a month after one of the crude oil futures contracts fell below zero, it has rebounded. Now
it is nearly USD 33 a barrel.
prices fell with fears of a shortage in global oil storage capacity. The U.S.
Energy Information Administration (EIA) is of the view that the rate of
inventory builds peaked in April, and as oil demand begins to return and oil
supply reduces, price will begin to rebound. According to EIA, global oil
demand is expected to exceed supply beginning in the second half of 2020. Prices
could then steadily rise.
The EIA forecasts that Brent crude oil
prices will rise to an average of USD32/b during the second half of 2020. The average
Brent oil price will be USD48/b in 2021, reaching USD54/b by the end of the
year. This price forecast reflects an expected global oil consumption of 97.4
million barrel per day during the second half of 2020, along with relatively
high compliance of announced OPEC+ production cuts, both of which are
uncertain. Also, the response of U.S. shale industry to the current low prices
will affect the oil price path in the coming quarters.
oil prices, the Ringgit
could be weaker in the short term.
above graph shows the regression plot of Brent Oil Price vs. Ringgit with
monthly data retrieved from May 2010 to April 2020. The scattered blue dots
plot out the historical exchange rate (USD/MYR) corresponding to respective
Brent Oil Price. The fitted regression line (the blue line) on the other hand
represents the relationship between exchange rate and oil price. In short, the
graph shows that the Ringgit weakened when oil price declined.
on our regression model (R2 = 0.77), with average USD32/b Brent crude price
in second half of 2020 as forecasted by EIA, Ringgit could slip to 4.4312
against the USD. But with oil price reaching USD48/b on average in 2021, the
Ringgit could hit 4.1656 against the USD.
ringgit is more dependent on local conditions. It will likely weaken in the
short term because of the knee-jerk sentiment, but should recover by the midterm,”
said Alliance Bank chief economist Manokaran Mottain. His projections (22 April
2020) are for the ringgit to hit the RM4.30 to RM4.35 mark by year end.
forecast is based on a single dependent variable model where oil price change
is the only explanatory variable for any exchange rate change. However
according to Manokaran, the ringgit used to track oil prices very closely but not
in recent weeks. He pointed out that another factor providing some stability
for the ringgit is the foreign fund flow into the bond market. Carry trades are
happening out there with foreign fund managers taking advantage of Malaysia’s
interest rates. Thus, Manokaran expects the ringgit to be relatively stable due
to the influence of the bond market. What do you think?
1.Short-Term Energy Outlook, 12 May 2020,
Kool, The Relentless Oil Price Rally, 15 May 2020
3.Ringgit could face weakness before
picking up, 22 April 2020, The Star
the book ‘The Art of Doing: How Superachievers Do What They Do and How They
Do It So Well’, Camille Sweeney and Josh Gosfield, the authors had
interviewed 36 star performers that climbed to the top of their fields. The couple
didn’t want to theorize about success, instead, they went straight to the
source by asking the super-achievers, “How do you do what you do?”
matter how diverse their goals or crafts, these super-achievers shared many of
the same habits. How can you follow in their footsteps? Jenna Goudreau from
Forbes has summarised 10 qualities that will set you apart:
Dedication to A Vision
magazine success stories often don’t show the dark moments, the daily grind or
flagging energy that super-achievers endure to realize their goals. However,
that dedication is essential to their success.
super-achiever’s story is that of four times Formula One World Champion Lewis
Hamilton, who won his first ever Grand Prix as a rookie back in 2007. In the
Canadian Grand Prix, he said ‘I, always knew I was going to win; it was just a
question of when and where.’
you have that level of certainty and belief, not only mindset but your whole
being, what’s going to happen? You’re going to win!
failure is never an option, you don't give up. You find another contact,
another way, another point of entry, and you keep trying until you accomplish
what you have set out to do.
thing successful people know: Dedication and blind persistence are two very different
things. “You can work hard but not smart,” says Sweeney. “When something’s not
working, you’ve got to tweak it. Some people just keep banging their heads
against the wall.”
Fostering A Community
performers know they can’t achieve success on their own. Instead, they must
galvanize a group of people around their idea or goal.When an entrepreneur has large
professional networks, he increases his access to knowledge, which can spur
innovation within his own company.
community doesn’t just include partners and coworkers. It might also mean
employees, customers, investors, mentors, fans and social media followers.
Teamwork, or having an ecosystem of supporters, turns out to be critically
vital for success.
Listening and Remaining Open
don’t normally think of hard-charging, action-oriented leaders as being good
listeners,” says Sweeney. “These people’s ability to practice the art of
listening helped them learn what they needed to know about the world around
listening requires an open mind. Often in conversation we make decisions and
judgements about what we are hearing, and we think about how are we going to
respond. When we stay active in listening, we suspend judgement and allow our
minds to stay curious and open to possibilities.
have the ability to transport people to your world. They then are more likely
to invest in you and your brand. Philippe Petit, famous for his high-wire walk
between the Twin Towers of New York City's World Trade Center in the 1970s,
believed other wire-walkers were trying to make it look hard. “But he wanted to
be a poet in the sky and seem effortless,” Sweeney says. “His narrative wasn’t
in words, but it was a story he was communicating.”
successful business with good brand stories is Nike. Nike has always excelled
at brand storytelling. One of their best campaigns is Equality. It made a
strong statement about the company as a force for positive social change,
offering something more to today’s athletes than just a pair of sneakers and
branded workout gear. This is an example of using brand storytelling to connect
with the audience, inviting them to become a part of a collective movement by
wearing Nike products.
will continue with another five (5) qualities next week! Stay tuned!
Recovery in the retail sector may
accelerate in the coming weeks fuelled by “revenge spending”. That’s the view
of some. The term was coined by Amrita Banta, managing director at Agility
Research, to describe pent-up consumer demand. Then there is, of course Hari
Raya, which may lend weight to that view!
The retail scene has been impacted by
the Covid-19 pandemic. According to Retail Group Malaysia’s preliminary report
on the retail scene, a decline of 9.3% is expected in Q2,2020. Malaysia’s
retail sector crashed 18.8% during Q1,2020. For the 3rd and 4th
quarters, retail sales in Malaysia are projected to grow by 2.5% and 3.3%
Retailers are preparing aggressive
marketing promotions to draw back customers. That’s according to Datuk Seri
Gary Chua of Malaysia Retail Chain Association (“MRCA”). The constraint is
social distancing. Capacity is then going to be limited to 40-50%, especially
for dine-in outlets. Others feel growth is not likely anytime soon and recovery
in sales will take at least eight months.
Regardless, it is not just Covid-19
and MCO but also trade wars and oil price slump. Other sectors that may benefit
from revenge pending include health, safety and cleanliness.
Deloitte Southeast Asia’s consumer
industry leader, Pua Wee Meng believes crowded places like malls, cinemas and
sporting events will be frequented less. Many will opt for online services.
Even eateries will need to revamp cleanliness and food content. Online
education services may see a surge. New skill sets are required for those in
tourism and e-commerce.
Households may increase spending on
health supplements, herbal products and medical devices to prepare for future
Many consumers may flock to gyms and
fitness centres to get back in shape.
Overseas travel will be restricted,
delaying recovery in the aviation, hotel and tourism sectors.
The reality, however on revenge spending
is that it may not surface. Why? There is deferred spending to be expected
because of the lockdown but revenge consumption suggests it is going to be a
binge! The fact is consumers are going to be more conservative, when they are
faced with a deep recession. It is not a “Black Friday” event.
Retail sales in China fell 20.5% in
January and February compared to same period in 2019. Car sales in China for
February, plunged 79% from a year earlier. That does not bode well.
With incomes lower (or none), binge
spending is not likely to arise in China, U.S. or Malaysia. But Governments
need to invest massively in infrastructure and encourage exports in goods and
services to recover from this recession.
when the tide goes out that you discover who's been swimming naked.
Amidst the doom and gloom that comes with the pandemic,
Warren Buffet must have discovered he was swimming naked. In recent news, his
firm, Berkshire Hathaway had pulled out stock ownership from four major airlines
in the United States, namely, Delta Airlines, American Airlines, Southwest
Airlines and United Airlines. Does that mean the tide has left the aviation
industry, globally? What does that mean for MAS, Air Asia and the rest?
According to Brian Pearce, Chief Economist at the
International Air Transport Association (IATA), the aviation industry has lost
approximately $252billion in revenue, as compared to the same period in 2019.
Economics Team at IATA.
Based on this table, it can be said that
the Asia-Pacific region took a hit with a loss of $88billion dollars. The IATA
economics team has also forecasted that the global (revenue passenger
kilometre) or RPK is set to plummet to -8% as the global GDP growth is on a
Source: Economics Team
at IATA and Oxford Economics.
The Malaysian aviation industry looks
fairly similar to the global outlook. Based on a report from the International
Law Office, Malaysian Aviation Group (MAG) which includes Malaysian Airlines
Berhad, MASwings, MAB Engineering and Firefly, had offered its 13,000 employees
two unpaid leave options, commencing the start of April 2020. The first option
being, taking 3 months of unpaid leave or the second, 5 days of unpaid leave
per month for a period of 3 months.
Besides MAG, AirAsia Group has its
management team and senior employees sacrificing from 15% to 100%, of their
salaries. It also has also grounded most of its fleet and encouraged affected
passengers by the movement control order, to accept credit instead of flight
ticket refunds. According to CGS-CIMB research, AirAsia Group only has a
current cash balance to last for a period of less than 5 months.
So, what now?
Post Covid-19 Flight Plan for Airlines, by BCG.
According to Boston Consulting Group’s
report on the impact of the aviation industry post COVID-19, there is a glimmer
of hope. Distinctions have been made between travel for business and leisure
travels. Once international borders reopen, the demand for business travels
will increase quickly. Nevertheless, this spike is dependent on the state of
the economy and the long-term effect of remote working practices.
Leisure travel, on the other hand, is
distance dependent. As lockdowns are being slowly lifted in various countries,
many would like to escape the confines of home with a short vacation. This, of
course, is subject to the assurance from the airlines that the health of
passengers is prioritised. After all, until a vaccine is discovered, the danger
of COVID-19 is still very potent. Long-haul
leisure travel would have a longer rebound as this has to take into account
both, planning time and money.
The report also illustrates five demand
recovery scenarios, based on current events and previous data from the SARS
outbreak and the 9/11 attacks. It is believed that the middle scenario
(prolonged U-shape) is the most likely. This would mean a very slow yet steady
recovery, of 12-18 months.
What can Malaysia do in the meantime?
IATA has written to 18 governments in
Asia-Pacific, including Japan, South Korea, Malaysia and Thailand to provide
emergency relief to their respective carriers. This includes direct financial
support, loans, loan guarantees and tax relief.
The Malaysian Aviation Commission
(MAVCOM) is suggesting that the government should only bailout the airlines
industry when necessary. This route is very similar to the United Kingdom’s
approach -- a bailout can only happen when the airline has exhausted all
financial resources and sources of private borrowings. Instead of a financial
bailout, MAVCOM suggested some non-fiscal policy and regulatory responses. These
include policy changes in allowing the airline to obtain sources of funding
from domestic and international capital markets and the possibility of airline
mergers. MAVCOM has also suggested targeted measures of funding, as listed
allocated to combat the spread of Covid-19 (the purchase of flight
disinfection, medical and hygiene equipment);
and subsidies for airline employee payroll retention;
government-imposed charges such as air traffic control charges, airport levies
and industry development levies, for a brief period;
interest rates for public or private loans; and
subsidies and exemptions for transportations services of goods and aviation
In a nutshell, the sun has not set on the aviation industry, just yet. However, as a captain would say “Ladies and gentlemen, please return to your seats and fasten your seatbelts. We are currently experiencing turbulence. Thank you.” That may sum up the present predicament!
Ian Davis, a previous partner at McKinsey, wrote in 2009 in the midst of the
global financial crisis:
some organizations, near-term survival is the only agenda item. Others are
the fog of uncertainty, thinking about how to position themselves once the
crisis has passed and things return to normal. The question is, ‘What will
normal look like?’ While no one can say how long the crisis will last, what we
find on the other side will not look like the normal of recent years.’
coronavirus crisis is shaping a new normal. McKinsey (April 2020) has listed
seven (7) elements for business leaders to consider as they plan for the next
before Covid-19 hit, there were signs of unease, expressed in calls for
protectionism and more restrictive immigration and visa policies. More distances
were created from those unlike themselves.
around the world have imposed severe restrictions on people and to deal with
the pandemic. More than three billion people live in countries whose borders
are now totally closed to non-residents.
for businesses, the prospect of more border restrictions, a greater preference
for local over global products and services, the need for resilience across
supply chains driving a move to bring sourcing closer to end markets, and
perhaps renewed resistance to globalization are all possible second-order consequences
of the actions being taken now to cope with the coronavirus. Technology
continues to shrink physical distance, but in other ways, it could be set for a
Resilience and Efficiency
ability to absorb a shock, and to come out of it better than the competition—will
be the key to survival and long-term prosperity. McKinsey research on the 2008
financial crisis found that a small group of companies in each sector
outperformed their peers. They did get hurt, but recovered much faster. By
2009, the earnings of the resilient companies had risen 10 percent, while that
of the non-resilient had gone down almost 15 percent. What characterized the
resilient companies was preparation before the crisis—they typically had
stronger balance sheets—and effective action during it—specifically, their ability
to cut operating costs.
in the wake of recent natural disasters, the impact of climate change was
recognized increasingly by business leaders and investors, with consequent
effects on decision making and valuations. Many companies will rebalance their
priorities, so that resiliency—in all its manifestations—becomes just as
important to their strategic thinking as cost and efficiency.
The Rise of the Contact-Free Economy
three areas in particular—digital commerce, telemedicine, and automation—the Covid-19
pandemic could prove to be a decisive turning point.
is accelerating the change to online shopping habits. The figures for
telemedicine and virtual health are just as striking. Teladoc Health, the largest
US stand-alone telemedicine service, reported a 50 percent increase in service
in the week ending March 20. The Federal Communications Commission is spending
$200 million to improve connectivity between patients and virtual-healthcare
automation was already occurring before Covid-19. It is becoming possible to
imagine a world of business—from the factory floor to the individual consumer—in
which human contact is minimal.
More Government Intervention in the Economy
of April 10, governments across the globe had announced stimulus plans
amounting to $10.6 trillion—the equivalent of eight Marshall Plans.Most spending is directed to three
areas—supporting citizens’ basic needs, preserving jobs, and helping businesses
to survive another day. (What is Malaysia doing? Read more here)
some point, governments may decide to get out of the business of business; how
they do so will be complicated and differentiated. How much, how fast, and in
what ways governments reduce their economic role will be one of the most
important questions of the next decade.
More Scrutiny for Business
citizens all over the world could face higher taxes and/or fewer services in
order to pay
the $10.6 trillion committed so far. The public will expect—indeed, demand—that
their money be used for the benefit of society at large.
with many businesses likely to be operating to some extent with public money,
the scrutiny will be intense. There will be real effects on the relations between
government and business, and between business and society.
Changing Industry Structures, Consumer Behaviour, Market Positions, and Sector
mentioned above, being more resilient and efficient are the keys for businesses
to sustain. The changes to consumer attitudes toward physical distance, health,
and privacy could last.Concern
over the possibility of other “black swan” events could change how consumers
approach financial security—saving more and spending less. Given the intensity
of these pressures, it is reasonable to question whether existing market positions
will be retained. It is possible that institutions may find new and enduring
ways to collaborate to address the current crisis.
Finding the Silver Linings
necessity is the mother of invention—and often it is—there could be some
positive outcomes of the coronavirus crisis.
For businesses, the consequences are profound.
Many have learned how to operate remotely. The urgency of addressing Covid-19
has also led to innovations in biotech, vaccine development, and the regulatory
regimes that govern drug development, so that treatments can be approved and
tried faster. In many countries, health systems have been hard to reform; this
crisis has made the difficult much easier to achieve. The result should be more
resilient, responsive, and effective health systems.
possible next normal is that decisions made during and after the crisis could
lead to less prosperity, slower growth, widening inequality, bloated government
bureaucracies, and rigid borders.
Or it could be that the decisions made during
this crisis lead to a burst of innovation and productivity, more resilient
industries, smarter government at all levels, and the emergence of a
Where the world lands, is a matter of
choice—of countless decisions to be made by individuals, companies,
governments, and institutions in the days ahead.
1.The future is not what it used to be:
Thoughts on the shape of the next normal, McKinsey, April 2020
2.After Covid-19, a new normal, Free
Malaysia Today, 28 April 2020