3Q2015 Market Updates

So many things happening in the past 4 months or so.

Here’s the snippets

Market has been crazy volatile in the months of August and September. Lots of bond sell downs in the emerging market space, where and especially malaysia that wasnt spared from it. a combination of global risks, weak inflation and tighter financial conditions encourage the monetary policy heading to year end more dovish that before. on top of that, the emerging market assets have weakened largely due to commodities slump, slowdown in China (growth forecast below 7%?), strength in dollar as well as the possibility of US’ Feds policy tightening

Oil price again plummeted to below $50 level. Coupling that with slowdown in China and devaluation of yuan, have brought ringgit down to 17 years of historical low against dollar. It was crazy.

But as they say, whatever goes up must come down. Now we see market has somewhat less shaky, given that the US’ Feds ‘delaying’ interest rate hike and the market has also managed to price in the rate hike up until 1Q next year. Currently the US dollar position has also calmed a bit that brought ringgit level up a bit.

Brent crude oil hovers at below $50 level which serves as an indicative level for revenue generation forecast for the country. Now analysts are expecting the level will go up to $70 starting only in 2017 onwards. Hence, 2016 continues to be a volatile year.

Expectations from the market:-

  • Further targeted stimulus by PBoC on China stability
  • Abenomics aint working, sorry Mr. Abe. Japan is viewed to be facing a possible relapse into recession. Given that S&P has cut Japan rating to A+ from AA- in September due to economic support for Japan’s sovereign creditworthiness has continued to weaken in the past three to four years. Plus they are also in view that the govt’s economic revival strategy is not able to reverse the deterioration in the next few years.
  • US’ Fed hike by year end, up by 25bps. If not, then by 1Q2016.

Honestly none of analysts and economists I met is positive for 2016, at least for the first half. I’m not seeing any bright spot either.


Weakening Ringgit, Strengthening Dollar

Global and domestic developments are affecting the volatility of Ringgit movement. Global developments would include the investor expectations relating to monetary policies of major central banks and the trends in crude oil and gas prices, where domestic factors include concerns about government linked entities and ratings related issues.

Ringgit has been underperforming against the strengthening US dollar, being Asia’s second worst performer YTD, behind Indonesia, where asian currencies tend to move together against the stronger USD. The pressure on MYR is largely driven by sentiments, rather than fundamentals. The analysts are expecting bad times for the country as well as the whole Asian region, at least until the second quarter is over. For countries under the emerging market space, it seems that only Eastern Europe where the growth has been picking up, but things arent looking that bright in the larger European space, with potential UK and Greece’s exit from Europe. Asia and latin america are both equally been under pressure due to weakening currencies and growth slow down, but on the positive side, most of the Asian countries are benefiting from lower oil price and less inflationary pressure. So yeay to other Asian countries but not Malaysia.

More bad news it seems with Fitch is said to be on track to downgrade the sovereign rating as short term view on Malaysia is not so positive, particularly on the debt ceiling and contingent liabilities. Their next review is due by end of July 2015 and until then, we just hope that the market has priced in the impact. As I talk to few fund managers, they’re currently staying away from our credit papers, due to the foreseeable risk of downgrade and MYR uncertainties.

While external developments are beyond the control of any open economy, every effort needs to be undertaken to bring about resolution to the domestic issues that confront our economy. Once these issues are resolved the performance of the currency is expected to be consistent with our sound economic fundamentals and growth prospects.


The new job


I got this new job and currently I’ve been here for almost a month. Gotta say I hardly feel it cause I’ve been busy with meetings, daily reportings and whatnots. Literally there have been daily meetings (up to 2-3 times a day) and conference calls with the portfolio managers. Draining, but all is well though. Still coping and learning the ropes around here.

I used to be on sell-side (the dark side of the investment banks, they say) but now I’m on the buy-side, specifically focusing on fixed income investments (bond and sukuk).

Apart from the awesome perks and benefits, there are some other things that I like about this new job. Am writing it here as part of my gratitude project (one thing that I promise to myself to constantly do).

– Opportunities to travel / attachment programs with the fund managers abroad

– Super nice bosses & colleagues. One has to experience dealing with harrowing bosses to appreciate these new superiors.

– New like minded friends. I think I made friends quite easily here, thank God for that.

– Messy but awesome trading desk with Bloomberg terminals just few steps away.

– Plenty of new things and areas to learn. Areas such as Emerging Market debt and Asian debt to look at with the differing geo-political situations, country ratings, potential rates and currencies strategies, etc.

– New phone 🙂

– Trading room is quite after market hours, thus I’m able to study after work

– There are 3 people in the trading room who are currently undertaking CFA. So yeah, glad to have these people to study with.

All in all, I am grateful to land this job. Of course there are few hiccups here and there (to mention a few; the slow bureaucratic process, yikes! and the attendance monitoring system – I have to be present at the office latest at 8.29am, imagine the traffic horror I have to face every morning), I am beyond grateful, nonetheless.

The Ring Around the Sun


Been busy with life that I couldn’t be arsed to write anything for the past couple of months. And suddenly its nearing the end of July. How did the past 6 months just disappear?


Sold my car and got a supposedly fuel efficient and environmentally friendly new machine.

Went to Jakarta in February

Went to Japan (again) with the colleagues in early May


Enrolled for CFA programme. One of the toughest exams in the world, the hell was I’m thinking? Library visits, weekend classes and tests are part of life (foresee that I wont be enjoying much life for the next 3 years). Enjoying the company of my brilliant classmates though, bless them.


On a job hunt. thus been to interviews. Got an offer. Resigned from current job. But still going for interviews in other companies. Still have 2 months to serve the notice period.


Bought a studio apartment. Actually this was done on impulse. The construction of the condo is supposedly finish this coming year end. We shall see.


Til then.

Malaysia Market Reform – How to Get out of Fiscal Debt Situation

Poland and Slovakia among many other countries currently are dubbed as high income nations, where these countries have made significant economic reforms after being stagnant in the early years. South Korea for instance, has amazing economic growth within a short period of time, where it was once a devastating nation due to the Korean war and had managed to transform to becoming one of the wealthiest nation in the world.  

Challenges for Malaysia, are of short term and long term, where the next general election is in 2018, and until then there are key areas that the current government administration is tasked to do.  In this case few economic matters are of concern, which are reducing the government debt, implementation of GST, strengthening of ringgit and reducing the debt-GDP ratio. Now there are two things that are also of concern in my opinion, in terms of our corruption and competitiveness indexes. We are still far from achieving corruption-free state and our competitiveness index is at the unsatisfactory level (24th out of 148 countries).

A reform can simply be defined as a major policy change. In economical sense, this could mean a positive improvement to the society, such as in reducing the country’s fiscal deficit. A successful reform could also mean by spreading the burden of the adjustment of government expenditures and revenues across income classes and income sources.

 Some suggested economic reforms:

– Enhancing the role of private sector in the society and limiting government’s involvement in infrastructure projects, which in turns would lessen the contingent liabilities for the government.

-To increase government’s revenue (to achieve >25% of GDP) via more efficient tax collection system and to move away from oil and gas revenues stream.

– Eliminating price controls, deregulating capital markets and lowering trade barriers. As for capital market point of view, to limit foreign holdings in the stock market, to limit GLC participation by way of encouraging the GLCs to sell down their ownership in stocks as well as to ease companies participation in the ACE market and also their movement from ACE market to Main market of Bursa Malaysia.

– Limiting the subsidies and handouts. Though BR1M is a measure of targeted form of subsidy, it is still bearing the characteristics of featherbedding, which discourages and limits self development in the society.

– Allowing media freedom

-Encourage self reliance in food production, which means promoting and supporting the agriculture industry.

All these economic reforms in transforming the country’s political economy should start from the grass roots level, and that includes individual, household and the society at large. Educating the rakyat on the necessities of reforms and difficult government decision such as subsidy rationalisation should be a priority. Any policy reform is indeed painful at the beginning, which largely due to people receptive of changes, thus it is important for the government to disseminate the right information.

Caveat Emptor

The Malaysian financial market has seen one major, if not shocking development on the first quarter of 2014.

The Bank won in Pesaka Astana case vs the bondholders. According to The Star, the decision by the Federal Court rattles the bond market. Well, this is the first Malaysian case whereby the Federal Court favoured the Principal Adviser / Lead Arranger, on the basis of veracity of information contained in the Information Memorandum (IM). Similar to prospectus issued by IPO, IM is a sales brochure containing the information on the bonds, which usually are sent to the institutional investors. In Malaysia IM are also available on the SC website, therefore it is a public document. One of the ways bond is different from shares and funds is that the bondholders are sophisticated investors where they are mainly institutional investors, the likes of Employee Provident Funds, Pilgrimage Funds, banks and other fund management companies. These institutional investors have vast capital market knowledge and experience, hence the difference in regulatory treatment and requirement for them as opposed to retail investors in shares, people like you and me.

Below are the chronology of this case, prepared by The Star:

Pesaka Basic Facts









However Maybank Trustees is not spared from the liability.


I personally don’t think that efficiency of the market will be affected after this. Ever since the first issuance of bond in our market, it has always been targeted to sophisticated investors, whom are expected to conduct their own research and due diligence before making their investment decisions. Therefore with this new court ruling, which not in favour of the bondholders it would mean a greater checks and balances on the investment decisions made by the fund managers.

Malaysian Economy, Where Will It Go From Here (Part 2)

Getting priorities Right by Wan Saiful Wan Jan (The Star)

“The Government has suddenly realised that we are in a bad fiscal situation. This news is not very new, actually.

Back in 2010, the alarm had been raised that Malaysia could face bankruptcy by 2019 if we continue giving handouts and subsidies the way we have been doing for decades.

With the benefit of hindsight, perhaps it would be right to say that the Government should have acted as soon as the warning was issued. Unfortunately with the 13th general election, politics took precedence over leadership.

And now, several months after GE13, the Government looks set to make some difficult decisions. The Goods and Services Tax (GST) will come into effect soon. And various subsidies will be reduced.

Let us get one thing clear. The Government is not increasing prices.

Instead, the Government is reducing subsidies and removing price controls that have been keeping prices artificially low for many years.

Prices should have actually gone up gradually over the years. But government intervention has kept them lower than what they should be, such that when the subsidies and controls are removed, the increase is drastic.

Many people are complaining about the rising cost of living. Rightly so. The cost of living is indeed increasing.

But some of the complaints are rather misdirected because they call for the Government to continue subsidising and controlling prices. This is the wrong demand.

Further subsidies and price controls will only keep us living in a false world, one in which the actual cost of living is masked by interventions by politicians, whichever side of the political divide they may be on. And the reality is, the interventions are unsustainable anyway.

The fact is, subsidies, handouts and price controls should be removed. The market must be allowed to function efficiently with minimal distortionary interventions. Therefore the Government’s decision to stop them, is, in principle, praiseworthy.

I say “in principle” because there is another factor that must be taken into consideration. That is the issue of prioritisation.

Malaysia’s fiscal management is in a sorry state. Every day we hear reports about how our money is wasted on travels, projects that are not needed, corruption and leakages.

Plus so much wastage has been identified in the Auditor-General’s Report again and again every year.

If the Government wants to save money, they should prioritise reducing the wastage and leakages.

They should also prioritise removing subsidies given to big businesses and concessionaries, and recovering money given under questionable situations.

Actions that affect common people should come last on the list.

Unfortunately it is still not clear what is being done to prevent problems already identified by the Auditor-General.

There is no news about how the Government plans to stop subsidising corporate entities and concessionaries. Nobody knows if the billions lost to questionable projects and contractors will ever be recovered.

Let me stress again that I completely agree subsidies and handouts must be removed. They have distorted our economy for such a long time, and they are bad for our future economic growth.

But the way these steps are being implemented today makes it impossible to argue for subsidy removal. The Government has prioritised the wrong first steps.

Let me suggest some more steps that can help save money without hurting the public.

Our Government spends billions every year in public procurement. Ideas studied this topic in 2013, and we have released a policy paper on it recently. We calculated that simply by improving the processes of public procurement, we could save up to RM2.3bil in public procurement alone.

If we add the amount of money spent by the Public Private Partnership Unit (Unit Kerjasama Awam Swasta) under the Prime Minister’s Department, the potential saving could be much more. But the unit operates in a protected environment and not much is known about how they evaluate contract proposals.

We need more transparency around Ukas.

Nevertheless, I am glad that Datuk Paul Low, Minister in the Prime Minister’s Department, has managed to persuade various agencies to improve their processes and employ competitive tendering instead of direct negotiation. This is a brilliant first step.

Another step to save money is by reducing the size of the civil service. Why exactly do we need to have such a bloated civil service anyway?

Now is a good time to start issuing redundancy notices to as many civil servants as possible.

Perhaps they can start with under-performing officers. They should be sacked, not merely transferred to another unit.

An example of government leadership is being shown by another country that is also facing fiscal challenges after decades of government splurging – the United Kingdom.

The UK government has committed to cutting administrative staff at their ministry of education by 40%, and another 23,000 administrative posts in their health services. That is concrete action.

If we see concrete actions with the right priorities, the Government will face less resistance.”

Some highlights of the articles:

  1. Our fiscal situation is bad. It is not new. It has been plaguing the country since many years ago, up to a point the World Bank estimated that at the rate we were going we would probably be bankrupt by 2019. Many Malaysians are ignorant to that fact that we were desperate for fiscal remedies.
  2. Learn about fiscal policies in Investopedia, though some economists shun Keynesian ideas but the gist is there.
  3. Goods and Services Tax is a form of consumption tax which its introduction would aid the country in reducing fiscal deficit. So welcome, GST.
  4. Subsidies, price controls and cash handouts would never ever work in the long run.
  5. Malaysians have been living in a false world where food price is (generally) cheap, non existent price increase (when price hikes normally happened during festivities). Thus when the government had to normalise the price by lifting the price controls, then all hell breaks loose. Just how is it to make you people understand that price increase is inevitable?? You can’t expect the price of 1kg of flour to remain constant at RM2 (for example) forever. That’s just not gonna happen.
  6. It seems that we have too many whiners who don’t (refuse to) understand the necessity of the government’s actions.
  7. Nevertheless spending cut should be a top priority. We have too many civil servants for such a small country (for God knows what reasons). There has been no profound action taken so far in handling corruption and leakages in government spending. UK govt as quoted in the article has successfully cut down their civil servants even up to 40%. That showed how committed the country is in curbing their challenges.

Till then, godspeed Malaysia.

Malaysian Economy, Where Will It Go From Here? (Part 1)

Our index this year

Our index this year

It’s nearing end of 2013..lots of things happening in Malaysia, particularly on the side of our economy this year. We finally had the 13th general election in early May after waiting for almost 18 months for it. Again Barisan Nasional coalition won with majority albeit losing 7 parliamentary seats.

Market moved in a positive direction where we could see 5% gain in KLCI in the 3-4 weeks after the election. But then came tapering of quantitative easing announcement which has halted the rally. We could see spike in bond yields by 80-100 bps and also weakness in emerging market currencies, including Ringgit, where it has lost 10% of its value from end May to end August.

See the spike after the election?

See the spike after the election?


Our bank has issued the first bond in the market after election and it was oversubscribed by 9 times times. Yes, our market was hungry. Prior to election everyone was cautious and sentiments were difficult to gauge, therefore it kinda hamper the excitement. Turned out everyone was hungry for new issuance, especially coming from an AAA rated issuer.

You happy, index?

Then along came Fitch with its rating downgrade. The rating agency has put Malaysia under negative watch (from stable) in July due to slow pace of fiscal reforms and rising government debt. As at end 2012, government debt has risen to 53.3% of GDP, whereas our revenue (mostly from petroleum) remains low at 24.7% of GDP. As expected, the first measure taken by the government was cutting down the oil subsidies. For which I believe, wherein other people blame the government for the sudden reduce in subsidy, was a necessary move in order to reduce fiscal deficit.

Well, a little input on sovereign ratings; it consist risk assessments assigned by the credit rating agencies to the obligations of central government. In other words it is the assessment of the likelihood that a borrower will default on its obligations. The ratings directly affecting fund raising activities, as it determines how expensive the cost of fundings will be. Lower rating assigned would indicate that it is more difficult for companies to raise foreign currency funds and it would be expensive for the country to borrow money from abroad. Plus, lower rating would dampen investment flow into our equity and bond market.

Anyway…the implementation of GST (as announced in 2014 budget in October) and the lowering of subsidies are not enough of measures to address fiscal deficit. The nation needs real structural reforms, say by way of tackling corruption and reducing leakages. Even after announcing the implementation of GST, Fitch still maintain its negative outlook, probably until they’re seeing our track record of budget management.

Fuel hike: Necessary or not?

Just yesterday the govt has announced an increase (actually a reduce in government subsidy) of 20 cent per litre for RON 95 and diesel prices. Roughly means that I have to fork out an extra RM10 whenever I fill up full tank on my Beetle 

Quoting Bloomberg on this news;

“Malaysia raised fuel prices for the first time since 2010, joining neighboring Indonesia in curbing subsidies that have stretched government budgets and threatened investor confidence.

The price of the widely used RON 95 grade of gasoline rose 20 sen to 2.10 ringgit ($0.64) a liter after Prime Minister Najib Razak announced the change yesterday in Putrajaya.. Diesel was put up 20 sen to 2 ringgit a liter. The increases will help the government save about 1.1 billion ringgit this year and 3.3 billion ringgit annually in future by reducing state subsidies, he said.”

What I believe to be the factors of the subsidy’s cut back (remember  this is based on what I believe);

Fitch downgraded Malaysian rating outlook to negative.

This was in July. Reasons cited : the country’s rising debt & lack of budgetary reform. Moody’s Investors Service said last month the country has a “narrow” revenue base and “relatively high” government deficits, state subsidy bills and debt.

What could happen next?




I believe that the government is finally having some concerns on the country’s fiscal position. Drastic as it may sound, but this has to be done.

But this is not all the govt does in tackling the deficit issue. There will be some delays in state building projects except for the ongoing construction of MRT projects. In a way this is a good measure taken by the govt (only if it materializes), but it is best to wait for the 2014 budget to fully grasp on what the govt is planning to do.


This is serious, yes. But the people has been ignorant for far too long, it’s beyond measures already. Najib’s administration – a reality check for you. Blanket subsidies (ever since the time of Dr. M) are proven to be fatal. There’s nothing good can be gained from giving handouts to people (politically motivated or not). Cash, fuel, rice, housing, shareholdings and many more are stellar example of how an economy built on aids won’t succeed in a long term.

Financial institutions and research houses have gradually lower their forecasts on year-end FBM KLCI and have increased their inflation forecasts to reflect higher fuel costs & weaker earnings expectations. However, had the govt do nothing over this, believe me we’ll get into deeper trouble. Well for a start ringgit was on a 3-year low hovering about 3.32 per dollar (5th worst performance among 11 most traded Asian currencies). Then today the ringgit climbed 0.4%t to 3.2615 per dollar as of this morning.

Could be a good thing, no?




good feeling

There is a fuzzy feeling when..

LT_2Q 2013







knowing that your team’s hardwork for the past one year is finally over and has paid off (well sorta). We have managed to issue MYR 2.0 billion worth of sukuk (shariah compliant bond) on 29 May 2013. Being a AAA rated + corporate guaranteed sukuk, it was oversubscribed by 9 times by 52 investors. Aaahhhh that damn good feeling. And with that issuance we have finally been able to list the bank in the top 5 spot of Bloomberg’s league table (a definite measure of success and capability in the world of corporate debt).

Now, excuse me while I’m off to take a looonggggg nap 😉