Moody's Issues Annual Sovereign Report On Malaysia

PRESS RELEASE: Moody's Issues Annual Sovereign Report On Malaysia

Thu Jun 17 02:10:08 2010 EDT

The following is a press release from Moody's Investors Service:

Singapore, June 17, 2010 -- Moody's Investors Service says in its latest
annual sovereign report that Malaysia's A3 sovereign credit rating has
been underpinned through the global crisis by its strong external
position, deep and liquid domestic capital markets, and a well managed
financial system.

The sovereign credit outlook is stable, and is adequately supported by
favorable expectations for economic performance and policy management, as
well as the government's efforts to liberalize investment laws and foster
competition so as to improve the country's growth model.

"Malaysia's strong liquidity and deep capital markets have ensured the
'finance-ability' of large fiscal deficits and 'affordability' of the
higher level of government debt that was ratcheted up by policy responses
to the external shocks of 2008-09," says Aninda Mitra, a Moody's Vice
President and author of the report.

While Malaysia boasts a well-diversified and reasonably competitive and
externally oriented economy, stabilization of the government's debt level
in the medium term requires stronger economic and fiscal reforms than
seen in the recent past, notes the report.

Consequently, the government's recent articulation of medium-term policy
goals of enabling greater domestic competition, fostering a
knowledge-driven economy, and achieving a higher income status -- as
contained in the "New Economic Model" -- represent its strong intent to
re-invigorate and re-balance the drivers of economic growth.

According to the report, however, a demonstrable commitment to specific
medium-term strategies that may better underpin its relative sovereign
credit fundamentals remains pending. In particular, the rationalization
and better targeting of fuel subsidies and the implementation of goods
and services taxes are both important.

Moreover, the abilities to heighten local competition and generate
greater domestic private investment are crucial. Such measures could
lift trend growth prospects as well as reduce the relatively large role
of the public sector in capital formation, it says.

Against the backdrop of sound monetary management and sophisticated
capital markets, sustainable improvements in Malaysia's growth
fundamentals and the government's fiscal performance would provide upward
rating pressure. On the other hand, the inability to retrench Federal
Government finances could weaken its debt dynamics and undermine investor
confidence, and result in downward credit pressure.

Entitled, "Credit Analysis: Malaysia", the report can be accessed at
www.moodys.com.

The principal methodology that Moody's uses in rating the Government of
Malaysia is 'Moody's Sovereign Bond Ratings Methodology,' published in
September 2008 and available on www.moodys.com in the Rating
Methodologies sub-directory under the Research

Singapore's GDP rockets 39% as Asian trade soars

Singapore's GDP rockets 39% as Asian trade soars
May 20, 2010 - 12:26PM

Singapore's economy expanded at a faster pace than initially estimated last quarter as rising global demand boosted manufacturing and the opening of the island's first casino spurred tourism.

Gross domestic product grew an annualised 38.6 per cent from the previous three months in the first quarter, compared with an April estimate of 32.1 per cent, the trade ministry said in a statement today. That was more than the 33.4 per cent increase economists were expecting.

From a year ago, the economy expanded by 15.5 per cent, the highest quarterly growth on record. Singapore's economy shrank by 1.3 per cent last year, revised data shows after a previously reported contraction of 2 per cent.

Officials said the strong rebound from its worst-ever recession last year will be helped by a broad-based recovery in the United States and buoyant growth in large Asian economies such as China.

"The data from Singapore and around the region underscore that so far, the rebound in exports and production has been much better than what people have been expecting," said David Cohen of Action Economics.

Mr Cohen predicts the economy could grow up to 10 per cent this year, above the government's forecast of 7-9 per cent and notwithstanding the risks from the debt troubles in Europe.

Bubble risks

However, the government warned of risks from asset price bubbles in Asia and the fallout from Europe's debt crisis.

If asset prices correct too sharply in China, it could have "negative spillover'' effects on regional economies, Ravi Menon, permanent secretary at the trade ministry, told reporters in Singapore today.

"Should investor sentiments wane or if more monetary tightening measures are introduced, sharp asset price corrections could follow,'' the ministry said. "If these risks materialise, they could affect the global recovery and negatively impact Singapore.''

Singapore private home prices rose 5.6 per cent in the first quarter from the last three months of 2009 despite government policies such as higher down payment requirements for mortgages.

Ong Chong Tee, deputy managing director at the Monetary Authority of Singapore, the city-state's central bank, indicated the government will use administrative rather than broad measures to curb runaway property prices.

"It is much better not to use monetary policy, which is a blunt instrument, but to use much more targeted, preventive, administrative or even fiscal measures to address this," he said.

Japan, Malaysia

Growth is also accelerating in other parts of Asia. Japan said today its economy expanded at the fastest pace in three quarters in the period ended March 31 as an export-led recovery spreads to consumer and business spending. Neighboring Malaysia last week reported a first-quarter expansion that was the quickest in a decade.

Singapore's non-oil domestic exports will probably gain between 15 per cent and 17 per cent in 2010, from a previous projection of as much as 12 per cent, the trade promotion agency said today.

Singapore's government expects the economy to grow as much as 9 per cent this year.

The Monetary Authority of Singapore, which uses the currency instead of interest rates to conduct monetary policy, said April 14 it will "re-centre the exchange rate policy band at the prevailing level'' of the Singapore dollar, shifting to a stronger range for the currency to trade in. The central bank guides the Singapore dollar against a basket of currencies within an undisclosed band.

The Singapore dollar, which rose as much as 1.2 per cent on the day the new currency stance was announced, has since weakened amid the European debt crisis. It traded at $US1.3977 against its US counterpart in early trade, falling 2.1 per cent this month.

Manufacturing and tourism

Manufacturing, which accounts for about a quarter of Singapore's economy, climbed 32.9 per cent from a year earlier last quarter, after gaining 2.2 per cent in the three months through December. That compares with the April estimate of 30 per cent.

Singapore's visitor arrivals are surging as resorts run by Las Vegas Sands Corp. and Genting Singapore Plc attract tourists to their roulette tables, shops and hotels. The Singapore Tourism Board expects to lure as many as 12.5 million visitors this year.

The island's services industry grew 10.9 per cent last quarter from a year earlier, after climbing a revised 3.7 per cent in the previous three months. The construction industry gained 13.7 per cent, compared with a revised 11.5 per cent increase in the fourth quarter.

Bloomberg News, Reuters

Getting private investment flowing again

Thursday April 15, 2010

Getting private investment flowing again

Making a Point - By Jagdev Singh Sidhu

ENGINEERING a structural change in any economy is difficult but is asking the private sector that has lost its desire to drive economic growth to reprise its previous role any easier?

No, if one considers the alarming drop in private investment to around 10% of gross domestic product (GDP) compared with over 30% prior to the Asian financial crisis.

There are many reasons why private investment in Malaysia has dried up. Inhibitive policies, favouritism towards government-linked companies or even better prospects in neighbouring countries are cited among the causes for the private sector taking its foot off the accelerator.

While these may be true, maybe the fault also lies in just how high the dividend rates in Malaysia are.

With the initial public offering gravy train now a dust bowl for the country’s large funds, it’s not inconceivable that such funds, namely Permodalan Nasional Bhd and the Employees Provident Fund, have now resorted to asking the large companies they own stakes in to declare a hefty percentage of their net profit as dividends.

Prior to the crisis, the concept of dividend policy was virtually unheard of. Companies routinely spoke of how large and grand their investment plans were.

In the past, such profit would have gone into re-investment, pursuing new business areas but with large chunks of profit now being channelled into the pockets of shareholders instead of being spent on new factories, products or research, it’s no wonder that private investment numbers have dropped.

Today, talk is on how much of such companies’ net profit is being distributed to shareholders.

There is no reason why companies in Malaysia should be more conservative in investing compared with their regional counterparts.

If there are problems causing this, then policy needs to be changed to accommodate private businesses seeking to invest their profit in the country.

That’s why when the Prime Minister announced that Khazanah Nasional Bhd was to divest of its 32% stake in Pos Malaysia Bhd, an immediate reaction was that such a move would get private investment flowing again.

By allowing the private sector to take control of and drive a company that has an extensive distribution channel and is an essential provider of mail services, the new owners would now be tasked to drive innovation and grow the business.

More of such stake divestments need to happen. If government-owned companies have shown lethargy in investing and growing their business, maybe it’s time that control of those businesses fall in the hands of the private sector. The one caveat is that the change of ownership must be accompanied with a fresh impetus towards investment and growth.

The other thing that needs to happen is allowing more competition in the economy.

As we have seen with the cellular phone segment, competition breeds innovation, growth and profit. If other areas where monopolies are entrenched and have proved to be an impediment, the onus is on the Government to free up competition in these sectors.

Deputy news editor Jagdev Singh Sidhu wonders what would be worth watching after the season finale of the addictive series Spartacus: Blood and Sand this weekend.

http://biz.thestar.com.my/news/story.asp?file=/2010/4/15/business/6057524&sec=business

PM's Hong Kong visit eye-opener for investors

CREDIT Suisse group is forecasting a more bullish outlook for Malaysia with a gross domestic product of 6 per cent this year compared with Bank Negara Malaysia's (BNM) estimate of 5.5 per cent.

It also expects more senior investors to come to Malaysia for in-depth research on local listed companies following Prime Minister Datuk Seri Najib Razak's address at the Asian Investment Conference in Hong Kong last week.

"They now better appreciate that he is a prime minister who means business, but also respects the fact that he faces a herculean task in reforming Malaysia," said Stephen Hagger, country manager & head of equities for Credit Suisse in Malaysia.

He said that a key takeaway was that the prime minister understood what the market wanted, but has to balance that with socio-political considerations and getting elected.

"PM Najib's visit to Hong Kong served as a timely reminder to many investors not to forget about Malaysia," he said in response to questions sent via e-mail.

Credit Suisse is the number one institutional investor research company globally.

In Hong Kong, Hagger said he met several senior investors keen to come to Malaysia to "kick the tyres" or go the extra mile in doing company research after hearing the prime minister and realising that Malaysia was becoming "under-researched".

Najib last week met top-notch fund managers besides delivering a keynote address on Malaysia's attributes as an investment destination for equity and capital market investments and its ground-breaking economic reforms.

He also met Credit Suisse special adviser, Sir John Major, who moderated the luncheon address where Najib discussed Malaysia's economic transformation efforts to emerge as a high-income economy by 2020 and the soon-to-be unveiled new economic model.

Hagger said those who met the prime minister were surprised on the upside, particularly with regard to his openness and frank answers to questions.

Asked about concerns about investing in Malaysia, he said there were only a few well-capitalised stocks on Bursa Malaysia, while fund managers needed large and liquid stocks, so that they could buy or sell a position in one day.

"Malaysia has few such stocks and is competing for capital and 'air time' with the larger more liquid North Asian markets," he said.

Fund managers are also looking for well-managed companies, he said. 

However, he said the government has achieved considerable success with the government-linked companies' reform programme in scaling down equity in listed entities, particularly at Khazanah Nasional Bhd, the government's investment arm.

This has been followed up by the beginnings of a "selldown" by Khazanah, which should improve the liquidity of those stocks.

He cited how there was clearly a potential conflict of interest in the government owning controlling stakes in both Malaysia Airlines and Malaysia Airports Holdings, when there was no regulator to ensure "fair play" with other airline operators.

Hagger said Malaysia was struggling to stay relevant as an investment destination for global fund managers primarily due to size and liquidity, but also of course, valuation.

"We notice that the foreign ownership of the Malaysian market has fallen significantly and the number of visits by foreign fund managers has dwindled."

He said the annual Credit Suisse Asian Investment Conference was a great forum for companies, governments and investors to meet, whereby there were about 270 companies from around Asia, including 16 companies from Malaysia, meeting some 2,000 fund managers from around the world, including several from Malaysia.

In addition, working with CIMB, "we are proud to have "showcased" the prime minister and several Malaysian companies in New York last year."

"We have also assisted the three regulators - Securities Commission, Bursa Malaysia and BNM - to meet fund managers overseas.

"Unfortunately, some company chief executive officers take investor relations more seriously than others," said Hagger.

Hagger said Malaysia's problems looked very easy to fix "when you are sitting behind a desk in Boston".

The reform of the "30 per cent Bumi listing rule" would have been perceived as a "no brainer" by many foreign fund managers, who probably failed to appreciate that it was an incredibly brave step by the prime minister, he said.

"I believe that is why Prime Minister Najib took such pains to explain that ... he understands what the market wants, but he has to balance that with getting his party re-elected," he said. - Bernama


http://www.btimes.com.my/Current_News/BTIMES/articles/cres28/Article/

Money at the heart of govt: REFLECTING ON THE LAW

Wednesday March 10, 2010

Money at the heart of govt

REFLECTING ON THE LAW
By SHAD SALEEM FARUQI

The fiscal gap, the difference between the states’ domestic revenue and their expenditure, ranges between 15% and 75% of their total expenditure.

KELANTAN has a long-standing and popularly backed claim for royalty for petroleum extracted off its shores. Some years ago, the then PAS government in Terengganu had made a similar demand.
These persistent assertions highlight the broader question whether the financial resources of the nation are divided equitably between the federal and state governments.

To begin with, let us agree with Prof R.H. Hickling (who drafted the ISA) that “money represents power, and is at the heart of government”. An equitable distribution of financial resources between the federation and the states is the ultimate test of a true federation.

Under the Malaysian Constitution, there is a clear demarcation of financial powers between central and regional governments, though the balance is tilted heavily in favour of the former.

Federal revenues: In Schedules 9 and 10, most of the lucrative sources of revenue like income tax, customs and excise duties on imports and exports, sales tax, licence fees for motor vehicles, and incomes from banking, foreign exchange, capital issues, insurance, passports, visas, newspapers, radio, TV, tourism, foreign pilgrimages, maritime and estuarine fishing, shipping on the high seas, trade, commerce, industry, patents and designs are allocated to the federal exchequer.

Except for state power over licence fees, the development of mineral resources; mines, mining, minerals and mineral ores; oils and oilfields; import and export of minerals and mineral ores; and all petroleum products are within federal jurisdiction.

All foreign and extra-territorial jurisdiction (presumably including offshore prospecting for oil, gas or minerals) is in federal hands. Regrettably, the situation is clouded by clearly illegal contracts between Petronas and all state governments about payment for onshore as well as offshore oil.

Federal expenditure: With such lucrative sources of income to the federation, come the most onerous items of expenditure. Thus, foreign relations, diplomatic and consular representation, international organisations, national defence, internal security, the armed forces, the police, prisons and intelligence services are federal responsibilities.

Criminal and civil courts, elections, education, medicine, health, fire services, federal pensions and gratuities, medicine, health, social security, currency, audit, roads, bridges, ferries, railways, ports and harbours, posts, telegraph, communication, transport, airways and safety in mines and oilfields are entirely a federal burden.

State revenues: Even though there is a heavy preponderance of financial power in the hands of the Federal Government, the Constitution guarantees certain sources of internal and external revenue to the states.
Article 110 and the Tenth Schedule allocate to the states 14 domestic sources of income. The most lucrative are taxes derived from natural resources like land, mines and forests, fees from toddy shops, entertainment places and water supplies, rents on state property, fines and forfeiture in state courts, zakat, fitrah, Baitulmal and other Islamic religious revenue.

Under Article 110(3), each state receives 10% or more of the export duty on tin produced in the state. Likewise, Parliament may provide that each state shall receive, on such terms and conditions as may be laid down, a proportion of the export duty on mineral ores, metal and “mineral oils” (which term includes petroleum) produced within the territorial boundaries of each state.

Under Paragraph 2(c) of the Ninth Schedule, permits and licences for prospecting for mines and mining leases are exclusively within the competence of the states.

In addition to the above domestic sources of revenue, Articles 109 and 110 guarantee some money reimbursements to the states in the following forms:

Capitation Grants: Under Article 109, this is an annual mandatory payment by the Federal Government to each state based on the state’s population.

State Road Grants: Under the Tenth Schedule, the Federation is required to pay to each state a compulsory road grant to cover the average cost of maintaining state roads.

State Reserve Fund: Under Article 109(6), each year, the Federal Government, after consultation with the National Finance Council, deposits into the above fund, certain amounts to be allocated to the states for purposes of development.

Conditional grants: Under Article 109(3) the Federal Government allocates further conditional grants to supplement the states’ own domestic revenue. These grants are discretionary and are as much influenced by fiscal policies as by political considerations.

Kelantan under PAS from 1959 to 1974 and 1982 to now; Terengganu under PAS from 1959 to 1964 and 1998 to 2003; Penang under Gerakan from 1969 to 1974 and under DAP from 2008 to the present; and Sabah under PBS experienced such financial frustrations.

Loans: Under Articles 111 (2) & (3), a state is not allowed to raise or borrow money except from the Federation or a federally approved bank. In Government of Malaysia v Government of Kelantan (1968), the Pan-Malayan Islamic Party, after its victory in the 1959 state elections in Kelantan, sought to fulfil an election pledge to build a bridge over the Kelantan river but it was financially in no position to do so.

In the face of federal objections, it negotiated a clever financial arrangement with a private company which advanced RM2.5mil to it in return for mining and forest concessions. The Federal Government went to court to challenge the deal as an illegal loan. The Federal Court decided in favour of Kelantan.

The Federal Government then retaliated by pushing through a constitutional amendment so that pre-payment of royalties would now constitute lending.

In sum, it can be stated that in the financial field, the central government’s preponderance of power is very evident. The Constitution has been so devised that almost all the important direct and indirect taxes belong to the Centre.

The states are entitled to the proceeds from some taxes, fees and other sources of revenue, but these are insufficient to solve the chronic shortage of funds experienced by some states.

The fiscal gap, the difference between the states’ domestic revenue and their expenditure, ranges between 15% and 75% of their total expenditure. This imbalance has two aspects: vertical imbalances between the centre and the states, and horizontal imbalances between the states inter se.

It must be noted, however, that federal predominance in respect of functions and resources is less pronounced vis-à-vis the East Malaysian states of Sabah and Sarawak, which control a number of additional sources of income along with additional functions under Articles 112B, 112C, 112D.

Datuk Dr Shad Saleem Faruqi is Emeritus Professor at UiTM and Visiting Professor at USM 

http://thestar.com.my/columnists/story.asp?col=reflectingonthelaw&file=/2010/3/10/columnists/reflectingonthelaw/5827905&sec=Reflecting%20On%20The%20Law

Malaysia Increases Interest Rate as Recession Ends

Malaysia Increases Interest Rate as Recession Ends
March 04, 2010, 6:33 AM EST


By Shamim Adam

March 4 (Bloomberg) -- Malaysia’s central bank raised its benchmark interest rate for the first time in almost four years, saying record-low borrowing costs were no longer warranted as the economy emerges from recession and inflation accelerates.

The ringgit rose as economists predicted central bank Governor Zeti Akhtar Aziz will continue to raise rates. Asia is leading the global recovery from the worst recession since World War II and Australia, China, India and Vietnam have tightened monetary policy to fight inflation and avert asset bubbles.

“We should expect a few more upward adjustments,” Suhaimi Ilias, chief economist at Maybank Investment Bank Bhd. in Kuala Lumpur, said after the decision. “The central bank has the luxury of time to raise rates gradually. Other central banks will look at domestic conditions before making their moves.”

Indonesia’s central bank left its reference rate at a record-low 6.5 percent today. Australia this week raised its benchmark for the fourth time in five meetings, by 0.25 percentage point to 4 percent.

“The overnight policy rate was reduced to historic lows in early 2009 as a key measure to avert a severe and fundamental economic downturn,” the central bank said in a statement today. “These conditions no longer prevail. The domestic economy has since improved significantly and is now on a path of recovery.”

Ringgit Rises

Malaysia’s ringgit rose to 3.3585 a dollar after the rate decision, the strongest level in six weeks. The currency has gained 1.5 percent this year, making it the best performer after the Thai baht in Asia outside Japan.

“The Monetary Policy Committee decided to adjust the overnight policy rate towards normalizing monetary conditions and preventing the risk of financial imbalances that could undermine the economic recovery process,” the central bank said. “The stance of monetary policy continues to remain accommodative and supportive of economic growth.”

Asian policy makers risk creating asset bubbles and fueling inflation by keeping interest rates “too low for too long” in their attempts to boost domestic demand, Standard & Poor’s said in a report yesterday.

Malaysia’s Zeti has said in the past month that any increase in rates should be viewed as a “normalization” and not a “tightening.”

Exports Climb

Southeast Asia’s third-largest economy emerged from its first recession in a decade last quarter, and Prime Minister Najib Razak has said he expects this year’s expansion to beat the official growth forecast of as much as 3 percent.

Malaysia’s exports may climb this year at twice the 3.5 percent pace predicted earlier as the global recovery revives overseas sales of Sime Darby Bhd.’s palm oil and Intel Corp.’s computer chips, International Trade and Industry Minister Mustapa Mohamed said this week.

Before today, the benchmark rate was at its lowest level since it was introduced in April 2004, and had been unchanged since February last year. Malaysia’s borrowing costs are among the lowest in Asia, below the Philippines’ 4 percent benchmark.

The benchmark FTSE Bursa Malaysia KLCI Index fell 0.2 percent at the close today.

Attract Capital

“A rate increase may be good to attract some capital inflows,” Geoffrey Ng, who manages $1.2 billion of assets as chief executive officer at HLG Asset Management Sdn. in Kuala Lumpur, said before the decision. “The foreign-exchange reserves have been rather flattish in recent months and the country has been facing quite a bit of capital outflows. On the flipside, the risk is that the equity market will take it in a wrong way.”

Malaysia’s consumer prices rose for a second month in January, climbing 1.3 percent from a year earlier.

Inflation may accelerate later this year as the government studies a revamp of its fuel subsidy. Malaysia aims to come up with a new fuel-subsidy system before presenting the nation’s annual budget in October, Domestic Trade and Consumer Affairs Minister Ismail Sabri Yaakob said today.

Prices will increase “gradually” this year and inflation should remain “moderate,” the central bank said. It’s forecast for inflation takes into account possible adjustments in “administered prices” and rising global commodity and food prices, it said.

Bank Negara policy makers next meet to review interest rates on May 13. The central bank kept the statutory reserve requirement unchanged today. The measure determines the amount of money lenders need to set aside as reserves.

--With assistance from Michael Munoz in Hong Kong and David Yong in Singapore. Editors: Stephanie Phang, Lily Nonomiya

http://www.businessweek.com/news/2010-03-04/malaysia-increases-interest-rate-as-recession-ends-update1-.html

Saturday February 20, 2010

Malaysia must catch up to gain high-income status

WITH 2020 only a decade away, Malaysia has a lot of catching up to do if it is to become a high-income economy.
This was the message conveyed by several prominent speakers at the recent 1Malaysia Economic Conference in Kuala Lumpur.
Malaysia’s new economic model, which will be the backbone of the 10th and 11th Malaysia Plans, is expected to accelerate the country’s progress into the next decade to ensure the success of Vision 2020.
According to the World Bank, a high-income economy is one with a gross national income per capita of US$12,000 and above.
Datuk Noriyah Ahmad, director-general of the Economic Planning Unit in the Prime Minister’s Department, said Malaysia recorded relatively slower economic growth from 2000 to 2008 compared with the 1990–1997 period.

“The country’s gross domestic product growth from 2000 to 2008 averaged around 5.5% compared with 9.1% from 1990 to 1997.

“Malaysia has not caught up with the high-income economies and if the trend continues, we may be overtaken by other rapidly developing economies,” she said.
In addition, the country’s private investments also need to be revitalised as savings exceed investment by a significant amount largely due to a collapse in private investment.

“Our workforce today is also relatively unskilled with 80% educated up to Sijil Pelajaran Malaysia level or its equivalent, and only 25% of Malaysian jobs are in the higher skill category,” she said.

Noriyah said Malaysia still had a long journey ahead as its gross national product (GNP) per capita stood at US$6,686 in 2007 and was projected to hit US$15,340 in 2020, only marginally above the minimum GNP benchmark of US$14,818 for high-income countries.
Going forward, she said the Government has taken new steps in development planning, with the introduction of a two-year rolling plan under the 10th Malaysia Plan (10MP).
“Other measures in the 10MP will come from the private sector which is expected to be the engine of growth.

“We have come a long way from being an agro-based to a service and manufacturing-oriented economy. But this model is already outdated, hence the new approach under the 10MP,” she said.

On a short-term perspective, Universiti Sains Malaysia pro-chancellor Tan Sri Dr Lin See-Yan said there were several areas that needed to be addressed.
“Wide-ranging private business initiatives are needed to lead sustainable recovery and not direct consumption. Unlike China, our consumers favour spending once permanent income is forthcoming. Business confidence must be nurtured where stimulus is still needed until recovery is secured,” he said.

He said the Government’s role remained to facilitate the continuing flow of private investments, where priority is to bring about demand, a visionary transportation infrastructure and modern utilities to support new growth areas.

“There is a talent war out there. The global market for talent is highly competitive,” he said, adding that the new green agenda also needed urgent attention as well.
“Being green or environmentally friendly is not an option. We have to re-invent and expand green stimulus elements that include energy efficiency and renewables, mass transit, smart electricity grid, finance and reforestation,” he said.
From a private sector perspective, Association for Shopping Complex and High-Rise Management president Joyce Yap expects the new economic model to further promote the retail industry.
“The retail industry is the second largest contributor to tourism expenditure and supports 204,000 employees.
“Thus, it is important to continue developing Malaysia as a prominent shopping destination in this region; to be comparable with countries like Singapore and Hong Kong,” she said.
Yap recommended that the Government crafts consistent and long-term policies to encourage domestic spending and market Malaysia abroad.

 http://biz.thestar.com.my/news/story.asp?file=/2010/2/20/business/5662945&sec=business

Market strategy: Moving from recovery to expansion

The cyclical run in the market remains firmly intact throughout 1H2010 on three counts below:

• Market performance historically strongest when GDP accelerates
• Earnings-driven re-rating cycle never been shorter than 12 months from trough.
• Risk to earnings on upside, as economic growth accelerates.

Our economist expects GDP to expand by a robust 5.3% in 1Q10, and by 4.2% in 2Q10.  The macro growth momentum, however, is expected to decelerate, with GDP expanding by only 2.5% in 3Q10 and 2.1% in 4Q10 as the low base effect tapers off moving towards the second-half of the year.

The present rally is now coming to 10 months from lows seen in March 2009. 

Cyclicals are expected to deliver the strongest earnings rebound as end-demand and margin recovery kick in to accentuate the growth trajectory off a low base in 2009 where earnings were diluted by writeoffs and pre-emptive loss provisions.

Overweight stance maintained on the Glove sector, with buys on both Top Glove and Kossan

Despite meteoric share price appreciation for glove manufacturer stocks, valuation remains undemanding given robust earnings performance.  At current share prices, both Top Glove and Kossan are trading at PE of 11x and 10x FY10F earnings, well below its respective peaks of 30x and 18x.

Solid earnings growth as supplanted by

• capacity expansion, and
• positive newsflow

should lead to further expansion in PE multiples.

Key risks include

• a sudden surge in latex price,
• energy input costs or
• an unfavourable ringgit/US$ foregin exchange rate movement.

Benny Chew
AmResearch
Published in the Edge Jan 18, 2010

Malaysia's economy stagnant, needs reform

By Agence France-Presse, Updated: 12/1/2009

 

Malaysia's economy stagnant, needs reform: finance minister
Malaysia's economy has been stagnating for the past decade and is now trailing badly behind its neighbours, a senior minister said Tuesday, calling for "urgent" and wide-ranging reforms.

 

Malaysia's economy has been stagnating for the past decade and is now trailing badly behind its neighbours, a senior minister said Tuesday, calling for "urgent" and wide-ranging reforms.

 

Malaysia's export-dependent economy has been hit hard by the global recession, contracting by a forecast 3.0 percent this year and jeopardising its ambitions of becoming a developed nation by 2020.

 

"Malaysia is trapped in a low-value-added, low-wage and low-productivity structure," Second Finance Minister Ahmad Husni Hanadzlah told an economic outlook conference.

 

Among its peers China, India, Vietnam, Indonesia, Philippines and Thailand, Malaysia's economic growth over the past three years was second-lowest, he said.

 

"Our economy has been stagnating in the last decade. We have lost our competitive edge to remain as the leader of the pack in many sectors of the economy. Our private investment has been steadily in decline."

 

"While Singapore and Korea's nominal per capita GDP grew within the last three decades by 9 and 12 times respectively, ours grew only by a factor of four."

 

In a withering assessment, Ahmad Husni said

• the services sector is underdeveloped,
• private investment is half the levels before the 1997-98 Asian crisis, and
• the manufacturing sector is suffering from lack of investment.

 

"The (need for) transformation is particularly urgent when we take the external environment into account," he said.

 

"The global environment is changing. We can no longer rely on our traditional trading partners and we need to address the competitive pressure from other emerging markets on our existing exports."

 

He called for sweeping measures including an emphasis on meritocracy and ensuring all Malaysians are given "equal opportunity to participate in the economy".

 

Malaysia has for decades practiced a system of positive discrimination for Muslim Malays who dominate the population, but critics say the policy is fuelling corruption and is hurting the nation's competitiveness.

 

"We must also consider the gradual dismantling of our open-ended protection of specific sectors and industries which have introduced a climate of complacency and artificial levels of supply," the minister said.

 

"The long-term success of the nation's economy must take precedence over the short term interests of a few protected groups."

 

Prime Minister Najib Razak -- who is also finance minister -- came to power in April with plans to tackle graft which is endemic in the ruling party and society at large.

Premature fiscal exit would hurt Malaysia, says World Bank

Wednesday November 18 2009.Related Articles

Premature fiscal exit would hurt Malaysia, says World Bank
KUALA LUMPUR, Nov 18 — The World Bank warned today that Malaysia should not exit its fiscal pump priming as it could choke off the country's economic recovery.

However, the bank also cautioned that extending fiscal support for too long "may hamper the credibility of medium-term fiscal consolidation, reduce room for future stimulus, increase the risk of asset price bubbles and constrain the private sector once demand picks up," the World Bank said in a country report on Malaysia.

Malaysia is expected to rack up a budget deficit of 7.4 per cent of gross domestic product this year, its biggest in over 20 years, in part due to two fiscal stimulus packages worth a total of RM67 billion.

The extra spending was aimed at offsetting a slump in global demand that has hit Asia's third-most export dependent economy hard.

The government expects the Southeast Asian country's economy to shrink 3 per cent this year and to grow by 3 per cent next year, although the World Bank was more optimistic.

"With East Asia leading the recovery and advanced economies showing progressive improvement, the Malaysian economy is projected to grow at 4.1 per cent in 2010, following a contraction of 2.3 per cent in 2009," the World Bank said. — Reuters

Malaysian economy at the cross-road

The Malaysian Insider
Wednesday November 18 2009.

Malaysia has lost edge as low-cost producer, says World Bank

KUALA LUMPUR, Nov 18 — Malaysia risks missing its goal of becoming a high-income nation as it has lost its edge as a low-cost producer and lacks the investment to compete in more advanced industries, the World Bank warned today.

In its first country report on Malaysia, the Washington-based body also said that as a trade-dependent country, Malaysia should not unwind its RM67 billion in economic stimulus as that could choke off a nascent recovery.

“The economy seems to be caught in a middle-income trap - unable to remain competitive as a high-volume, low-cost producer, yet unable to move up the value chain and achieve rapid growth by breaking into fast growing markets for knowledge and innovation-based products and services,” it said.

Private investment in Malaysia, which famously spurned advice and cash from the International Monetary Fund in 1998, is below that of virtually every other Asian country and has fallen dramatically since the Asian financial crisis.

According to World Bank data, private investment in Malaysia fell to 12 per cent of gross domestic product in 2008 compared with 30 per cent prior to the Asian crisis.
 The government that has ruled this country for 52 years has announced a series of economic reforms aimed at winning back foreign investment that increasingly finds a home in neighbouring Thailand and Indonesia.

However, portfolio and direct investment flows have been negative since the second quarter of 2008 and there have been few signs that investment has picked up in response to the government measures.
 The World Bank noted that while Malaysia has a high proportion of high tech exports it served as a low-skilled assembler of imported parts “rather than a creator of technological and product innovations”.

One major limitation on moving up the economic value chain is Malaysia’s education system, which churns out tens of thousands of graduates who are ill-equipped for the kind of high-value work such as biotechnology that the government has identified as growth areas.
 Education in Malaysia has become mired in a deep political row as the government recently switched to Malay language instruction for math and science from English, a move critics said was designed to appease its ethnic Malay voter base.

While private investment has plummeted, the government’s spending has risen sharply. Malaysia expects to rack up its biggest budget deficit in 20 years at 7.4 per cent of gross domestic product this year.

The government expects the economy to shrink 3 per cent this year and to grow by 3 per cent next year, although the World Bank was more optimistic.

“With East Asia leading the recovery and advanced economies showing progressive improvement, the Malaysian economy is projected to grow at 4.1 per cent in 2010, following a contraction of 2.3 per cent in 2009,” it said.

The bank was, however, less optimistic on the government’s plans to slash the budget deficit in 2010 to 5.6 per cent of GDP, forecasting that it would be 6.4 per cent of GDP. - Reuters

Structural weakness could dampen M'sian long term growth

Friday September 25, 2009
Structural weakness could dampen M'sian long term growth
By LEONG HUNG YEE


PETALING JAYA: Malaysia is poised to be the largest beneficiary of higher commodity prices from positive terms-of-trade and commodity revenue supporting the public sector, according to Morgan Stanley Research.

“Beyond the cyclical uptick, we think structural weakness remains present which could put a dampener on longer-term growth prospects.

“However, we note that policymakers have been taking measures to liberalise the economy. Continued execution and acceleration will be needed to fully turn around the structural story, in our view,” it said in an Asean economics report.

The Malaysian market has generally fallen by the wayside amid structural issues in the economy. As a result, its asset market had ironically developed a defensive nature, outperforming during market downturns, and underperforming during market upturns, Morgan Stanley said.

“Despite this, from a macro perspective, we still expect Malaysia to deliver reasonable growth outlook in 2010,” it added.

Morgan Stanley’s 2009 and 2010 forecasts of contraction of 3.5% and a growth of 4.3% year-on-year respectively were below consensus’ contraction of 3% for 2009 but in line with the 4.3% growth for 2010.

“We see 2011 growth at 4.8% year-on-year. Interestingly, we note a dichotomy in terms of market sentiment. Whilst certain quarters of the market have been eager to get bullish on Singapore given the global rebound, we do not sense the same sentiment with Malaysia despite Malaysia being the second most exposed to global trade within Asean as well as a commodity play,” it said.

Morgan Stanley said the global backdrop and the political climate were two key risks for Malaysia.“Malaysia’s manufacturing exports are already under structural pressures, losing global competitiveness. Separately, the coordination within the federal government given the two-party system and the coordination between the federal and state governments would be key to watch in terms of how it would affect the workings of the public sector economy,” it said.

The research house said foreign interest in Malaysia had been waning. Net foreign direct investments (FDIs) in certain economies in the region (China, India, Singapore and Thailand) continued to climb higher, net FDI in Malaysia had generally trended down from the peak in the early 1990s, and was now dipping into negative territory.

On the upcoming Budget 2010, it expected it “to be less expansionary in terms of fiscal deficit.” “However, we still see Malaysia as likely to have one of the highest fiscal deficits within Asean for 2010.”

Commenting on policy measures, Morgan Stanley said Bank Negara was “relatively dovish.”

It said the absence of a strong credit cycle previously created more room for leverage.

“Policymakers also have the highest propensity for pump-priming within Asean.” Meanwhile, Credit Suisse Group said Bank Negara had become more confident the country was recovering from the global recession.

The central bank’s view was that the signs of an economic recovery seemed evident but it was only unsure on whether the economic rebound would be modest or sharp.

http://biz.thestar.com.my/news/story.asp?file=/2009/9/25/business/4778483&sec=business