Thursday, 22 January 2015

"Iskandar Malaysia is Only Going One Way – Down"

Quite good article from a Singaporean website, I thought might be relevant for Malaysians also.

Although I am not exactly a property expert, I did echo similar concerns in the past, for instance here:

"Two Iskandar developers (to IPO in 2014), I am scared all the clever money has been made already, and the property market is way too hot and might already be cooling"

Some snippets from the article at DrWealth's website:

When you drive around Iskandar Malaysia, it’s not uncommon to see swathes of empty apartments with no one living inside. Therein lies perhaps the main issue with the region – the lack of a critical mass of people, especially locals, staying in the area.

In the beginning, the majority of property purchases were made by foreigners, particularly Singaporeans, who were seduced by the attractive price tags.

Unfortunately, the property cooling measures announced in Malaysia’s 2014 Budget have thrown a spanner in the plans of many of these potential investors. Since the beginning of the year, foreigners can only purchase property worth at least RM1 million, have to pay more in Real Property Gains Tax, and must contend with a 2 percent property levy. These moves have whittled the number of potential property investors in Iskandar.

Couple this with the glut of housing development projects being launched by big Chinese developers such as Country Garden and Guangzhou R&F and you’re looking at the classic problem of unchecked growth – supply outrunning demand.

QE in Europe is doomed to failure

Article in The Telegraph about William White, "The economic prophet who foresaw the Lehman crisis with uncanny accuracy is even more worried about the world's financial system going into 2015. Mr White is a former chief economist to the Bank for International Settlements - the bank of central banks - and currently an advisor to German Chancellor Angela Merkel."

Some snippets below. The bold paragraph looks relevant to Asia. It does remind me of 1997/1998 when the roof came down and so many companies got hurt because they had borrowed in USD. It appeared to make sense, the RM was more or less fixed to the USD at 2.5 to 1, while the interest rate on the USD was lower. But there is no free lunch here, as many would find out, the RM crashed versus the USD and companies were sitting on huge one-off losses. For Jusco (Aeon) it would be the only year since listing that they lost money.

Beggar-thy-neighbour devaluations are spreading to every region. All the major central banks are stoking asset bubbles deliberately to put off the day of reckoning. This time emerging markets have been drawn into the quagmire as well, corrupted by the leakage from quantitative easing (QE) in the West.

He said the global elastic has been stretched even further than it was in 2008 on the eve of the Great Recession. The excesses have reached almost every corner of the globe, and combined public/private debt is 20pc of GDP higher today. "We are holding a tiger by the tail," he said.

He warned that QE in Europe is doomed to failure at this late stage and may instead draw the region into deeper difficulties. "Sovereign bond yields haven't been so low since the 'Black Plague': how much more bang can you get for your buck?"

"QE is not going to help at all. Europe has far greater reliance than the US on small and medium-sized companies (SMEs) and they get their money from banks, not from the bond market," he said.

"Even after the stress tests the banks are still in 'hunkering down mode'. They are not lending to small firms for a variety of reasons. The interest rate differential is still going up," he said.

"The emerging markets got on the bandwagon by resisting upward pressure on their currencies and building up enormous foreign exchange reserves. The wrinkle this time is that corporations in these countries - especially in Asia and Latin America - have borrowed $6 trillion in US dollars, often through offshore centres. That is going to create a huge currency mismatch problem as US rates rise and the dollar goes back up."

Mr White said central banks have been put in an invidious position, compelled to respond to a deep economic disorder that is beyond their power. The latest victim is the Swiss National Bank, which was effectively crushed last week by greater global forces as it tried to repel safe-haven flows into the franc. The SNB was damned whatever it tried to do. "The only choice they had was to take a blow to the left cheek, or to the right cheek," he said.

He deplores the rush to QE as an "unthinking fashion". Those who argue that the US and the UK are growing faster than Europe because they carried out QE early are confusing "correlation with causality". The Anglo-Saxon pioneers have yet to pay the price. "It ain't over until the fat lady sings. There are serious side-effects building up and we don't know what will happen when they try to reverse what they have done."

The painful irony is that central banks may have brought about exactly what they most feared by trying to keep growth buoyant at all costs, he argues, and not allowing productivity gains to drive down prices gently as occurred in episodes of the 19th century. "They have created so much debt that they may have turned a good deflation into a bad deflation after all."

Wednesday, 21 January 2015

Malaysia net oil importer, surprise?

Article in The Star: "Govt reveals M'sia net importer of crude oil, petroleum products since 2014", some snippets (emphasis mine):

"In a surprise turn of events, the Government has disclosed that Malaysia is a beneficiary of declining crude oil prices because the country is a net importer, and not exporter, of the commodity and petroleum products, if liquefied natural gas (LNG) was not in the equation."

Surprise turn of events?

Anyone who had the data from the past and extrapolated it within reason should have suspected this.

If this was properly communicated to the public is another matter.

I wrote in the past the posting "Malaysian oil statistics are puzzling" based on an article of Claire Barnes.

I wrote: "Luckily for Malaysia, it is still a net exporter in gas, although production seems to have slowed down a bit in recent years:"

The price of Natural Gas has however also come down a lot, in tandem with the price of oil and other commodities.

Monday, 19 January 2015

1MDB needs a new script

An article written by Anita Gabriel with this title appeared in The Business Times (Singapore) today, some snippets:

"Another thing that will serve the fund and its communication team well is to rid itself of the notion that all its critics have a political agenda.

That's undeservedly self righteous for a fund that has racheted up over RM40 Billion in debt, rolled over a RM2 billion debt three times over a year, switched auditors and bosses twice and is in the red to the tune of RM665 million in 2014."

I full agree with this. Most likely it is in reference to (for instance) this article in The Malaysian Insider:

"1MDB’s critics politically driven, don’t know full facts, says new chief"

The seasoned investment banker said it was "quite clear" most of the allegations directed at the company had been driven more by "political rather than genuine business considerations", he told The Malaysian Insider in an email interview.

There have been many excellent articles about 1MDB by publications like Bloomberg, Reuters and The Business Times (Singapore). Surely these were not political driven.

Besides that, there were many other excellent articles from Malaysian publications like MalaysiaKini/KiniBiz and The Edge.

Everyone is interested in transparency, not in some sort of blame game.

Definitely not a good start by the new CEO of 1MDB, the remark about political motives.

Myself I am very interested in the funds 1MDB invested in (either currently or in the past). 1MDB has never been transparent about them, as far as I am aware.

According to this article:

"Australian firm Avestra Asset Management has been managing over US$2 billion of 1Malaysia Development Bhd's monies invested in several Cayman Islands funds."

Avestra was recently fined by the ASIC (the securities commission of Australia) for having committed six offences.

Controversial blogger "Dr Benway" wrote about this same issue (AG Financial) long before ASIC had fined the company (here, here and here). Please note that I can in no way guarantee the correctness of the postings by "Dr Benway".

Based on their own website it seemed that Avestra's business is run from a house or apartment on Australia's Gold Coast, which seems to be peculiar for an asset management company managing billions of RM:

The above seems puzzling. 1MDB should be transparent about the details of the funds it invested in, the rationale behind the decision, if it paid commissions (and if so, how much and to whom), the returns it received, the due diligence it had performed, etc.

Anita Gabriel recommends 1MDB to follow in the footsteps of Khazanah Nasional:

"It took Khazanah half its live span or ten years to turn its back on the secretive-style of investing which had previously drawn huge public outcry in the country

These days, the annual events where Khazanah provides some key indicators and updates on its investments are markedly more staid, relatively dull even; and that's a good thing. Transparency begets trust which begets credibility, all of which 1MDB is in deficit at this point."