economic prospects


Uproar over crackdown on cryptocurrencies divides S.Korea

SEOUL: With a tech-savvy population quick to adopt the latest gadgets and a young generation facing dim prospects in the conventional workplace, South Korea has been a fertile ground for virtual currencies.

But the country's swift embrace of bitcoin and other cryptocurrencies has been met with an equally swift backlash by regulators, who have gone so far as to propose outright bans on trading.

With markets around the world watching, South Korea has become a fault line between a generation that sees cryptocurrencies as a way to a better life, and government officials who have likened the market to gambling and warned that it encourages illicit behaviour.

On Thursday the justice minister, Park Sang-ki, sent global bitcoin prices temporarily plummeting and virtual coin markets into turmoil when he said regulators were preparing legislation to halt cryptocurrency trading.

As of Friday, a petition on the website of the presidential Blue House had drawn more than 120,000 signatures opposing the move. Heavy internet traffic briefly crashed the site.

The online uprising against the government's plans puts President Moon Jae-in a tough spot, and his office was quick to say a ban is just one proposal under consideration.

“The latest idea to ban it all seems to have come out of a fear that when the bubble bursts and things go wrong, it will be all on the government,” said Yun Chang-hyun, an economics professor at University of Seoul.

With the youth unemployment rate three times the national average and a growing income gap between rich and poor, many young Koreans worry about their economic prospects.

“Tax it as much as you want but don’t shut it down. My life depends on it,” one petitioner wrote on the Blue House website.

Lee Min-kyung, a 25-year old student in a Seoul-based graduate school said she earned about 18 million won (US$16,973.93), double her initial investment in bitcoin. She said the government is showing haphazard responses simply because officials have “no idea.”

“They say the purpose of the regulation is to curb speculative moves, but it makes me just think the government simply doesn't understand what the market is,” Lee said.

More than 30% of 941 office workers surveyed in December by Saramin, a South Korea-based job portal, said they traded cryptocurrencies. The respondents had an average of 5.7 million won (US$5,357.14) invested in virtual currencies, and a majority of them said they began trading because they saw it as the fastest way to earn money.

That trend has earned critics on the street as well as in government offices.

Koh Young-sam, a 56-year old mechanic in Seoul, warned that the craze would collapse.

“Young people shouldn't be lured into this kind of scam. There is always something fishy about things that grow this fast,” Koh said.

South Korea is not alone in struggling to figure out how to tax and regulate online currencies, many of which are designed to provide anonymity for transactions.

In September last year, China cracked down on cryptocurrency trading, citing what officials saw as broader risks to the country's economy.

As South Korea accounts for about 15% of global bitcoin trading, according to the website, how regulators approach the issue will likely have international effects.

The local price of bitcoin in South Korea bounced back on Friday to 19.3 million won (US$17,481.20) from as low as 17.5 million won (US$16,445.82) according to Bithumb, the nation's second-largest cryptocurrency exchange. On the Luxembourg-based Bitstamp, bitcoin stood at US$13,709 after touching US$12,800 the prior day.

Park Chong-hoon, an economist at Standard Chartered Bank in Seoul, said, “South Koreans find it hard to deal with the jealousy from watching their neighbours getting rich fast.”

It is a sentiment echoed by many. Scepticism of “get-rich-quick” schemes among South Korean officials has coloured past forays by international finance into the country.

In the mid-2000s the U.S. private equity fund Lone Star faced raids of its offices and a years-long legal battle with the South Korean government after the foreign fund made millions of dollars buying and selling a controlling stake in a major South Korean bank.

That controversy, which raised concerns over South Korean money flowing to foreign entities, is probably among several factors making South Korea officials wary of managing the new breed of markets originated abroad, analysts said.

“In a practical sense, the South Korean government needs to factor in some political aspects “ if a growing number of people lose huge sums of money on bitcoin because of the government's failed attempts to rein in the frenzy, people will blame the government,” Lee Dong-gwi, a psychology professor at Yonsei University. “Simply put, the South Korean government could be afraid of the political hassles of being held accountable.” – Reuters

Emerging markets set to drive 2018 global growth — World Bank

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MARC: Ringgit’s rebound fuels rally in MGS

PETALING JAYA: Malaysian Rating Corp Bhd (MARC) said the ringgit’s rebound in November, which appreciated by 3.47% month-on-month, has fuelled a rally in Malaysian Government Securities (MGS).

In a report today, MARC chief economist Nor Zahidi Alias said with foreign buying interest reignited, foreign holdings of MGS surged 4.6% month-on-month (m-o-m) to RM160.3 billion (October 2017: RM153.2 billion), equivalent to 44.3% of total outstanding (October 2017: 42.7%).

“Not surprisingly, the bullish sentiment also spilled over into the primary market,” he added.

The ringgit ended the month at RM4.0910 against the US dollar, its strongest level year-to-date, and the highest monthly close since August 2016 at RM4.0675.

Nor Zahidi said the ringgit has shown a bullish momentum throughout the month as investors priced in the possible Overnight Policy Rate hike by Bank Negara Malaysia (BNM) next year, and was further supported by the upbeat Q3 2017 gross domestic product growth data, which recorded a positive growth of 6.2% year-on-year (y-o-y).

However, MARC said the sustainability of the rally will depend on several headwinds, noting factors on the external front include the hawkish tendency of the new US Federal Reserve chair and developments related to the US tax reform bill.

Domestically, it said BNM’s monetary policy stance will figure most prominently, noting the central bank’s statement following the November monetary policy meeting that it may consider reviewing the current degree of monetary accommodation had triggered a temporary sell-off.

Furthermore, MARC said there will also likely be impact from political developments in the run-up to the 14th general election.

Nonetheless, it said in any case, MARC does not expect the rising prospects of monetary tightening to lead to a significant rise in bond yields.

“Barring unforeseen circumstances, it is highly unlikely that monetary tightening will, for example, cause the 10-year MGS yield to surpass its highest level attained during the post-US election in November 2016.

“In the local corporate bond scene, gross issuance year-to-date (January 2017 – November 2017) surged 28.6% y-o-y to RM109.2 billion, the highest since 2012 on support from improving economic prospects and low interest rates. It remains to be seen whether 2017’s full-year gross issuance will surpass that of 2012 (RM123.8 billion).”

MARC expects corporate bond issuances to normalise in 2018, given among other things, prospects of higher borrowing costs as monetary tightening proceeds. It said it expects total corporate bond issuances next year to come in at between RM85 billion to RM95 billion.

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PETALING JAYA: IJM Corp Bhd’s net profit for the first quarter ended June 30, 2017 jumped 9.4% to RM126.4 million from RM115.52 million a year ago mainly due to improved earnings from the group’s construction, property development and infrastructure divisions.

Its revenue rose 12% to RM1.47 billion from RM1.31 billion following increased revenue contributed by all the divisions of the group.

The group told Bursa Malaysia that its construction division expects the market outlook to remain encouraging based on a record level of RM8.7 billion of outstanding order book, underpinned by the implementation of ongoing domestic infrastructural projects as well as a healthy pipeline of new large public infrastructure projects to be rolled out under the 11th Malaysia Plan.

The local property market is expected to remain challenging as weak consumer sentiment still persists due to weaker economic prospects, continued stringent mortgage approval and incoming supply of new launches and competing completed properties.

“Nonetheless, the property development division will remain steadfast to grow its business in view of the strategic locations of its properties and the brand premium that it has established. With unbilled sales of about RM1.7 billion, the division is expected to maintain a satisfactory performance in the current financial year,” it noted.

Meanwhile, its plantation division expects the profitability level for the current financial year to be satisfactory on the back of higher crop production from the increasing young mature areas in Indonesia and fresh fruit bunches yields being sustained in the Malaysian operations.

Despite the challenging business environment, IJM expects a reasonable performance for the current financial year.

The stock closed 0.89% lower at RM3.36 with 3.4 million shares traded.

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SERC cautiously optimistic on economy despite GDP forecast upgrade

KUALA LUMPUR: Socio-Economic Research Centre (SERC) is cautiously optimistic over Malaysia's economic prospects despite raising its gross domestic product (GDP) forecast for 2017 to 5%.

SERC executive director Lee Heng Guie said the GDP forecast has been revised to 5.0% from the initial forecast of 4.3% on the back of the 5.6% growth achieved in the first quarter of this year owing to stronger exports and sturdier domestic demand.

Going forward, he said much of the headwinds to weather is likely to be on the global front with the likes of further interest rate hikes in the US and rising debt levels in the global markets. Domestically, the challenge is expected to be a moderation in private consumption.

On another note, Lee opined that there is a need for fiscal consolidation by the government to reduce its fiscal deficit. Among the measures suggested are expenditure rationalisation by rightsizing the civil service and improving its efficiency.