Malaysian Economy

[__earth]

Hullo. A nice little news from bloomberg (http://www.bloomberg.com/apps/news?pid=email_us&refer=top_world_news&sid=aAPlsHlDI0PE).

Malaysia's Foreign-Currency Rating Raised by Moody's (Update2)

Dec. 16 (Bloomberg) -- Malaysia's foreign-currency rating was raised to A3, the highest level since 1998, by Moody's Investors Service, which commended efforts by Prime Minister Abdullah Ahmad Badawi's government to reduce its deficit.

investor confidence is up and running again =)

let us welcome back the bull!

[chenchow]

Hopefully that this would in turn bring in a stream of good news.

Our manufacturing revenue goes up 23% in October 2004.

http://biz.thestar.com.my/news/story.asp?file=/2004/12/18/business/9693723&sec=business

Better rating from Moody would give Malaysian companies much better borrowing rate.

_earth or others who know better, perhaps could brief us more on this issue about the importance and benefits of the improvement of such rating.

[__earth]

Better rating means the chance of defaulting on the bonds is smaller. higher rating makes it easier for malaysian govt and firms to raise bonds - more foreign direct investment and project and stuff. also, msians dont have to offer a high interest rate in order to borrow money from outside.

all in all, basically, it encourages more money coming into msia.

If you get bad rate, people will be reluctant to invest in your country and the only want to attract people is to offer higher interest rate, which is always painful.

[coolstudy]

Comfortable house, fun holidays, nice car……….yes, but at what cost?

Are all of these worth the systematic dismantling of democratic institutions that is the foundation of every developed country in this world?

Many Malaysians equate monuments like the Twin Towers and the Sepang F1 track with developed nation status. But survey the truly develop nations in the world and you will find that each and everyone of them is built on a solid foundation of vibrant, and functioning institutions of democracy - vibrant legislative body, an independent court system, a free press and checked executive.

Measured against these benchmarks, it does not take much imagination to rank Malaysia two shades above a banana republic.

The running of the country is always a one man's show. It was like that for the past 22 years, and it looks like Pah Lak has inherited it all.

The whole government machinery is like an impotent old man when the mind says "yes" the body part can't move at all. Poor old man!

No doubt, his has utilized some of these powers to some economic good for the country, a portion of which you enjoy now, but again, at what cost to your fellow Malaysians, to your children and your children's children?

We have achieved some progress but at what price.

As Petronas accounts are state secrets we don't really know how much of our children's future have been squandered on dubious deals.

Malaysia now sits at No 39 of Transparency International's Corruption Perceptions Index compared to Singapore's No 5 spot. And the difference in the quality of living between the two countries is quite apparent.

The old man studied in English in his time and forgot about the story of "The king and his new clothes" until a small boy said he was naked.

[Schye]

Malaysia now sits at No 39 of Transparency International's Corruption Perceptions Index compared to Singapore's No 5 spot. And the difference in the quality of living between the two countries is quite apparent.

It cant be deny that that Malaysia needs to improve but I dont think its suitable to compare two countries with different economy background and in different size.

By the way, is there any site that we can refer to for countries bond or companies in Malaysia?

[__earth]

For countries, a few.

S&P is one. Moody is another.

For Malaysia, donno. Bank Negara maybe? But I dont see anything at BNM website.

[Randomphantom]

coolstudy u sure sound like an uncle, the way you say children and all :)

Investor confidence is getting better, but there wouldn't be another bull like that in 1996... with most players going for the big fish called China now.

I wonder, what does revising the peg have to do with the bond rating? Anyone care to elaborate..

[__earth]

Eh, I need to reread macro. I've forgotten almost half of those macro models.

I'm not sure if pegging/flexible exchange rate directly affects rating.

Bond rating usually, as far as I know, is related to interest rate (with risk premium added). Interest rate, among other things, measures the riskiness of investment. Most of all, these rating firms usually have their own econometrics models. Hard to say how they do their rating unless somebody came across their explanation of their model somewhere on the net.

However, in large open economies at least (which Msia is not), since interest rate affects capital outflow/inflow, it does in the end affect the real exchange rate. All these relationships to correspond to if and only if. Therefore, if it's pegging, capital outflow/inflow stays steady and interest doesn't change.

I'm not sure how the case for small open economy make into. Maybe el_empty knows more? el? pst, help here.

[el_empty]

For countries, a few.

S&P is one. Moody is another.

For Malaysia, donno. Bank Negara maybe? But I dont see anything at BNM website.

Yes I believe there's RAM or Ratings Agency of Malaysia. However, RAM has been plagued with credibility issues when it gave a pretty high rating for a company called CIBT, and this rating allowed the company to be issued a license to operate in Labuan despite a highly publicised scandal in Australia.

hey look, jeffooi wrote something about it.

As for Malaysia's economy, my speculation is that it's heading for another disaster/bubble. Malaysia has been thriving on an economy that relies on foreign investment since the 80s. In economics, the Solow Growth Model makes a compelling argument that young economies (like Malaysia) tend to grow very rapidly because of factors like untapped market and influx of foreign cash.

But in basic economic growth, we cannot rely on this factor accumulation for too long. Right now all we're doing is sit and wait for money to come in - but the reason why foreign investors are willing to pour money in is because they *believe* Malaysia will become more and more productive in future. So there needs to be techonological (or productivity) growth, which doesn't seem to be happening. For the last 20 years, we have been relying on the petroleum and manufacturing industries to drive our economy, but we've not really been making and researching our own products.

phew... what a long and nerdy post.

[el_empty]

Eh, I need to reread macro. I've forgotten almost half of those macro models.

...

I'm not sure how the case for small open economy make into. Maybe el_empty knows more? el? pst, help here.

haha i need to reread as well. i'm an old man now.... *cough*

now _earth is right in that rating agencies will have their own (very) complex formulae in calculating the scores. i'm not entirely sure if pegging (or the removal of the peg) would affect bond rating scores, but i bet you it would.

see, what happens in a peg is basically a country's central bank (Bank Negara) defending the currency's (RM) value. in an international currency exchange market, traders continue to buy and sell the ringgit, which in an unpegged world, would mean that the ringgit's value will change. the peg however essentially means that bank negara will proactively buy and sell ringgit to keep the value at it's designated value.

now revising the peg will have a few implications:

a) the nation's reserves will be spared from all this buying and selling. this is good because it bank negara now will have funds to insure the country against future losses. ie. it's great to invest in malaysia

b) the cost (exchange rates) of trading in malaysia will change, but to what extent nobody knows. but i this should not adversely affect our bond ratings since expected returns are high.

again i don't know if a new currency policy affects our ratings. but if it will, in some way, influence the economic climate in malaysia, i'm sure bond ratings will move to reflect this climate.

[Schye]

I dont think any company will share the weight of each elements that they use in their model... that is what they use to earn $$ right.

Upon the issue of reviving the peg, in the long term, there wont be much effects of the interest rate but the value of RM will be unstable for a period and this will effect the economy activities that need to deal with foreign currencies.

However, I thought the act of pegging RM was to stabalize the value but not to protect it. Could anyone please advice on this?

[Randomphantom]

If there's any problems with my explanation please do correct it...

The act of pegging the RM would be to stabilise it.

Protecting the RM is another matter, as any form of fixed exchange rate policy would still be exposed to currency attacks by speculators. That said, a strong currency would fare better than an overvalued one. Therefore, undervaluing the peg could be seen as a move to protect the RM. As in the case of China, they are reluctant to shift their peg which is significantly undervalued, as they want to enjoy the benefits of foreign capital inflows.

Real "protection" on the RM would be the tight control on capital flow during the asian financial crisis.

[__earth]

Pegging and capital control is one of the same thing.

The exchange rate in a open economy depends on capital movement. Restriction on capital inflow/outflow effectively controls the movement of the exchange rate, given everything else the same.

But enough of exchange rate. It's kind of clear that the govt won't do anything to the current policy until China changes their policy.

IMO, the biggest issue related to Msia macroeconomy ATM is the budget deficit.

[Thirdshifter]

Whats the total of Malaysia's Debt to date? US$ 5 trillion or something?

[__earth]

USD 5 trillion is a bit too much for Malaysia. We would have been bankrupt if that were the case.

I think it's around USD 130 billion.

[DecentMerson]

if u guys are talking about external debt... according to CIA factbook... it is $53.36 billion (2004 est.)

[Thirdshifter]

I meant to say $0.5 trillion as in $500 billion but as decent pointed out.. well it's at 54 billion. I guess We're actually not doing that bad since the goverment controlled petronas alone brings in about US$ 30 billion/year.

[Schye]

But enough of exchange rate. It's kind of clear that the govt won't do anything to the current policy until China changes their policy.

IMO, the biggest issue related to Msia macroeconomy ATM is the budget deficit.

Thats very true. I am going to exchange all my Japanese Yen to RM if China really change their polisy and revising their yen. In fact, Malaysia sent a convoy to China when we peg our RM to ask for their cooperation <---- dont have the time to find the news now, lectures starts in 1 minutes

[Irresistible]

Untill now,Msia economy is not fully recovered yet fr. the economy crisis 1997. Why our country is so badly affected in yr 97? Why not Spore, Hong Kong? It is bcoz our economy is not strong, just one attack, we can't survive.

Undervalued the exchange rate is a good policy to encourage people to invest to recover our economy.
However, it also affected some of the citizen like me. I have to pay ACCA at a higher exchange rate. For those who study in overseas, have to pay more $$ bcoz of the high exchange rate........ :x :x

However, in economic view, fixed exchange rate policy is the right way to protect RM since our currency is still not strong enough to face challenges.

[__earth]

Undervalued the exchange rate is a good policy to encourage people to invest to recover our economy.
However, it also affected some of the citizen like me. I have to pay ACCA at a higher exchange rate. For those who study in overseas, have to pay more $$ bcoz of the high exchange rate........ :x :x

Correction: for those that live abroad, outside of the US and other countries that pegged their currency with the USD.

It is a blessing to live in the US, from forex pov. How are you Anglophiles, Aussiephiles and Europhiles doing? =p

Actually, we have recovered and a return of such severe crisis would not meet another unprepared Msia. Many have agreed that it is unlikely for Msia to face the scenario in 1997/1998 again due to financial reform done in recent years.

At the same time, KLSE level might be lower than it was before but most of it was hot money anyway. P/E was way overblown, in retrospective of course.

[el_empty]

IMO, the biggest issue related to Msia macroeconomy ATM is the budget deficit.

Actually I don't think our budget deficit is that bad. I think what's really detrimental to all things Malaysian is our excessive reliance on oil.

It's true that our main sectors are in manufacturing and tourism, these are 2 things that will be eroded soon. Think about it - we're competing head on with China and India (and Pakistan and Indonesia etc) in manufacturing products, and they make them much cheaper. We don't seem to be diversifying fast enough to a services-oriented sector, where Singapore (and China again) seem to be increasingly gaining dominance.

Also we rely heavily on tourism, which sadly is also slowly being scooped away by Singapore, which has been branding themselves as a 'gateway to asia' - stop by the city state before visiting the villages in the rest of asia, and shop while you're here. Malaysia on the other hand lacks a definitive long-term strategy for tourism.

[__earth]

The Bank Negara has just announced that it is going to float the Ringgit. Well, not really but it is essentially a floating regime.

Ladies and gentlemen, now is the time to buy ringgit. I'm moving all og my dollar denominated cash into ringgit right now.

An existing thread is here (http://www.recom.org/modules.php?name=Forums&file=viewtopic&t=413&start=15&postdays=0&postorder=asc&highlight=pegging=).

From bank negara (http://www.bnm.gov.my/index.php?ch=8&pg=14&ac=1054)

Bank Negara Malaysia announces today that the exchange rate of the ringgit with immediate effect will be allowed to operate in a managed float, with its value being determined by economic fundamentals. Bank Negara Malaysia will monitor the exchange rate against a currency basket to ensure that the exchange rate remains close to its fair value. Promoting stability of the exchange rate continues to be a primary objective of policy.

[Thirdshifter]

Ladies and gentlemen, now is the time to buy ringgit. I'm moving all og my dollar denominated cash into ringgit right now.

I wouldn't suggest you doing that right now. The value would remain in the -/+ RM0.05 for atleast another month. You'll end up loosing money selling your dollars to soon.

Within a month i predict the exchange rate to be about 3.85 or even more before it starts to stabilize at around 3.75. It won't go up or down more then 2%

[Schye]

Ladies and gentlemen, now is the time to buy ringgit. I'm moving all og my dollar denominated cash into ringgit right now.

I wouldn't suggest you doing that right now. The value would remain in the -/+ RM0.05 for atleast another month. You'll end up loosing money selling your dollars to soon.

Within a month i predict the exchange rate to be about 3.85 or even more before it starts to stabilize at around 3.75. It won't go up or down more then 2%

You may be right but for those who are not sensitive or without knowledge about this, I think its better to start selling ringgit. You may exchange half of them if you want. It may be better to be too early than too late. The changes of the policy of RMB too is going to make this getting real soon.

China Severs Its Currency's Link to Dollar
BEIJING - China dropped its politically volatile policy of linking its currency to the U.S. dollar on Thursday, adopting a more flexible system based on a basket of foreign currencies that could push up the price of Chinese exports to the United States and Europe.

http://news.yahoo.com/s/ap/china_currency

[__earth]

You may be right but for those who are not sensitive or without knowledge about this, I think its better to start selling ringgit. You may exchange half of them if you want. It may be better to be too early than too late. The changes of the policy of RMB too is going to make this getting real soon.

You mean buy instead of sell?

Third, you might be right but from what I read, Yen and even Canadian dollar have strengthened to a significant degree. Plus, the herd mentality is going to be a decisive factor.

Moreover, Ringgit and yuan are significantly undervalued. Yuan has merely move 2% towards it supposedly market price. Some people say the Yuan is 40% undervalued. Imagine what if the Yuan strengthens a bit more, say another 5%?

Whatever happens, the USD is going to be weaker compared to many other currencies, which makes holding USD unfavorable.

Anyway, I do think, the most important question right now is, what China gonna do with its reserve?

[el_empty]

Anyway, I do think, the most important question right now is, what China gonna do with its reserve?

The timeliness of it all! How interesting! I may be dead wrong, but I have a feeling China will use some extra reserves to increase their bid for Unocal.

To the uninformed, basically, China's state gas company, CNOOC recently bid for Unocal, one of the major gas firms in the US. Chevron (another US gas firm), which was persuaded by the US Congress to rescue Unocal from the evil communists, stepped in to counterbid.

Currently, China's bid is at USD18 billion while Chevron recently increased theirs to USD17.1 billion. Unocal stockholders have been persuaded to approve Chevron's bid - so it's probable that China is going to sweeten their deal with the cheaper exchange rate and extra reserves cash. In fact, China's probably going to acquire another major US industry within the next few years.

OF COURSE this has nothing to do with the Malaysian economy? Or does it?...

[Schye]

You may be right but for those who are not sensitive or without knowledge about this, I think its better to start selling ringgit. You may exchange half of them if you want. It may be better to be too early than too late. The changes of the policy of RMB too is going to make this getting real soon.

You mean buy instead of sell?

Oops, sorry. Yes, I meant buy and I was thinking of selling yen that I have. Mixed up both :oops:

[DecentMerson]

dang... i'm going to earn less (in terms of ringgit now...)

:)

it's definitely a good time to buy ringgit... sell dollar or wat...
i heard some words-of-mouth , saying that Ringgit should be abt 1 USD to RM 3.30 - 3.50...

so, considering u buy ringgit, selling USD at RM 3.80, and if Ringgit does strengthen to about that value, u earn about a good 10%...

sweet deal...

[oren_chan]

while it may seems pretty good deal to buy ringgit now but for us who are in US, what is the benefits? We cant use it here and with just small transactions, it doesnt make alot of profits out of it.

Yeah, I saw the news saying China might use their reserves to buy the oil industry players. China has freaking lots of reserves and if they were to spent all of it, they can buy all the major industry players in US.

[__earth]

while it may seems pretty good deal to buy ringgit now but for us who are in US, what is the benefits? We cant use it here and with just small transactions, it doesnt make alot of profits out of it.

Yeah, I saw the news saying China might use their reserves to buy the oil industry players. China has freaking lots of reserves and if they were to spent all of it, they can buy all the major industry players in US.

benefit, if you are sponsored by anybody, even by your parents, whatever cash/check(cheque for you britlovers)/etc you get, sent in ringgit now worth more in dollar.

other than that, prices gonna go up in the US, which is not good news for those in the US.

[masterof_none]

There's almost absolutely no reason for you to profit from floating ringgit.
Why?. because everyone now is eyeing in China.

The decision to unpeg Ringgit in the light of Chinese renminbi is obvious.
Malaysia unpegged the ringgit 'right after' Chinese decided to unpeg theirs. By shadowing itself (or hiding) behind China's hot new renminbi,
(which took more than a decade to be floated in the market),
Ringgit could prevented itself from floating wildly.

Also, Ringgit now does not floated as it's used to. In fact, more management on the supply side. I can feel that it is something like 'lessen' the magnitude of the peg. In other words, it's actually still a peg 'in a certain range'.


Read these two articles :
http://thestar.com.my/news/story.asp?file=/2005/7/22/nation/11561873&sec=nation

Chinese renminbi :
http://economist.com/agenda/displayStory.cfm?story_id=4199196

[Thirdshifter]

In other words, it's actually still a peg 'in a certain range'.


It is still pegged but not just to the dollar, but to almost all major currencies.

I think that is probably the most simplistic explaination there is.

Bank Negara knows that eventually the dollars is going to bounce back.

The reason behind the "re-peg" is because the increase of the price of oil. Once it goes down so will this "re-peg"

[el_empty]

great news:

http://thestar.com.my/news/story.asp?file=/2005/9/26/nation/20050926160622&sec=nation

again, since the star's archives sucks, i'm going to c&p this:

Zeti is Central Bank Governor of the Year
News Update by JOHAN FERNANDEZ of The Star

WASHINGTON: Bank Negara Governor Tan Sri Dr Zeti Akhtar Aziz has been named Central Bank Governor of the Year by financial magazine Euromoney.

The prestigious Euromoney?s Central Bank Governor of the Year is an award for the world?s best central bank governors.

This was the third award in three years for Malaysia's Bank Negara head, after Emerging Markets magazine named her Best Central Bank Governor in Asia in 2003 and The Bankers, a publication of the Financial Times, gave her Central Banker of the Year Global Award last year.

Dr Zeti, who is here for the International Monetary Fund (IMF) and World Bank annual general meeting, received her latest award from Euromoney chairman and editor-in-chief Padriac Fallon at a ceremony at the Hay Adams Hotel here.

In his address before the presentation, Fallon described Dr Zeti as a "supreme professional" among a new breed of central banker governors.

"Our Central Bank Governor of the Year goes to a woman whose quiet, shy demeanour hides a fierce determination to boost her country?s economy and build it as a hub for finance in the region," he said.

He said that since becoming head of the central bank in 2000 Dr Zeti had overseen radical reform on exchange rate, the capital markets and the banking industry.

Fallon said the performance of ministers and governors was getting better all the time.

"We seem to be in a period for some years now where the economic system seems to be able to suffer shocks without going into total crisis.

"Perhaps, the reason for that is we have better central bankers and finance ministers now than we did before," he said.

Commending Malaysia's former prime minister Tun Dr Mahathir Mohamad for picking Dr Zeti. Fallon added: "The economy she is responsible for grows steadily year on year. "The country now has one of the most developed Islamic finance services in the world, a market that we in Euromoney have given particular attention to."

[gonjeng]

sorry for my level of ignorance (considering that i suxx in economics), but how this is a good news? more like a neutral news to me :) the only thing i can think of is it may promote other investors to come to mesia and start investing - although i fail to comprehend the relationship between the two. so... can someone explain (in laymen's term, of course)???