Thursday, October 4th, 2018

 

US forming ‘trade coalition’ to confront China, says Trump adviser

WASHINGTON, Oct 4 — The United States is uniting with other major economies to take on China’s unfair trade practices, a senior White House economic adviser said today. National Economic Council Director Larry Kudlow also said there was a…


Wall Street succumbs to soaring bond yields

NEW YORK, Oct 4 — US stocks fell broadly today, mirroring weakness in the global markets, as government bond yields surged to multi-year highs on robust US economic data and optimistic views from the Federal Reserve. Ten of the 11 major S&P…


Focus on fiscal consolidation, World Bank tells Malaysian government

KUALA LUMPUR: Malaysia, whose economic growth is expected to ease to 4.9% in 2018, should work on its fiscal consolidation now rather than supporting growth amid the less favourable external environment with global trade facing headwinds.

“In Malaysia's case, the implication for policy is that in the current context where the global economy is growing less quickly, where some of the risks are becoming more significant, perhaps this is not the time to try to prop up growth in the short term, but a time to consolidate on the fiscal side to ensure that fiscal buffers are built up in case the shocks are larger than anticipated.

“Having a somewhat slower growth rate in the short term might be a worthwhile trade-off in favour of greater stability going forward,” World Bank chief economist for the East Asia and Pacific region Sudhir Shetty said during a media briefing today via video conference on the East Asia and Pacific Economic Update, the World Bank's semi-annual review of the region's developing economies. 

As a highly open economy, he said, Malaysia will continue to face
substantial risks relating to uncertainty in the external environment.

Heightened financial market volatility triggered by shifting monetary policy expectations in advanced economies could spread across emerging economies, including Malaysia.

Another key risk relates to the escalation in protectionist tendencies and trade tensions in some major economies that could have an adverse impact on Malaysia, given its high level of integration with global markets.

“On the domestic front, the challenge is seeing some short-term consolidation on the expenditure pathway but we will see a medium term pay-off in terms of bringing down the overall aggregate levels of Malaysia's debt and a chance now to undertake deep structural reforms that will raise the potential growth and quality of economic growth in the future,” said World Bank lead economist for Malaysia, Richard Record.

The report said Malaysia's change from goods and services tax back to sales and service tax and the adjustment to the fuel pricing mechanism, in the absence of adequate compensatory measures, would constrain the fiscal policy space, and place greater reliance on less stable direct taxation and oil-related revenue. Addressing the stock of public-sector debt will require careful trade-offs, including expenditure consolidation and a review of new sources of revenue.

Malaysia is expected to see slower economic growth from 2018 to 2020, easing to 4.9% in 2018 from 5.9% in 2017, as export growth slows and public investment falls following the cancellation of major infrastructure projects.

Malaysia's economy is projected to expand at 4.7% in 2019 and 4.6% in 2020.

“As a country gets closer to high income status, incremental growth is harder. The rate is lower this year compared to last year but 4.9% is still a strong performance. It's potentially higher than 2016 and probably still towards the top end of Malaysia's potential growth rate,” Record said.

To mitigate the challenges on the external front, he said, flexible exchange rates help, and Malaysia is doing well with substantial reserves that boost confidence, as well as having careful and prevential regulation of banks.

He added that Malaysia should also have a diversified economy, with exports across diverse markets and product types, and the fact that Malaysia has different sources of growth will help.

Record said the country's budget announcement is always important but more so for Budget 2019.

“It'd be an important opportunity to set the tone, for not just the next fiscal year, but beyond, in terms of the government's fiscal policies and directions, how the government will balance the twin challenges of fiscal consolidation, growth and debt and it'd be an important chance to send signals to investors and the private sector about the growth opportunity that Malaysia has,” said Record.


Set up body to assess social impact of FDIs into Malaysia: Ideas chairman

PETALING JAYA: Institute for Democracy and Economic Affairs (Ideas) chairman Tan Sri Rebecca Fatima Sta Maria said it is crucial for the government to form a body to assess the social impact of any foreign direct investment (FDI) that comes into Malaysia as there is already an existing one to look into the environmental impact.

Rebecca, who was previously secretary general of the Ministry of International Trade and Industry, noted that there has been a reversal in the flow of FDIs between the two countries as Malaysian investments in China used to be six times more than China's investments in Malaysia.

Ideas today unveiled its report on the “Impacts of Investment From China in Malaysia on the Local Economy” which noted that there is a lack of technology and skills transfer from China to Malaysia, as well as the employment of Chinese sub-contractors and labour for construction projects undertaken in Malaysia.

Rebecca, who delivered her opening remarks at the session, noted that the study by Ideas was carried out based on secondary data and there is a need for academics to work together with government bodies such as Malaysian Investment Development Authority and the Statistics Department due to the availability of data on the nature of the investments with these agencies.

“We need to get more vigorous analysis of the nature of the investments in Malaysia so we can than make more concrete solid conclusions. I am hoping that today's discussions will see us getting in that direction,” she said.

Ideas director of research and development Laurence Todd said while presenting the report that skill requirements, differences in working practices, cultural preferences, language barriers, local capacity, access to finance and politically motivated preferences were identified as possible causes for the employment of Chinese sub-contractors and labour force for projects undertaken by Chinese companies in Malaysia.

According to him, evidence from other countries suggests FDI is most beneficial when there is a high level of technology and knowledge transfer but this requires the involvement of human capital.

“There are indications that Chinese firms do not always provide opportunities for such transfers, particularly to local SMEs,” he said while adding that there is a need for skill gap to be bridged.

Meanwhile, Dr Cheong Kee Cheok of University Malaya's Institute of China Studies said in his commentary on the paper that the onus lies with the holding company, which are usually local, on calling for more local participation in the labour force. Foreign companies incorporated here need to have at least 51% local shareholders.

He noted that if skills transfer is what these companies are looking at, they should be included as a clause in contracts.

When it comes to government contracts, he said the government should also bargain to secure reasonable deals.

China's investment is not only limited to construction but is also seen in the services and manufacturing sectors as well as the Malaysian stock and bonds market which gained momentum under the previous administration.

The report flagged the Melaka Gateway project which has come under criticism due to the lack of consideration of impact on local communities and the environment. The project is now being reassessed.


Palm oil players to face credit challenge if CPO prices remain weak: Moody’s

PETALING JAYA: Crude palm oil (CPO) prices will present a credit challenge for rated palm oil producers if they remain at current levels, according to Moody's Investors Service.

CPO prices are currently at the lowest levels since 2015. Year to date, they have fallen 14%.

“Continued weak CPO prices will challenge the credit metrics of the four  palm oil companies that we rate over the next 12-18 months, but the growing demand for palm oil will support their credit profiles over the medium- to long-term,” said Moody's analyst Maisam Hasnain.

“We also expect that the governments of Indonesia and Malaysia – which together produce around 85% of CPO globally – will maintain supportive policies towards their respective palm oil industries and this will continue to provide a valuable underpinning for ratings in the sector,” Hasnain added.

Moody's analysis is contained in its just-released report titled “Palm Oil – Asia: Credit quality at risk if CPO price remains at current low point in price cycle,” and is co-authored by Hasnain and Diana Beketova, a Moody's associate analyst.

Moody's report identifies three key risks that could hurt the revenue and earnings of palm oil producers over the next 12-18 months.

First, on the supply side, growing levels of palm oil inventories in Malaysia and Indonesia could further weaken the selling prices of CPO.

Second, on the demand side, additional tariffs and restrictions placed by the largest CPO-importing Countries, such as India, would weaken demand and drive sales volumes lower.

And third, weaker soybean oil prices could pressure CPO selling prices, because the two vegetable oils are close substitutes and their prices generally move in tandem.

Nevertheless, Moody's said palm oil consumption will likely grow and stay solid in countries such as Indonesia, India, and China in the medium to long term as these economies grow, supporting the credit quality of producers.


Singapore's StarHub to retrench 300 full-time employees, restructure company

SINGAPORE, Oct 4 — Singapore’s second largest telecommunications firm StarHub announced yesterday that it is laying off about 300 full-time employees as part of a S$25 million (RM75 million) restructuring exercise, given the “intense”…


Wall St set to open lower as Treasury yields jump

NEW YORK, Oct 4 — US stocks were set to open lower today after robust economic data and optimistic views from the Federal Reserve pushed government bond yields to multi-year highs, while curbing the appetite for stocks globally. The 10-year US…


Framework to evaluate Islamic finance’s impact on economy proposed

KUALA LUMPUR: A framework to evaluate the impact of Islamic finance on the economy should be the next agenda in shaping its development, said former Bank Negara Malaysia (BNM) governor Tan Sri Dr Zeti Akhtar Aziz.

She said the proposed future finance should be both value adding and value-based, whereby value adding would reflect in the contribution in facilitating and supporting economic activity, while value-based could be seen in how it benefits the society.

“The ultimate impact of Islamic finance on the economy is less clear, hence, such value adding and value-based forms of finances give purpose to the role of finance to bring benefits to the economy and the community,” she said when presenting the Royal Award Islamic Finance Lecture today.

The lecture was held in conjunction with the two-day Global Islamic Finance Forum (GIFF) 2018.

Zeti also said assessments on the resilience of the Islamic financial system and the elements that supported such resilience should be conducted based on the track record of the sector.

Representing 12 jurisdictions, Islamic banking assets made up more than 15% of the total banking assets in 2017 while the global Islamic banking assets reached US$1.5 trillion (RM6.2 trillion) and global sukuk outstanding surged to US$400 billion in the same period.

She also noted that the magnitude of financial crisis on the Islamic banking institutions was very much less as compared with conventional banking.

“Comparing the top 10 Islamic banks with the top 10 conventional banks during the financial crisis of 2008-2009, it showed that the combined market capitalisation of Islamic banks did experience a decline by 8.5%, and it was far less than the latter, which declined 42.8% for the period from December 2006 to December 2009,” she explained.

She further said that the aggregate net profits of Islamic banks increased by 9% for the same period, while the conventional banks’ net profits declined by 64%.

Commenting on the harmonisation of Shariah framework and mutual respect in the application of Shariah interpretations and rulings, which has intensified, Zeti said that the Roundtable Meeting of Shariah Advisory Authorities, announced by BNM two days ago, would provide a platform to further streamline the framework for Shariah resolutions across jurisdictions.

“Several jurisdictions have now established such a central Shariah entity, which indeed further strengthened the strategic network for engagement and foster understanding on Shariah interpretations among centralised Shariah authorities,” she said.

Islamic finance is now practised in more than 50 countries and its total assets in 2017 was estimated to have surpassed the US$2 trillion mark. – Bernama


Assessing Islamic finance impact on economy

KUALA LUMPUR: A framework to evaluate the impact of Islamic finance on the economy should be the next agenda in shaping its development, said former Bank Negara Malaysia (BNM) governor Tan Sri Dr Zeti Akhtar Aziz.

She said the proposed future finance should be both value adding and value-based, whereby value adding would reflect in the contribution in facilitating and supporting economic activity, while value-based could be seen in how it benefits the society.

“The ultimate impact of Islamic finance on the economy is less clear, hence, such value adding and value-based forms of finances give purpose to the role of finance to bring benefits to the economy and the community,” she said when presenting the Royal Award Islamic Finance Lecture today.

The lecture was held in conjunction with the two-day Global Islamic Finance Forum (GIFF) 2018.

Zeti also said assessments on the resilience of the Islamic financial system and the elements that supported such resilience should be conducted based on the track record of the sector.

Representing 12 jurisdictions, Islamic banking assets made up more than 15% of the total banking assets in 2017 while the global Islamic banking assets reached US$1.5 trillion (RM6.2 trillion) and global sukuk outstanding surged to US$400 billion in the same period.

She also noted that the magnitude of financial crisis on the Islamic banking institutions was very much less as compared with conventional banking.

“Comparing the top 10 Islamic banks with the top 10 conventional banks during the financial crisis of 2008-2009, it showed that the combined market capitalisation of Islamic banks did experience a decline by 8.5%, and it was far less than the latter, which declined 42.8% for the period from December 2006 to December 2009,” she explained.

She further said that the aggregate net profits of Islamic banks increased by 9% for the same period, while the conventional banks’ net profits declined by 64%.

Commenting on the harmonisation of Shariah framework and mutual respect in the application of Shariah interpretations and rulings, which has intensified, Zeti said that the Roundtable Meeting of Shariah Advisory Authorities, announced by BNM two days ago, would provide a platform to further streamline the framework for Shariah resolutions across jurisdictions.

“Several jurisdictions have now established such a central Shariah entity, which indeed further strengthened the strategic network for engagement and foster understanding on Shariah interpretations among centralised Shariah authorities,” she said.

Islamic finance is now practised in more than 50 countries and its total assets in 2017 was estimated to have surpassed the US$2 trillion mark. – Bernama


Maybank gets nod for CFS business in Singapore

PETALING JAYA: Maybank has received the approval from the Monetary Authority of Singapore (MAS) to locally incorporate its community financial services (CFS) business in Singapore.

“MAS has issued a full banking licence with Qualifying Full Bank privileges to Maybank Singapore Ltd (MSL), its wholly owned subsidiary incorporated in the republic,” Maybank said in a statement today.

Maybank Group president and CEO Datuk Abdul Farid Alias said the local incorporation signifies a further deepening of the group’s commitment to its customers and communities in Singapore. It is also part of Maybank’s overall strategy to accelerate our growth plans and business presence in the republic.

“As one of the largest banks in Southeast Asia with a footprint in all 10 Asean countries, we value Singapore as one of our three home markets, and remain committed to its long-term economic growth and prosperity.”

Subject to approval from the Singapore High Court, Maybank Singapore operations will transfer its community financial services business, namely the retail (personal banking, privilege wealth, premier wealth), private wealth, SME – retail, small medium enterprises (RSME) banking and commercial banking business via a scheme of transfer to MSL with effect from Nov 5.

MSL will operate as a subsidiary of the Maybank Group with Asian Currency Unit capabilities in Singapore.

Customers of MSL will enjoy the same quality of products and services, and have access to banking services at 27 service locations, including 20 retail branches across Singapore as well as over 3,800 ATMs across the entire Maybank Group network.

Maybank will, however, continue to operate its corporate and institutional business through its global banking business separately for corporate customers.