years, particularly if the investment is going to projects that generate growth in the future.

Link between weak investment and weak growth is clear and it is so common.

If investments is too low as a share of GDP, around 20% or less for emerging countries, and stays low for a long period, it likely to leave the economy full of holes that make rapid growth unlikely.

Weak investment tends to degrade both the supply network and respect for the government.  

If a nation's supply chain is built on inadequate road, rail and sewer lines, supply cannot keep up with demand, which drives up prices.  

In this way, weak investment is a critical source of inflation - a cancer that has often killed growth in emerging nations.

Best and worst investments

The most productive investment binges are in 

• manufacturing, 
• technology, and 
• infrastructure, including roads, power grids and water systems.  

The worst are in 

• real estate, which often rings up crippling debts and 
• commodities, which often have a corrupting influence on the economy and society.

Although a case can be made that services will come to rival manufacturing as a catalyst for sustained growth, that day has yet to arrive.  

For now, the best investment binges are still focused on manufacturing and technology.

Additional Notes:

In Malaysia, investment peaked in 1995 at 43% of GDP, the second-highest level ever recorded in a large economy, behind China today.

Guided by an autocratic prime minister, the country poured money into some projects that proved useful, like a new international airport and many that did not.

The prime minister's grand vision included a new government district called Putrajaya, which today is home to just a quarter of the 320,000 people it was designed to house.  This is another classic case of a bad binge that left behind little of value.

Emerging countries: Watch for balanced growth and focus on manageable set of dynamic indicators

Emerging countries often grow in torrid streaks, only to fall into major crises that wipe out all their gains.

That is why among the nearly 200 economies currently tracked by IMF, only 40 have reached the "developed class".  

• The last to make it was South Korea, two decades ago.
• The rest are emerging, and most have been emerging forever.  

Economic trends are impermanent; churn and crisis are the norm.

All the rules aim, one way or another, to capture the delicate balances of debt, investment, inflation, currency values and other key factors required to keep an economy growing steadily faster than its peers

These are the basic principles.  Remember that economic trends are impermanent; churn and crisis are the norm.  

Recognize that any economy, no matter how successful or how broken, is more likely to return to the long-term average growth rate for its income class than to remain abnormally hot or cold indefinitely.

Watch for balanced growth and focus on a manageable set of dynamic indicators that make it possible to anticipate turns in the economic cycle.  

The disconnect between economic and earnings growth

Saturday, 21 Sep 2019

By Pankaj C. Kumar

THERE has been much debate about the lacklustre performance of Malaysia’s stock market vis-à-vis other regional or North Asian markets. There are many factors that determine a market’s performance and one of the reasons is due to the poor earnings in corporate Malaysia.

However, the other side of the argument is that, why aren’t our corporates doing well and showing earnings growth as we have been having relatively stable economic growth for years now?

Indeed, this is true. But to answer this perpetual question, one needs to understand how gross domestic product (GDP) is measured while at the other end, how are earnings derived. Is the comparison between GDP and earnings growth relevant and should they be correlated?

GDP can be measured on three counts namely by expenditure, output or factor income, and all three measurements provide the same sum of value. We typically explain GDP by expenditure and output or also known as aggregate demand and aggregate supply respectively.

Measurement of GDP by factor income is not a common practice in Malaysia. GDP measured by factor income takes into consideration income (i.e. wages and salaries); profits of businesses and the third component is rental income from ownership of land.

image: https://apicms.thestar.com.my/uploads/images/2019/09/21/284546.JPG

GDP measured by expenditure or aggregate demand comprises both the public and private consumption and investment, change in value of stock and net exports. GDP measured by output or aggregate supply is measured using the output of the various economic sectors and this of course includes the services sector, the manufacturing sector, mining, agriculture and the construction sector.

In essence, GDP measures the total output generated from the economy, i.e. both the value of goods and services produced and by default, it is the measure of the size of the economy. How big is a nation’s economy in terms of the value it creates every year? When we say the economy expanded by 5%, it means the output value of both goods and services grew by 5% compared with the previous year. GDP is also measured on two counts.

One is GDP in nominal terms and the other is GDP in real terms. Of course, the difference between the two is the rate of inflation and typically GDP in real terms grows slower than GDP in nominal terms which is measured based on current values. In other words, GDP in real terms only takes into account growth of the economy while GDP in nominal terms takes into consideration not only the growth factor but the price factor as well.

GDP is also measured based on a certain base year. Today, Malaysia’s economy is measured based on the 2015 base year (from 2010 base year previously), to reflect the nation’s current economic dynamics. To get a real GDP data, the nominal GDP is adjusted by a factor called “deflator”. A deflator is a measure of inflation from the current base year of 2015. Chart 1 shows Malaysia’s GDP between 2015 and 2018. From here, we could also make a summary that deflator used for the year 2016,2017 and 2018 are 1.0166,1.0552 and 1.0627 respectively.

Earnings on the other hand, is only measured based on current prices as our accounting rules do not take into consideration inflation neither is it re-based every five years. Earnings is also a measure of profit and not revenue. Typically, for GDP, the output measure is actually revenue to the provider of goods and services and not profit. Of course, one can argue that if revenue is rising, which typically does, should it not reflect in better earnings? The straight answer, yes definitely. But, bear in mind, net profit is not cashflow and earnings are also adjusted for various accounting rules as well as non-cash items like depreciation, and amortization. So to compare GDP to earnings performance is not exactly accurate either. In addition, as defined as to what GDP actually measures, it is difficult to correlate what is spent from aggregate demand of the economy to the aggregate supply as some of this demand and supply is not captured among listed companies. Hence, there is indeed a mismatch between GDP and even revenue of our corporates.

image: https://apicms.thestar.com.my/uploads/images/2019/09/21/284583.JPG

For example, the public sector accounts for almost 20% of aggregate demand while private sector accounts for 74% of the annual GDP. On the supply side, services sector is about 57% of the economy while manufacturing sector is at about 22%. Mining, agriculture and construction makes up the balance 20%. While some of this output of goods and services is carried out by listed companies, there is a significant amount that is not represented in the market. This include large MNCs which are not listed, SMEs, which are backbone of the economy, as well as smallholders in the agriculture sector while Malaysia’s No.1 corporate, Petronas, the parent company, too is not listed. Some of the output generated from these industries or by our national oil corporation is for exports and not all our exporters are listed either.

With this, we can now see that earnings are NOT correlated to the GDP and hence poor earnings growth over the last few years had little to do with economic growth. Based on Bank Negara’s statistics as per Table 1, we can deduce the market EPS at the end of each year by taking the KLCI index level divided by the market PER at the end of each period. The EPS growth can than be calculated from these figures and we can now see the correlation between Nominal GDP growth and EPS growth as shown in Chart 2.

The chart basically shows that since the re-basing of the GDP, Malaysia’s nominal GDP expanded steadily in 2016 and 2017 but fell back in 2018. Earnings on the other hand was negative in 2015, marginally positive in 2016 and 2017 but was extremely poor in 2018.

As the 1H reporting season has just ended, we have observed that based on data compiled by research houses, market earnings have contracted by 8.2% year-on-year and the current market estimate is that earnings for 2019 will be negative 1.8%. For this to materialise, corporate Malaysia’s 2H earnings has to be a strong 4.6% y-o-y growth to enable the annual earnings growth to hit the expected contraction rate of 1.8%. As inflation is probably to average about 1% this year, the 2019 nominal GDP growth too will likely mirror that of 2018 performance, i.e. at about 5.5% growth. Hence, while the economy remains on an expansionary mode, the earnings of corporate Malaysia is hardly a reflection of the strength of the economy as it is likely to remain in the doldrum, well, at least for 2019.

image: https://apicms.thestar.com.my/uploads/images/2019/09/21/284582.JPG

In addition, if we look at the composition of our 30-stock FBM KLCI, the index itself is heavily weighted towards the banking sector, which makes-up about 36% of the index, while Tenaga Nasional and the telco sector are the next heavyweights, accounting for about 21% of the index itself. Hence, with the banking sector not particularly performing well, especially with the environment where net interest margins are thinning and loan loss provisions are under pressure, the sector itself is a drag on the FBM KLCI.

The failed merger between Axiata-Digi too has now taken its toll on the index while the gaming sector (the likes of Genting and Genting Malaysia), plantation and rubber glove makers have their own issues related to governance, poor corporate results brought about by weaker commodity prices as well as stretched valuations. Hence, the poor performance of the FBM KLCI year-to-date is understandable and it is not due to the weakness or strength of the Malaysian economy but more of whether the index itself is reflective of the economy as whole or otherwise. In fact, seven companies alone represent about half the FBM KLCI weight and they are Public Bank, Tenaga Nasional, Maybank, CIMB, DiGi, Maxis and Axiata, and their market performance alone can dictate the FBM KLCI’s direction.

The views expressed here are the writer’s own.

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image: https://apicms.thestar.com.my/uploads/images/2019/09/21/284583.JPG

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image: https://apicms.thestar.com.my/uploads/images/2019/09/21/284583.JPG

Read more at https://www.thestar.com.my/business/business-news/2019/09/21/the-disconnect-between-economic-and-earnings-growth#9lGpHfbTTsxgsmQC.99




Summary:

GDP can be measured in 3 ways:  expenditure, output or factor income.

Aggregate demand:  
Public sector accounts for 20% 
Private sector accounts for 74% of the annual GDP.

Supply side: 
Service sector: 57%
Manufacturing sector 22%
Mining, agriculture and construction 20% of the annual GDP

Output of goods and services not represented in the market:
Large MNCs which are not listed
SMEs (backbone of the economy)
Smallholders in the agriculture sector
Petronas, the parent company (Malaysia's No 1 corporate)



1H reporting season (data by research houses)
Market earnings have contracted by 8.2% year-on-year
Current market estimate is earnings for 2019 will be negative 1.8%.

Earnings is a measure of profit and not revenue.  GDP, the output measure is actually revenue to the provider of goods and services and not profit.  So to compare GDP to earnings performance is not exactly accurate either.  

Some of the aggregate supply and the aggregate demand are not captured among listed companies; hence, there is indeed a mismatch between GDP and even revenue of our corporates.

The 2019 nominal GDP growth will likely be about 5.5% growth.

While the economy remains on an expansionary mode, the earnings of corporate Malaysia is hardly a reflection of the strength of the economy as it is likely to remain in the doldrum, at least for 2019.



30-stock FBM KLCI weightage

Banking sector 36% of the index
Tenaga Nasional and the telco sector  21% of the index

Banking sector not performing well especially with the environment where net interest margins are thinning and loan loss provisions are under pressure, the sector itself is a drag on the FBM KLCI.

Other issues contributing to the poor performance of the FBM KLCI:
Failed Axiata-Digi merger
Gaming sector (Genting and GENM)
Plantation & Rubber glove makers (Corporate governance issues, poor corporate results due to weaker commodity prices as well as stretched valuations).

The index is not reflective of the economy as a whole.  Seven companies alone represent about half of FBM KLCI weight and their market performance alone can dictate the FBM KLCI direction:
Public Bank
Tenaga
Maybank
CIMB
DIGI
Maxis
and Axiata

Lower oil prices and slowing global growth outside the US.

No changes in GDP growth upgrade following plunging oil prices: Merrill Lynch

BY RUPA DAMODARAN - 23 JANUARY 2015 @ 11:25 PM

KUALA LUMPUR: Lower oil prices have yet to result in any sizeable goss domestic product (GDP) growth upgrade for emerging Asia, partly because of slowing global growth outside the US, said Bank of America Merrill Lynch.

“Lower oil prices have, however, improved the trade surplus significantly, supporting the current account balance and forex reserves positions.”

The research house said lower oil prices have also resulted in a sharp drop in inflation, particularly in Thailand, Philippines and India, which has allowed central banks to stay accommodative.

The Reserve Bank of India cut policy rates last week as inflation pressures and expectations fell sharply, while markets are starting to price in possible cuts in Thailand and South Korea.

“Emerging Asian countries will likely see a boost to GDP growth in the range of 10 basis points to 45 basis points with every 10 per cent fall in oil prices, if the oil price drop was purely a supply shock.”

Big beneficiaries are consumers as fuel prices at the pump fall, it said.

Savings from reduced fuel costs could be channeled to investments, which for example, is showing in Indonesia's government doubling of capital spending.

”Malaysia, is however an exception and will see overall GDP growth slow with lower oil, given its heavy reliance on oil & gas revenues.”

The government downgraded the growth outlook and raised its fiscal deficit projections this week.

“We remain cautious on the fiscal and current account outlook, given the heavy fiscal dependence on oil and downward trajectory of LNG prices in the coming months.”

The research house has downgraded the average oil price to US$52 for 2015, with oil prices likely to spiral to US$31 per barrel at the end of the first quarter before recovering.

“Asia’s oil windfall will likely see a significant shift in the relative positions of sovereign wealth funds. Oil and gas-related sovereign wealth funds (US$4.3 trillion) – which account for about 60 per cent of total sovereign wealth funds -- will likely see their size stagnate or erode on falling oil prices.”

Falling oil prices will likely dampen the overall growth of sovereign funds, as a large proportion is oil-related.

Norway's government pension fund (US$893 billion), Abu Dhabi Investment Authority (US$773 billion) and Saudi Arabia's SAMA (US$753 billion) are the three largest sovereign funds in the world, and are all oil-related.

“Recycling of Asia-dollars might partly replace the recycling of petrodollars.”

Asian sovereign wealth funds (US$2.8 trillion) account for about 39 per cent of total sovereign wealth funds, and will likely see their size increase at a faster clip.

Sovereign wealth funds of China (CIC & SAFE), Hong Kong (HKMA), Singapore (GIC & Temasek) and Korea (KIC) rank in the Top-15 globally.

http://www.nst.com.my/node/70742

GDP accurate measure of economic growth

October 3, 2014       

KUALA LUMPUR: There is no denying that consistent economic growth reflected in the country’s Gross Domestic Product (GDP) has increased wages and raised the quality of Malaysians from all walks of life.
Consumers now have more products and services to choose from and higher disposable income, thanks largely to well-managed economic policies that keep creating thousands of jobs for the people.
Without doubt, GDP is an accurate barometer of how well-off we are.
But, detractors who suggest otherwise simply haven’t made the effort to understand the basics of economics.
It’s high time the people started looking at the facts and having their own opinions based on intelligent logic, rather than jumping on the bandwagon of the loudest critics.
GDP figures reflect how our economy performed in the past quarter or year.
Unfortunately, while the majority are able to grasp that positive GDP growth is good for all Malaysians, there is a vocal minority who fail to see this or simply refuse to do so.
Between 2011 and 2013, the Malaysian economy recorded a GDP growth of 5.2 per cent per annum.
For the first half of 2014, GDP was 6.3 per cent, driven primarily by growth of the services, manufacturing, construction and agriculture sectors.

So what do these numbers actually mean?
To figure this out, it’s crucial to understand what GDP is all about.
Malaysia, like most other countries in the world, measures GDP using three methods — expenditure, type of economic activity and income.
With the expenditure method, it is calculated by adding total consumption, investment, government spending and net exports.
Net exports are a measure of the output of goods and services assembled and produced in Malaysia and sold abroad minus the imports.
Consumption is what people spend their money on – goods such as your food, the petrol for your car and the clothes you wear, and services such as hair dressing, visits to the doctor, making calls, sending WhatsApp using smartphones and going to the cinema.
An economy with a healthy level of consumption is one where businesses are thriving.
Thriving businesses creates jobs and there are generally low levels of unemployment.
It also means that money is circulating in the economy which provides for greater revenue as well as higher personal and corporate income.
Investment is linked to job creation – as our productive capacity increases with more investment and job opportunities abound, made more glaring by foreigners seeking their fortunes in Malaysia.
Moreover, money is also coming from foreign direct investments from renowned investors such as Intel, Samsung, Honda and others.
Most of the investments are in the oil and gas sector, financial services as well as the wholesale and retail sectors.
Some of Malaysia’s investment strategies are found within the parameters of the Economic Transformation Programme which aims to make Malaysia a high income economy by the year 2020.
Government spending is evident in more and better infrastructure – from public transport, to healthcare including hospitals, 1Malaysia clinics and education services and schools.
Besides this, it comprises stimulus packages to encourage businesses, and general improvements for civil society in the form of sports, cultural and artistic facilities.
It also includes innovation in government delivery services such as the Urban Transformation Centre – which can be found in Pudu and Sentul in Kuala Lumpur, Kuantan, Melaka, Ipoh and Alor Setar – and the Rural Transformation Centre such as the ones in Gopeng and Kota Bharu.
For the detractors, their main gripe is that they still don’t have enough money for all that their hearts desire. Figures, however, show that Malaysian wages have increased, with the wages to GDP ratio improving from 29.3 per cent in 2008 to 33.6 per cent in 2013.
Wages refer to what employees earn in the course of their job, in cash or in kind, such as salaries and wages, gratuity, bonus, subsidies and benefits.
GDP, in relation to wages, is used as a measure of productivity. Therefore, an increasing ratio of wages to GDP shows that people are now paid more for their productivity than they were in 2008.
In 2012, based on the Household Income Survey by the Department of Statistics, the average household income was RM5,000 per month while the median income was RM3,626 per month.
Two years on, based on the preliminary data, the average household income has risen to RM5,919 while the median income is RM4,258, representing an annual median income growth of 8.2 per cent. A household here is referred to 4.2 individuals.
There are those who claim that the rise in cost of living outstrips wage increases. This is a grossly uninformed opinion.
For the first seven months of 2014, the Consumer Price Index, which monitors the price of perishable and non-perishable goods, averaged 3.3 per cent per annum. This means that the rate of growth in household income exceeded the increase in the price of goods.
Ultimately, this has resulted in Malaysians benefitting from an improvement in living standards, as evident from changing consumer choices and consumption behaviour patterns.
The Malaysian consumer now not only has a higher purchasing power, but also a greater power of choice.
A quick look at the price comparison website http://www.1pengguna.com/ verifies this.
Looking at the price of red grapes with seeds in the Lembah Pantai area, the price on Sept 22, 2014 for a kilogramme of these grapes was RM17.90 in the Village Grocer in Bangsar Village, RM12 at the Jalan Telawi Wet Market, RM9.99 at TMC and RM8.49 in Aeon Big in Bangsar South.
So even when it comes to buying grapes, Malaysians now have a plethora of choices of where they can buy it from and how much it will cost. We certainly didn’t have this same variety of choice a decade ago.
Undoubtedly, economic expansion via the GDP is an accurate measure of the nation’s economic growth underpinned by pro-growth policies that takes into account the welfare of the people.
For sceptics to say otherwise is irresponsible and smacks of attempts to nullify the economic success achieved thus far by Malaysia despite the immense challenges it faces brought on by challenges in regional and global economies. – BERNAMA

Market value, business value, Short-term & Long-term Market Returns and the effects of GDP Growth

Long-term stock market growth (by most measures of return, 10-11% annually) can be explained by adding together the following:

• GDP growth of 3 to 5%
• Productivity growth of 1 to 2%
• Long-term inflation in the 3 to 6% range

In the short-term, depending on the value of alternative investments, such as bonds, real estate, and so on, market value may actually rise faster or slower than business value. And inflation also tampers with market valuations.

So can markets grow at 20% per year? 

Not for long. It isn't impossible for the markets to rise 20% in a given year or two, but such growth year after year is hard to fathom if the economy at large is growing at only 3 to 5% annually. 

But for a particular stock? 

Sure, it's possible. If the company is building a new busines or is taking market share from existing businesses, 20% growth can be quite realistic.

But forever? 

Doubtful. Some call this "reversion to the mean" - sooner or later, gravitational forces will take hold and a company will cease to grow at above-average rates. As an investor, you must realistically appraise when this will happen. 


GDP

You can and should expect, in aggregate, that the total value of all businesses would rise roughly in line with the increase in the size of the economy, as represented by gross domestic product (GDP). This is true.

Business value grows further through increases in productivity.

The value of market traded businesses could rise still more if the businesses grew their share of the total economy - as Borders Group and Barnes and Noble have grown their share of the total book selling business in the previous decade.



Main point:  
Business value and market value of a company grow further through increases in productivity (better profit margins) and through growing its market share (higher revenues).

GDP Growth and Market Return

Economic Growth: Great for Everyone but Investors?

While it may be intuitive to presume strong economic growth translates into strong stock market performance, the evidence suggests otherwise.

By Alex Bryan | 12-19-12

By 2050 the world's population is projected to reach 9 billion, up from 7 billion today. Nearly all of that growth will come from emerging markets, where living standards are rapidly improving. Although these markets have experienced large capital inflows, they still have a long way to go to match developed countries' levels of capital and wages. Consequently, emerging markets will likely continue to grow faster than developed markets for the foreseeable future. While this growth may lift hundreds of millions out of poverty and spur investment and innovation, evidence suggests investors may be left behind.

About the Author

Alex Bryan is a fund analyst with Morningstar.

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Jay Ritter, a professor at the University of Florida, documented a negative relationship between economic growth and stock market returns in his seminal research paper, "Economic Growth and Equity Returns," published in 2005. Ritter's findings are no fluke. Using real gross domestic product data from the Penn World Tables and stock market returns, as proxied by the total return version of each market's MSCI country index, I found a weak negative correlation between GDP growth and stock market returns for 41 countries from 1988 to 2010. This relationship is plotted in the chart below. However, excluding China (the outlier at the bottom right of the chart) brings the correlation close to zero.

While the strength of these relationships is sensitive to the start and end dates of the sample period, the general findings are fairly robust over long time horizons. It's clear that higher economic growth does not necessarily translate into superior stock market returns over the long run.

Reasonable Assumptions?

This result should not be surprising given the strong assumptions that would be required to make the jump from GDP growth to stock market returns. In order for this relationship to hold, corporate profits as a share of GDP and valuation ratios would need to remain stable over time. Second, current shareholders' ownership stake of total corporate profits would also need to remain constant. In other words, there should be no dilution from new share issuance, private and public companies would need to grow at the same rate, and there could be no new enterprises or initial public offerings. All existing publicly listed companies would also need to generate substantially all of their revenue and profits from the domestic economy.

The Link Between Economic Growth and Profitability

In a closed economy, it would be reasonable to expect that total corporate profits would grow at a similar rate as the economy in the long run. Although the share of corporate profits relative to GDP fluctuates over time, it tends to revert to the mean. Profits cannot persistently grow faster than the economy because they would crowd out all other economic activity and attract new competitors. Similarly, total corporate profits should not grow slower than the economy in the long run, as firms exit unprofitable businesses, allowing those remaining to preserve margins. Of course, it is inappropriate to assume that any country United States investors have access to is closed. The largest companies listed in most countries tend to be multinational firms that generate a large portion of revenue and income outside their host country. For instance, the constituents of the S&P 500 generate close to 40% of their profits outside the U.S. This international exposure means that profits can grow at a different rate than the domestic economy, even in the long run.

Even if aggregate corporate profits grow in sync with GDP, dilution can prevent shareholders from enjoying the benefits of growth. Creative destruction is essential to economic growth. In aggregate all companies that are publicly listed today will grow slower than the economy because new entrants drive much of that growth. Between the time these new companies are launched and publicly listed, their growth dilutes most investors' ownership interest in the economy. Flagrant dilution of corporate earnings through employee stock grants and seasoned offerings is also a very real risk, particularly in developing countries with a tradition of poor corporate governance. Additionally, earnings growth can only create value if it allows firms to generate returns that exceed their cost of capital. High reinvestment rates may enhance both corporate and domestic economic growth but destroy shareholders' wealth through inefficient capital allocation.

Is Growth Already Priced In?

Growth expectations influence stock market valuations. Valuations are rich when investors expect strong growth. However, as developing economies mature, their growth rates slow and valuations tend to decline. Consequently, even when countries realize their expected growth rates, their stock markets may not keep pace.

The impact of lofty growth expectations on valuations can create a treadmill effect, whereby fast-growing economies must realize high growth in order to generate a competitive rate of return. For example, in the mid-1980s the so-called Asian tigers had experienced two decades of rapid growth and investors had high expectations for future growth. In contrast, several countries in Latin America were facing severe inflation, a debt crisis, and low expectations for future growth. As a result, according to research published by Peter Blair Henry and Prakash Kannan in "Growth and Returns in Emerging Markets," in 1986 Latin American stock markets were trading at 3.5 times earnings, while the Asian markets were trading at 18.3 times earnings. Over the next two decades, Latin American stock markets posted more than twice the annualized returns as the Asian markets, despite experiencing lower GDP growth over that horizon. This was because Latin American countries implemented economic reforms that allowed them to exceed investors' low expectations. Conversely, the Asian markets performed in line with investors' high expectations, which were already priced in.

What's an Investor to Do?

In order to benefit from economic growth, investors must identify markets that have the potential to exceed expectations. Russia may fit the bill. The Russian equity market, as proxied by  Market Vectors Russia ETF (RSX), is trading at a paltry 5.6 times forward earnings, making it the cheapest of any major emerging market. Corruption and a taxing regulatory environment have stunted the country's growth and depressed valuations. However, if (and this is a big if) Russia adopts structural reforms similar to those undertaken in Latin America over the past two decades, it could offer investors rich rewards--albeit with high risk.

Even if fast-growing emerging markets do not offer superior risk-adjusted stock market returns, they can provide significant diversification benefits. Over the past 20 years, the MSCI Emerging Markets Index and S&P 500 were only 0.73 correlated. Emerging-markets equities may also offer a long-term hedge against a weakening U.S. dollar.

http://news.morningstar.com/articlenet/article.aspx?id=578607

The Estimated Ratio of the world GDP of 6 Major Developed Countries and BRICs

IMF Upgrades Malaysia’s Growth Forecast

The International Monetary Fund (IMF) has raised its growth projection for Malaysia this year to 6.7% from 4.7% before, and also expects the growth to be 5.3% in 2011, beating Malaysia’s own official forecasts. Malaysia posted a vibrant 10.1% growth in the first quarter from January to March, and the economic activity has been sustained by continued buoyancy in exports and strong private domestic demand. On its outlook for the second half of 2010, IMF said that a stall in the European recovery that spills over to global growth would affect Asia through both trade and financial channels. However, in the event of external demand shocks, the large domestic demand bases in some of the Asian economies that contribute substantially to the region’s growth, such as China, Indonesia and India, could provide a cushion to growth.

Malaysia Daily Bulletin – 12/07/10

The impact of demographic trends on investment opportunities: Malaysia forecast to be ‘young and poor’ by 2030

Malaysia forecast to be ‘young and poor’ by 2030

By Lee Wei Lian

June 29, 2010

KUALA LUMPUR, June 29 — Malaysia’s relatively high population growth rate will see the country remain comparatively young over the nexttwo decades but economic growth is not expected to keep pace with population expansion, according to a report by Bank of America Merril Lynch.

Most developed countries experience lower population growth than developing countries and thus become older as they grow richer but China and Thailand however, are forecast to grow old before they can become rich with more than 15 per cent of the population aged above 65 years in the next 15-20 years.

The forecasts are part of an analysis by Bank of America Merrill Lynch on the impact of demographic trends on investment opportunities.

It also found that the population in Hong Kong, Korea, Singapore, Taiwan and Australia are growing old fast but they are expected to remain among the wealthiest in the world.

By 2015, Malaysia is forecast to have an elderly dependency ratio (EDR) — population aged above 64 divided by population aged between 15 and 64 — of 10 with a GDP per capita calculated on purchasing power parity (PPP) basis of US$20,000 (RM64,950). Current young and rich countries such as Australia, Singapore and the US have EDR’s of between 15 and 25 with a GDP per capita of between US$50,000 to US$70,000.

By 2030, Malaysia’s EDR is expected to be about 15 with a GDP per capita of about US$50,000 while Australia, Singapore and the US are expected to have an EDR of between 30 and 40 and per capita GDPs of US$110,000 and US$160,000.

The report also suggested however that based solely on the ratio of prime savers — defined as population aged between 40 and 64 — to the rest of the population, the stock markets of China, India, Indonesia, Malaysia and Philippines are expected to outperform those of Australia, Hong Kong, Korea, Singapore, Taiwan and Thailand in the next 20 years.

It added that in advanced economies such as the US and the UK, the stock market “can rationally factor in the demographic trend, usually a few years ahead”. It said that there is a risk of that relationship becoming “self-fulfilling” leading to decades of bear markets in those countries.

“The stock markets and financial assets are arguably most influenced by the mid-aged people,” said the report. “Hence, it is not surprising that the correlation between Mid-Young ratio and the aggregate value of stocks traded is quite high for most Asian countries.”

The report said that there were investment opportunities in the education sector in China, India and the Philippines unlike Australia and Korea which have the most highly education labour force.

It also said that Australia and Thailand have room for development in the private healthcare sector and that India, Philippines and Singapore lag in terms of public spending on healthcare.

http://www.themalaysianinsider.com/malaysia/article/malaysia-forecast-to-be-young-and-poor-by-2030