Monday, 6 July 2020

The Original Evil Corporation and the Latter Day “Saints”

Corporate influence, with its fatal blend of power, money and unaccountability, is particularly potent and dangerous in frail states. Corporations are insufficiently regulated, and where the purchasing power of a large company can outbid or overwhelm an underfunded government.

The lobbying power of the largest corporations can even make and break governments: The Anglo-Persia Oil Company (now known as British Petroleum) was able to induce a coup that toppled the government in Iran in 1953; United Fruit Company which owned 42 percent of Guatemala’s land, lobbied to bring about a C.I.A.-backed coup a year later in 1954. The International Telephone and Telegraph Corporation campaigned for the ouster of Chile’s Salvador Allende in the 1970s, while more recently Exxon Mobil has lobbied the United States to protect its interests in Indonesia and Iraq.

The roots of this predatory corporate culture go back 400 years to the foundation and the global rise of the East India Company. Many modern corporations have attempted to match its success at bending state power to their own ends, but the Company remains unmatched for its violence and sheer military might.

Using the looted wealth of Mughal Bengal, the Company started ferrying opium east to China, then fought the Opium Wars to seize an offshore base at Hong Kong and safeguard its profitable monopoly in narcotics. To the west, it shipped Chinese tea to Massachusetts.

The Company had become, as one of its directors said, “an empire within an empire,” with the power to make war or peace anywhere in the East. It had also by this stage created a vast and sophisticated administration and Civil Service, built much of London docklands and came close to generating a quarter of Britain’s trade. Its annual spending within Britain alone equaled about a quarter of total British government annual expenditure. Its armies were larger than those of almost all nation- states and its power now encircled the globe.

Although it has no exact equivalents, the Company was the ultimate prototype for many of today’s corporations. Today we can blame MNCs for the evils of the world. But there are some who resort to nothing short of murder and mass genocide for profit. These are the latter day “saints”:

1.  Monsanto / Bayer

Round-up is a flagship of Monsanto. Its weed killer kills humans as well. Bayer bought the U.S. firm for USD63 billion in 2018. On Wednesday 24 June 2020, Bayer announced it will pay more than USD10 billion to Americans who say their cancer was caused by Roundup. That sure is a “Rounddown”.

Roundup is a flagship Monsanto product containing glyphosate. (AP pic)

2. Big Pharma

High concentrations of drugs have been dumped into water supply systems (e.g. India and U.S.). U.S. pharmaceutical companies with factories have been known to dump 100 lbs of ciprofloxacin into a stream per day.

3. Rio Tinto (“RT”)

RT operates mostly out of Africa. They have the worst track record for human rights. It has its “own private mercenary army” to keep blacks from rising up against them and the government. They have been known to act forcibly against activists opposing their gold mines in Indonesia.

There are many more and we need to be vigilant of MNCs that operate with scant regard for human life or environment. Many multi-lateral agreements have their stamp of approval, and weak or poor governments are “bullied” into submission. That’s western imperialism translated into corporate capitalism.


1. The Original Evil Corporation, William Dalrymple, The New York Times, Sept 4, 2019

2. 10 Evil Corporations You Buy From Everyday, Andrew Handley, Feb 21, 2013 (

3. Bayer Agrees USD$10 Bil Settlement Over Weedkiller Cancer Cases, by AFP, 25 June 2020 (

Friday, 3 July 2020

Growth vs. Value Investing on the Bursa Malaysia during Covid-19 Pandemic

Click here to read our full paper published in CFA ARX!


Meanwhile, have a look on our Top 5 most viewed blog posts (1H 2020):

1.     “Why Nations Fail” 29 June 2020

2.     “Dr. Doom” Predicts Greater Depression of the 2020s 9 June 2020

3.     Malaysia Will Face Recession? 1 April 2020

4.     Impact on Ringgit with Oil Price War 13 March 2020

5.     Of Haircuts, Warm Water, Doraemons and TikToks 16 April 2020

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Thursday, 2 July 2020

Moratorium or No Moratorium?

Malaysia’s Finance Minister was reported as saying that borrowers should speak to their banks to request for an extension of the present moratorium which ends on 30 September 2020. “It is really up to them”, according to the Minister. Malayan Banking Berhad said on Friday, 26 June 2020 that it would not be extending the six-month loan moratorium period.

So much for “breathing space”. Many businesses (esp. SMEs) will go on “ventilators” or be “buried” in liquidation. Who rescued the banks in 1997 and 2008? The taxpayer! And then they made RM4 billion a year or more in net profit.

About 60% of SMEs did not have sales for 3 months, at least, due to the MCO. That’s according to Datuk Michael Kang, President of SME Association of Malaysia. Many see a pick-up by end of this year or early next year. So another six months moratorium will certainly help. And that cannot be done unless Bank Negara Malaysia (“BNM”) acts.

For banks, it is helpful to be transparent. What is the proportion of loans that are under moratorium? We need data to assess if banks are truly impacted by the moratorium. In India, it is between 30% to 70% of loans for different banks that have extended moratorium. Extension on the moratorium on term loan instalment is a major relief to borrowers facing liquidity issues. This is not a loan waiver (or forgiveness!). It just gives SMEs some extra time to repay their debt. Credit scores should not be adversely affected nor impairments be considered. Where companies cannot even meet interest obligations, then it is “rolled-up” to be repaid at a later date.

Banks have to take a more proactive stance and workout potential “problem” loans now then later. Moody’s Investors Service is of the view that the risk of credit loss will increase substantially if economic downturn and measures to contain the spread of the pandemic persists longer. Banks have robust capital adequacy and liquidity even in these circumstances.  Yes, profitability will decline but this is for a year or two. And isn’t it better to save viable businesses that could be providing future revenue streams for the banks?

So, it makes sense to extend moratorium on principal repayment (for term loans) by another six months to March 2021. Interest, perhaps, could continue to be serviced by the SMEs. It requires leadership from BNM, not just leaving it to individual banks to decide.

1. Businesses Need Breathing Space, Rashvinjeet Bedi and Hanis Zainal, The Star, 1 July 2020
2. Explained: What RBI’s Extension of Loan Moratorium Means, Sunny Verma (
3. Coronavirus Impact: Loan Moratorium May Lead to Greater Build-up of Credit Losses for Banks, says Moody’s, 21 April 2020 (

Wednesday, 1 July 2020

Revised IMF Projections for 2020/2021

The International Monetary Fund (IMF) has downgraded its outlook for the coronavirus world in its latest (June 2020) outlook. It expects global GDP to shrink by 4.9% in 2020 and a positive growth of 5.4% in 2021. Global trade volume in goods and services will probably tumble 11.9% this year.

Source: International Monetary Fund

IMF chief economist Gita Gopinath said that cumulative loss for the world economy in 2020/21 is USD12.5 trillion. Fiscal measures amounting to USD11 trillion globally is expected to cushion impact on workers and businesses.

The fund lowered its expectations for consumption in most economies based on a larger-than-expected disruption to domestic activity, demand shocks from social distancing and an increase in precautionary savings.
In the U.S., GDP is expected to contract 8% in 2020, compared with the previous 5.9% projection. The world’s largest economy may grow 4.5% next year, the IMF said.
The euro area will probably shrink 10.2% in 2020 before expanding 6% in 2021, the fund said.
The IMF sees advanced economies shrinking the most, contracting 8%, compared with 6.1% previously. Emerging-market and developing economies will see a 3% contraction, compared with the 1% forecast in April. China will still manage to expand 1%, supported by policy stimulus.
India saw the largest revision among the biggest economies from the April forecasts, with a 4.5% contraction now expected, compared with a prior projection of a 1.9% expansion. Latin America has been hit by the virus due in part due to less developed health systems, and its two biggest economies, Brazil and Mexico, are forecast to contract 9.1% and 10.5%, respectively.
The IMF has revised its gross domestic product (GDP) forecast for Malaysia to a 3.8% contraction from a previous 1.7% on the back of a stronger-than-expected negative impact on the economy due to Covid-19.
For 2021 it has revised growth to 6.3% from 9% (April report).
The World Bank, however, sees Malaysia’s contraction at 3.1% is 2020 and a positive growth of 6.9% in 2021.

The near-term outlook remains “unusually uncertain at present”. What comforting words – that also reflects our political situation as well!

1. IMF Projects Deeper Global Recession on Growing Virus Threat, Eric Martin, June 24, 2020, Bloomberg (
2. IMF Sees Malaysia GDP to Contract 3.8% in 2020, Xavier Kong, June 25, 2020, Focus Malaysia (

Tuesday, 30 June 2020

Do American Zombie Companies Fuel New Risks?

The number of “zombie” companies has sharply increased with one in five U.S. firms are now zombies. This is primarily due to the Covid-19 pandemic.

What are “zombies”?

Firms whose debt servicing costs are higher than their revenue/profits but are kept alive by relentless borrowing. Zombies provide 2.2 million jobs in the U.S. As long as the Fed (or other central banks) keeps rates low for a long time, unproductive firms remain alive. But ultimately it lowers long-run growth rate of the economy.

If a V-shaped recovery is nebulous, and a prolonged U-shaped recovery is more likely then moribund companies scarred by the pandemic will keep borrowing. Is the Fed and the Government interfering in the process of creative destruction? Some think so!
If the pace of the recovery is quick enough, corporate-bond buyers say plenty of hard-hit companies should be able to turn things around. But the question on the minds of investors and economists alike is: how long will the Fed be willing to support firms via its pledge to buy corporate debt if the recovery is slower to develop than expected?
“The government has done more than I could have imagined to allow businesses to access capital, and if the markets shut down again the government will do even more,” said Bill Zox, chief investment officer of fixed income at Diamond Hill Capital Management, which manages around $19.5 billion.
Cruise lines have borrowed more than $8 billion via the bond market in recent weeks, selling notes secured by everything from ships to islands. Airlines, for their part, have gotten more than $14 billion in new financing from banks and investors while the vast majority of flights remain grounded.
“We have entire industries that are going to be protracted long-term if not permanently disrupted because of this,” said Vicki Bryan, a veteran credit analyst who runs Bond Angle LLC. “The cruise industry is ripe for elimination of companies. It should logically renounce the weaker players but that’s not happening because we have dirt-cheap money that we’re willing to throw back into the market from the Fed.”
Beyond just lending them money, creditors are also waiving or loosening financial markers on existing debt, allowing companies that have seen revenue dry up stave off potential tumult.
Vail Resorts Inc., owner of the eponymous winter vacation destination, was granted a two-year reprieve on key debt covenants last month, paving the way for the company to raise $600 million with a new bond offering. Marriott, one of the world’s largest hotel chains, struck a similar agreement with lenders.

A representative for Vail said that the company’s bank covenant waiver provided additional flexibility given the short-term dislocation from Covid-19, and that it remains confident in the long-term outlook for both profit and cash flow.
Yet amid the waivers, lenders are extracting higher interest rates or other concessions. Norwegian Cruise Line Holdings Ltd.AMC Entertainment Holdings Inc. and Avis all paid double-digit yields to borrow in recent weeks. That could depress their capacity to make capital expenditures and adapt to shifting consumer tastes as the coronavirus changes how people spend money.
“Taken together with margin contraction and leverage that was already near record highs, you may end up with a corporate sector that has less capacity to invest in growth,” said Noel Hebert, director of credit research at Bloomberg Intelligence.
Some say as successful as the Fed has been boosting credit-market liquidity, the support is only temporary, and will result in a wave of distress when it steps back.
“There will be plenty” of debt defaults and bankruptcies when corporate borrowers start running out of cash in the months ahead, Howard Marks, co-chairman of Oaktree Capital Group, said in a Bloomberg interview. “There are large, highly levered companies and investment vehicles that the government and Fed rescue program is not likely to reach and take care of.”
Others see central-bank intervention keeping companies alive for much longer, crowding out investment and employment at healthy firms, similar to what occurred in Japan during the nation’s ‘lost decade’ of the 1990s, where the ‘zombie company’ term was first applied.
The repercussions may only become apparent years from now, according to Marc Zenner, a former co-head of corporate finance advisory at JPMorgan Chase & Co.
Will this cause another crisis? Or, will economies move like Japan in its decade of stagnation?

What do you think? free polls
1. America’s Zombie Companies Are Multiplying and Fueling New Risks, Lisa Lee and Michael F David, May 19, 2020 (
2. Highly Indebted “Zombie” Companies Control More Than 2 Million U.S. Jobs, Jeff Cox, May 20, 2020 (
3. “Zombie” Companies May Soon Represent 20% of U.S. Firms, Dion Rabouin, June 15, 2020 (

Monday, 29 June 2020

“Why Nations Fail”

Source: Global Risk Insights

Daron Acemoglu of MIT and James Robinson of Harvard co-authored a book entitled as above. Their study of rise and fall of economies all over the world concludes that China is on course to reach about a third of U.S. per capita income by late 2020s and about 40% of that in the 2030s. It will be difficult to progress further, if China remains a “copycat” economy.

A good analogy is the Soviet Union in the middle of the 20th century. Moving from agrarian into an industrial economy, it was one of the fastest growing economies. Then it ran out of steam in the 1970s. Malaysia similarly had remarkable growth in the 80s and 90s and then settled for a sedentary pace of 4-5% p.a., with no Covid-19.

Acemoglu calls them “extractive” economies run by a narrow political elite for their own benefit. Such economies hardly innovate because innovation means allowing new “champions” to emerge and outcompete existing power players. In China (or Malaysia) the economy is dominated by large state enterprises often controlled by elites or some political members of a ruling party (or coalition).

Malaysia, China or others like them can be innovative if political reforms and key institutions are strengthened to act independently. For example, a judiciary that acts fearlessly and competently will encourage innovation - knowing that intellectual property will be protected. Falsified research, malaise in standards, rampant copying, abuse of human rights, violation of basic universal values are all elements of a decline. Why did Rome fall? A steady deterioration of values; increase in corruption and intrigue; and, weakened institutions ensured its eventual demise. Not barbarians at the gates!

‘Black Lives Matter’ is a renewal for America. The Trump moral morass is now under a renewal reset. Campaign slogans work for a while but real change is needed.

That’s where Acemoglu and Robinson’s major thesis is – economic prosperity depends on inclusiveness of economic and political institutions. When people have a say in the decision-making, that is inclusiveness. When talent and creative ideas are rewarded, that is inclusiveness. When minorities feel they are part of a large tent, that is inclusiveness. In contrast, “extractive” institutions are those that extract wealth from the non-elite. Nations with a history of extractive institutions have not prospered – Congo, North Korea, Haiti, Somalia, Zimbabwe, Egypt, Pakistan, Myanmar and many others. They are poor because the ruling elite has organised society for their own benefit at the expense of the people.

The choice for the rich is whether it is taxation and redistribution or will the poor decide for renewal or revolution as the way forward. The rich have the incentive to propose a taxation rate that doesn’t provoke a revolution, while not losing too much of their benefits. So, democratization refers to a situation where the rich “willingly” increase monetary redistribution to the poor in order to avoid a revolution.

In short, authoritarian economies choke-off sustained, long-term growth and prosperity. Inclusiveness, equality and diversity enable societies to flourish and prosper. And institutions where strengthened provide the platform for this to take shape. This postulate has critics who cite technology, geography, productivity, leadership as other factors for nations to succeed. Whatever the case, we in Malaysia are at a critical stage in our development and leaders need to look at issues objectively rather than be coloured by lenses of race and religion.  


1. Marshall Ingwerson, ‘Why Nations Fail’: Will this be China’s century?
2. Ed Sappin, Five reasons China will fail to dominate in business, CNBC
3. Warren Bass, Book review: ‘Why Nations Fail,’ by Daron Acemoglu and James A. Robinson,   The Washington Post
4. Why Nations Fail,

Friday, 26 June 2020

The Five Biggest Stocks on S&P 500

Apple, Microsoft, Alphabet,Amazon and Facebook — now make up 18% of the total market capitalization of the S&P 500, the highest percentage in history, according to Morgan Stanley.

"A ratio like this is unprecedented, including during the tech bubble," Mike Wilson, the bank's head of U.S. equity strategy, said in a note Sunday. "Capital concentration is following corporate inequality like never before."

Apple's weighting in the S&P 500 surpassed 4% in October, the sixth time the iPhone maker has crossed that threshold. But if history is any guide, it could be a ominous sign for the stock, according to Leuthold Group analyst Phil Segner.

He noted during the previous five times when Apple topped the 4% threshold, the stock underperformed the S&P 500 by nearly 9% on average in the next 12 months.

Going back to 1990, only five stocks — Apple, Microsoft,Generic Electric, Cisco Systems and Exxon Mobil — have claimed more than 4% of the S&P 500, and their leader status has typically been short-lived.  General Electric stayed the longest — 15 months — above the threshold, while Cisco only lasted a month.

Apple and Microsoft, which surged 86% and 55% in 2019, respectively, together accounted for nearly 15% of the S&P 500′s advance last year. No other stock even came close to their contribution.

The megacap stocks are leading the market again in the new year. In fact, the 50 largest stocks in the S&P 500 are up the most this year with an average gain of 1.22%, according to Bespoke Investment Group.

"The larger, the better so far in 2020," Paul Hickey, Bespoke's co-founder said. "Market cap has seemingly been the most important factor in terms of performance so far this year."

Bank of America highlighted the "rising correlation and concentration risks" in a recent note to clients, arguing a case can be made for active stock picking in other areas of the market away from the big players.

The 10 largest stocks in the S&P 500 and the Russell 1000 benchmarks now account for 23% and 21% of the total index market cap, respectively — the highest levels since the tech bubble, according to Savita Subramanian, head of U.S. equity and quantitative strategy at Bank of America.

As these tech giants' market caps ballooned to record highs, their income contribution to the broad market decreased in recent years, a red flag for the stock prices, Wilson of Morgan Stanley said.

"These companies will then need to deliver on the income side of the inequality divide or risk a sharp decline in price," he said.


The five biggest stocks are dwarfing the rest of the stock market at an 'unprecedented' level, Yun Li, Jan 13 2020 (