by Liz Adinan
As a banker, dealer and a neutral market watcher. I would like to share some market insights with my frens on what is really happening in Msia, in economic terms..and know that it is a tad scary out there.During July, international rating agency Fitch revised its outlook on Malaysia from "stable" to "negative" pointing to their lack of confidence in:
1) the government's progress on budgetary reforms and fiscal consolidation. In laymen terms, they doubt Msia's ability to manage our debts and deficits.
This set the mood for the impending storm Msia is about to face.
Subsequently in August, we saw massive capital outflow by foreign investors from our govt bonds and local equities. We saw outflows as much as RM 11billion in the bonds mkt and RM 3-4billion in the stock market, hence causing our Ringgit to be so weak that it hit the lowest since 2010. The last time we saw this much of capital flight was in 2009 when the US subprime crisis hit.
But we are not bleeding alone. Our regional friends such as Phillipines, Indonesia and India have had massive capital flight in the past weeks, so bad that Indian rupee hit the weakest against USD in the history of India. "A record low" is what we call it. But why? because investors are generally worried over the growth prospects of Asian countries, Malaysia included. Thus they r putting their funds in safe havens such as gold and US treasuries (bonds). The impending war in Syria provided more uncertainties in the market causing losses across many trading instruments.
Bank Negara 2 weeks ago revised downwards its view on our country's GDP, from 5-6% to 4.5-5%. Telling us officially, we are not as peachy as we think.
One of the sentiments by market watchers on Msia is that we have increasing trade deficits and debts but our govt is not doing anything? At least before and during elections the govt was not doing much. But a consolidation measure is required with the state Malaysia is in. A fiscal reform is needed. But a fiscal reform is rarely popular during elections. Nobody wants to be called sick and forced to eat the bitter pills when you are at a party. So BN waited till the party is over.
And come 2nd September, the govt announced a cut in the petrol subsidy. Citing that such cuts could save them RM1.1billion this year and another RM3.3 billion in 2014. Which is a save of 0.3% of GDP. Over the next 5 years, this is expected to reduce our trade deficits. This my friends is called a fiscal measure. One of the many pills Msia need to swallow to stay healthy. It is not a political move but an economic requirement.
Last week on 29 Aug USD/MYR hit 3.3300 level. On 3rd September a day after fuel hike was announced, Ringgit strenghtened to 3.2600 a positive sign. Economic research houses today noted that the subsidy cut is a step to the right direction but still not enough to change their negative views on the Msian credit prospects. So more reforms are expected, more unpopular annoucments will be made, more anger on social media, bashing on how bad the govt is. When in economic perspective, the govt is seen as positively trying to heal the economic health of Malaysia.
I just had a chat with my husband last night. He trades both in local and US market and agreed on the dire situation of our local n global markets. As we drove our humble MyVi home, we know the first thing we should do is to stop ignoring the facts n accept the reality in front of us. And the reality is, we are in the brink of uncertainties and that a financial storm is brewing. We may be wrong, it may not hit, but it is certainly brewing. Save and survive my friends.
Alhamdulh As bankers we may enjoy healthy bonuses and income, which mainly provided the lifestyle and the purchasing power we have. But that has to change from a lifestyle provider to survival contingency. I have made changes such as limiting our fancy dinners on weekdays to alternate weekends and have subdued the shopping monster in me. It is not because i have an increase of expenditure cuz of the 20 cents hike and that i cant afford the fancy dinners or the designer bags or the overseas trips but because i am being rational about what is coming. And i ask you to read and learn the reality from unbiased n informed sources with the hope it may encourage you to improve your habits for the better.
It is a tough time to endure for some and i admire your strenght. Take that anger and focus on surviving and be financially aware. Save if possible.
After a good hearty meal, our sweet desserts are finishing..now its time to take the pill. Take care.