Wednesday, 30 October 2019

Palm Oil “War”: A Self-Inflicted Wound?

As expected, India retaliated. Indian refiners have stopped buying Malaysian palm oil for shipments in November and December. They don’t have to wait for any official statement from their government.

Only a stable genius like our PM, would assume everything was alright. Actually, the Malaysian leader knew that he had jeopardised trade after he accused India of having invaded and occupied Jammu and Kashmir at the United Nations last month.

India does not need to give anything "official" to Malaysia before officially punishing the country with a restriction or a total boycott of its palm oil. What they needed to do was to leak to international news media like Reuters about the Modi government’s desire to send a strong signal of its displeasure to the Malaysian government. And that was precisely what the Indian government had told Reuters. Besides leaking that New Delhi was considering slashing imports of Malaysian palm oil, the “sources” had also revealed that India, was planning to substitute Malaysian palm oil with supplies of edible oils from countries like Indonesia, Argentina and Ukraine.

The unofficial news also created confusion. Such uncertainties have forced Indian buyers to switch to Indonesia to avoid unnecessary problems. Indonesia and Malaysia are producers of palm oil and they are neighbours so there’s little problem with changes of shipping logistics.

India is the world’s fifth largest economy with GDP of US$3.16 trillion, while Malaysia is ranked 11th with its GDP at US$402.61 billion. According to India’s trade ministry data, Malaysia’s exports to India stood at US$10.8 billion in the 2018/19 fiscal, while imports from New Delhi totalled US$6.4 billion – hence the US$4.4 billion surplus in favour of Malaysia.

In short, Malaysia’s total import of Indian products constituted only 0.2% of India’s GDP. However, India’s total import of Malaysian products was 2.7% of Malaysia’s GDP. This means even if Malaysia stops buying Indian products altogether, New Delhi would most likely not be affected. Unfortunately, the same cannot be said about Malaysia.

Malaysia’s palm oil exports to India in 2018 was valued at US$1.65 billion – just 0.052% of India’s GDP, but account for more than 15% of total Malaysian exports to the country. A trade war should be the last thing on Mahathir’s wishlist. The country simply cannot win a trade war with India, while it’s still facing the effect of US-China trade war.

Lower purchases by India, the biggest buyer of Malaysian palm oil in 2019, could lead to higher inventories and put pressure on Malaysian palm oil prices, which in turn would make 110,000 “unhappy” FELDA settlers.

And now, India is sourcing more palm oil from Indonesia. CGS-CIMB Research head of agribusiness Ivy Ng however believes that this could be a zero-sum game. The potential diversion of palm oil demand by India from Malaysia to Indonesia may not last due to supply constraints in the Indonesian palm oil market. Indonesia could not fulfil the additional demand from India, domestic demand (due to higher B30 biodiesel mandate in 2020) and demand from the other markets at the same time. Some demand may be diverted back to Malaysia over some time. Also, higher demand for Indonesian palm oil could narrow the price gap between Indonesian and Malaysian CPO. Malaysian CPO usually trades at a premium to Indonesian CPO.

After the news broke that Indian refiners are avoiding Malaysia like a plague, Primary Industries Minister Teresa Kok was sent to do damage control, saying Malaysia is exploring the possibility of buying raw sugar from India starting next year to enhance bilateral trade with the country.

Can Mahathir convince China (imported 1.61 million tonnes) and Pakistan (imported 821,591 tonnes) to absorb the 3.9 million tonnes of palm oil if India decides to go full-blown into a trade war with Malaysia? India is the largest importer of Malaysia’s palm oil, followed by China and Pakistan. Malaysia is neither China nor has a huge trade deficit with India that it could use as points in negotiations. Teresa Kok should tell her boss that it would take more than sugar and buffalo to fix the problem. As a start, perhaps Mahathir could repatriate unsavory characters to India to ensure New Delhi would not stop importing Malaysian palm oil while both parties negotiate.


1. Mahathir Triggers His Own Downfall,
2. India’s ‘ban’ on Malaysian palm oil seen a zero-sum game, 29 Oct 2019, The Edge Financial Daily

Tuesday, 29 October 2019

The SEZ Boom: A New Wave of Industrial Policies

Special economic zones (SEZs) are spreading rapidly around the world. That's according to UN's World Investment Report (2019). These are geographically delimited areas within which governments facilitate industrial activity through fiscal and regulatory incentives and infrastructure support.

The most common types of SEZs are variations on free zones. Essentially, separate customs territories. In addition to relief from customs duties and tariffs, most zones also offer fiscal incentives. Others include: business-friendly regulations with respect to land access; permits and licenses; employment rules; administrative streamlining and facilitation; and infrastructure support. In return, governments expect investors operating in SEZs to create jobs, boost exports, diversify the economy and build productive capacity.

There are nearly 5,400 SEZs today. More than 1,000 were established in the last five years. At least 500 more zones have been announced and are expected to open in the coming years.

Figure 1: Historical trend in SEZs (Source: UNCTAD)

Many new types of SEZs and innovative zone development programmes are emerging. Some focus on new industries, such as high-tech, financial services, or tourism. This is beyond the trade and labour-intensive manufacturing activities of traditional SEZs. Others focus on environmental performance, science commercialization, regional development or urban regeneration.

Zones developed with a foreign partner are increasingly common. Despite the attention that government-to-government partnership zones have attracted, the majority are built with international private zone-development firms. There is no formal agreements with a foreign government.

However, the performance of many zones remains below expectations. Where they lift economic growth, the stimulus tends to be temporary. After the build-up period, most zones grow at the same rate as the national economy. And too many zones operate as enclaves with limited impact beyond their confines. In addition, it is important to consider the social and environmental impacts of SEZs.

The sustainable development imperative is arguably the most urgent challenge. The 2030 Agenda to achieve the Sustainable Development Goals (SDGs) provides an opportunity for the development of an entirely new type of SEZ: the SDG model zone. Such zones would aim to attract investment in SDG-relevant activities, adopt the highest levels of ESG standards and compliance, and promote inclusive growth through linkages and spillovers.

SDG model zones could act as catalysts to transform the “race to the bottom” for the attraction of investment (through lower taxes, fewer rules and lower standards) into a race to the top – making sustainable development impact a locational advantage.


United Nations, World Investment Report 2019 – Special Economic Zones

Monday, 28 October 2019

Urgency for Reforms

In an article on “Reform does not have to cost votes” by Davide Furceri, Jonathan D.Ostry and Chris Papageorgiou, (published in The Edge Financial Daily, 21 Oct 2019), the writers present lessons from their analysis:

(i) Government should act swiftly following an electoral victory – carry out the reforms in the honeymoon period;
(ii) reforms are best implemented when economic conditions are favourable; and
(iii) safety nets and active labour markets are available given there is job creation and destruction.

The whole article was on structural reforms for an economy. It seems valid for political reforms as well especially on points (i) and (ii).

Malaysia's new government has failed to deliver on most of its human rights reform promises in its first year in power, Human Rights Watch and Amnesty International said in May 2019.

Most of its planned reforms have either been delayed or withdrawn, following a backlash from opposition parties and conservative ethnic Malay Muslim groups, Human Rights Watch said. "There's been far too much of the government just coasting on prevailing political winds," Mr Phil Robertson, the group's deputy Asia director, told reporters in Kuala Lumpur. "It has to stand up and show some conviction."

Tun Dr Mahathir's administration had promised sweeping changes, including abolishing the death penalty, revoking repressive sedition and detention laws, and reforming key state institutions. But in March, the government said it planned only to abolish the mandatory death penalty, leaving it for courts to decide whether a person convicted of serious offences should hang. Malaysia has also withdrawn plans to ratify a United Nations convention against racial discrimination, and to accede to the Rome Statute, which would have seen it joining the International Criminal Court.

The reversals came after groups representing the majority ethnic Malay community raised objections, saying the treaties could erode privileges enjoyed by Malays and affect the immunity of traditional Malay rulers in nine states.

The momentum to reform laws of the nation has therefore slowed down. Conflicting signals seem to prevail. We need the summary removal of Sosma, Pota, Poca and the Sedition Act, amongst others. Otherwise, the executive branch will behave no better than the previous Government. Having said that and if these laws are to remain with amendments, then why not use it on the kleptocrats and their followers? They seem to be active in the news media and working on intrigues to destabilise the nation.

On the economy, investors need clarity on growth and currency. The recent Budget is rather tepid on both. And if the Industrial Revolution 4.0 is to be implemented, there will be job creation and losses. New re-training schemes and safety nets for workers affected will be in order. The Economics Minister and the Finance Minister have to act in tandem to re-boot the economy. We moved from agriculture to an industrial nation in the 80s. It is time to set-up a new “MIDA” for the Digital Age with R&D labs and innovation clusters. Others are doing it —— Singapore is a good example. Malaysia has great plans (e.g. SPV), it is in implementation that we lack.


1. Reform doesn’t have to cost votes, 21 Oct 2019, The Edge Financial Daily
2. Malaysia’s new government slow on reforms, rights groups say, 8 May 2019, The Straits Times
3. Malaysia’s hopes of economic revival under Mahathir fade, 10 May 2019, Reuters

Friday, 25 October 2019

CFA Institute Investment Foundations Program: Chapter 13 – Structure of the Investment Industry (Part II)

In a previous article, we introduced the CFA Institute Investment Foundation Program (Read more here).  It is a free program designed for anyone who wants to enter or advance within the investment management industry, including IT, operations, accounting, administration, and marketing.  Candidates who successfully pass the online exam earn the CFA Institute Investment Foundations Certificate.

There are total of 20 Chapters in 7 modules, covering all the essential topics in finance, economics, ethics and regulations.  This series of articles will highlight the core knowledge of each chapter.

Chapter 13 provides an overview of the Structure of the Investment Industry. The learning outcome of chapter 13 is as follows:

·       Describe needs served by the investment industry;
·       Describe financial planning services;
·       Describe investment management services;
·       Describe investment information services;
·       Describe trading services;
·       Compare the roles of brokers and dealers;
·       Distinguish between buy-side and sell-side firms in the investment industry;
·       Distinguish between front-, middle-, and back-office functions in the investment industry;
·       Identify positions and responsibilities within firms in the investment industry.

Brokers, dealers, clearing houses, settlement agents, custodians, and depositories provide various services that facilitate investment by helping buyers and sellers of securities and investment assets arrange trades with each other and by holding assets for clients.

Brokerage services are provided to clients who want to buy and sell securities; they include not only execution services (that is, processing orders on behalf of clients) but also investment advice and research.

Dealers make it possible for their clients to trade without having to wait to find a counterparty; they are ready to buy from clients who want to sell and to sell to clients who want to buy. Dealers thus participate in their clients’ trades, in contrast to brokers who do not trade with their clients but only arrange trades on behalf of their clients.

Clearing houses and settlement agents settle trades after they have been arranged. Clearing refers to all activities that occur from the arrangement of the trade to its settlement. Settlement consists of the final exchange of cash for securities.

Custodians are typically banks and brokerage firms that hold money and securities for safekeeping on behalf of their clients. Thus, they play an important role in reducing the risk that securities may be lost or stolen. Security ownership records were once commonly held as actual paper certificates in secure vaults. Now, securities are almost exclusively held in book-entry form as secure computer records. The conversion of evidence of security ownership from physical certificates (called immobilisation) and electronic corporate ownership records (called dematerialisation) into standardised book-entry records greatly reduces the costs of clearing and settling trades.

Depositories act not only as custodians but also as monitors. They are often regulated and their role is to help

·       prevent the loss of securities and payments through fraud, deficient oversight, or natural disaster.
·       ensure that securities cannot be pledged more than once by the same borrower as collateral for loans.
·       ensure that securities said to be purchased are actually purchased.

Sell-side firms are typically investment banks, brokers, and dealers that provide investment products and services. Buy-side participants are typically investors and investment managers that purchase investment products and services.

The front office of a sell-side firm consists of client-facing activities that provide direct revenue generation. The middle office includes the core activities of the firm, such as risk management, information technology, corporate finance, portfolio management, and research. The back office houses the administrative and support functions necessary to run the firm, such as accounting, human resources, payroll, and operations.

Sell-side firms are best described as firms that: free polls

Thursday, 24 October 2019

The Jeff Bezos Empire

The Amazon founder and CEO has de-throned Bill Gates in October 2017 and held the title of the richest person on the planet. Bezos has been steadily building his fortune since then, and according to the latest Forbes’ billionaires ranking, his net worth was registered at $131 billion. Let’s take a look at some of the biggest assets owned by Bezos.
Amazon makes acquisitions and investments that relate to the company’s core business and future ambitions. This includes acquisitions of Whole Foods ($13.7 billion in 2017), ($1.2 billion in 2009), PillPack ($1 billion in 2018), ($970 million in 2014), and Kiva Systems ($780 million in 2012).

This also includes investments in everything from failed dot-com company (2000) to Twilio, which successfully made its IPO in 2016.

Bezos Expeditions
Bezos Expeditions manages Jeff Bezos’ venture capital investments. Over the years, this venture arm has put money into Twitter, Domo, Juno Therapeutics, Workday, General Fusion, Rethink Robotics, Business Insider, MakerBot, and Stack Overflow.

More recent investments include GRAIL, a startup that recently raised over $900 million to cure cancer before it happens, as well as EverFi, an edtech startup.

Jeff Bezos
Jeff Bezos also invests money on a personal level. He was an angel investor in Google in 1998, and has also put money in Uber and Airbnb. (Note: these last two companies are listed on the Bezos Expeditions website, but on Crunchbase they are listed as personal investments.)

Nash Holdings LLC
Nash Holdings is the private company owned by Bezos that bought The Washington Post for $250 million.

Bezos Family Foundation
The BFF is run by Jeff Bezos’ parents, and is funded through Amazon stock. It focuses on early education, and has also made an investment in LightSail Education’s $11 million Series B round.

Blue Origin
Finally, it’s also worth noting that Jeff Bezos is the founder of Blue Origin, an aerospace company that is competing with SpaceX in mankind’s final frontier.


Jeff Desjardins, The Jeff Bezos Empire in One Giant Chart

Wednesday, 23 October 2019

Graduate Unemployment in Malaysia: A Crisis?

*Content below is a repost from

“Study hard. Get a degree. Find a good job. Live happily ever after.”

Sounds familiar?

According to, every year, over 290,000 students graduate from institutions of higher learning. Unfortunately, 1 out of 5 graduates remain unemployed, with the majority being degree holders. These graduates make up 55% of those who are unemployed.

Infographic by:

According to Education Minister Dr Maszlee Malik, nearly 60 percent of first-degree holders and above remain unemployed after one year of graduation (Malaymail, 15 Oct 2019). This is based on findings from the Ministry of Education Malaysia’s Graduate Tracer Study (SKPG) for 2018.

Graduates were requested to fill in the SKPG online survey upon graduation in order to proceed with their convocation. However, once they secure their jobs, they have to update their employment status manually. Thus, it is possible that graduates who managed to secure a job refused to spend another 10-20 minutes to update their survey forms. The statistic of ’60 percent’ unemployment rate is probably unreliable.

We have done a simple research on the employment rate of both public and private universities. The findings are as follows:

Employment Rate
78.15% in 2017 upon graduation
Official Website, Tracer Study

85% within 6 months after graduation in 2016

Official Website

85.5% as of 31st December 2018
Official Website

Above 81% within 3 months after graduation in 2014

Official Website

Above 95% within 6 months after graduation since 2005

Official Website

Sunway University
Ranging from 74% (School of Arts) to 100% (School of Healthcare and Medical Science)

Official Website, Tracer Study

Taylor’s University
97% within 6 months after graduation

Official Website

INTI International University
99% within 6 months after graduation

Official Website

The above sort of conflicts with MOE data and the scheme for Graduates@Work by the Minister of Finance. A Government funded/supported internship will be helpful for graduates and/or a conversion program for those with the “wrong” skill sets!
On an individual level, remember that the degree that you choose to study does not determine your entire future! While a degree will equip you with the right knowledge related to your field of study, other skills (both hard skills and soft skills) are crucial too. Most importantly, make sure you are constantly learning and adaptable.

1. Michelle Leo, What You Didn’t Know About Fresh Graduate Unemployment in Malaysia [Infographic],
2. Minister: Almost 60pc of graduates remain unemployed a year after graduation, 15 Oct 2019, MalayMail

Tuesday, 22 October 2019

Is ‘Malaysians@Work’ A Good Idea?

One of the key highlights of the Budget 2020 is the introduction of Malaysians@Work initiative, aimed to create better employment opportunites for youth and women, also to reduce over-dependence on low-skilled foreign workers. The Malaysians@Work is divided into four programmes as follows:

The programme is so far more like an ‘incentive scheme’, it is all about incentives. According to the Minister of Finance Lim Guan Eng, the Government anticipates that the Malaysians@Work initiative would create an additional 350,000 jobs for Malaysians and reduce over-dependence on foreign workers by more than 130,000. However, it would cost RM6.5 billion over five years, according to Lim.

Do we really need to spend this huge amount of money as ‘incentive’ for those who are supposed to work (e.g. the graduates)? If the purpose of doing so is to encourage the youths to work, the Government should instead ‘rewards’ those who are able to secure a job right after they graduate. Also, is giving out hiring incentives to the employers a correct way to create employment opportunites for youths and women? Wouldn’t employers simply just replace the elderly employees with the youths or women given the current economic condition?

The Government should look into the root causes behind the unemployment rate. What are the reasons for fresh graduates or women to be unemployed? What caused the country to be over-dependent on foreign workers?

According to Bank Negara Malaysia, between 2010 and 2017, the number of tertiary graduates entering the workforce surpassed the number of jobs created for them. Of the total vacancies in July 2019, 69.4% was for low-skilled jobs (MIDF, 2019). Skills mismatch is the main issue faced by our fresh graduates. In a survey conducted by the World Bank and Talent Corporation in 2014, 90% of companies were found to believe that graduates should have more industrial training by the time they graduate. However, less than 10% of companies had experience in developing relevant programmes with universities. Therefore, instead of giving incentives, the Government should solve the skills mismatch problem through funding on on-the-job skills training and/or internships of a year with relevant companies. And also create more job opportunities for our skilled labour force. The latter could be done by attracting more investments from foreign and multinational companies.

A two-year incentive for locals who replace foreign workers seems good on the surface but this is only a short-term solution. The low-skilled foreign workers are mostly employed in sectors that are deemed dirty, dangerous and difficult (3D). To reduce our addiction to cheap labour, technology and automation is a better solution. Thus, more should be allocated in helping the locals to acquire the right skills and knowledge in technology, as well as businesses to get onto the automation track with R&D.

It’s only 11 days after the announcement of Budget 2020. We need more details to see how Malaysians@Work will actually be implemented. What do you think about this programme? Comment below and let us know!


1. 2020 Budget Speech by YB Tuan Lim Guan Eng
2. Bank Negara Malaysia (2018), Annual Report
3. MIDF (2018), Full-Employment Condition despite Challenging External Front

Monday, 21 October 2019

Is Malaysia’s Tax System Appalling?

M.Shanmugam of The Star (12 Oct 2019) was of the view that the state of the tax system is appalling. According to his report 62.4% or 780,742 companies are registered with the IRB. This is out of a total 1.25 million companies. But had he discounted the dormant and defunct ones?

On personal income tax, only 16.5% or less than 2.5 million people are subjected to tax (out of 15 million in the work force).

Malaysia’s tax revenue is 13.8% of GDP, compared to South Korea (17.4%) and 14.2% for Singapore and Thailand. We are above Indonesia which is only at 3.4% of GDP.

Hence, the argument for GST. But there is no marked difference, on average, between GST and SST collected. Around RM30 billion collected each year.

What is a fair system? Opinions about a good tax system will vary but five conditions are key:

(i) equity; everybody should pay a fair share of taxes. Horizontal equity means taxpayers in similar financial condition should pay similar amounts in taxes. Vertical equity suggests taxpayers who are better off pay at least the same proportion as those who are less well off. Vertical equity requires classifying taxes as regressive, proportional or progressive – A sales tax could be viewed as regressive as lower income people pay a higher share of their incomes for essential items. Proportional is like property taxes while progressive is higher income people can afford and should be expected to meet their share for public services. So the Democrats in the U.S., like Alexandria Ocasio-Cortez are for 70% tax rate for higher income individuals or corporates.

(ii) adequacy; taxes levied must provide enough revenue to meet basic needs of society.

(iii) simplicity; this reduces costs of compliance.

(iv) transparency; information on the tax system is easily available and how tax revenue is used to fund the system. Details on who pays and who benefits are other aspects of transparency.

(v) administrative ease; tax system is not complicated or costly for taxpayers to comply. This should be small in relation to amount collected.

The recent Budget 2020 was not impressive on this area. It only had an increase of tax rate of 28% to 30% for individuals earning RM2 million or more in a year. The Finance Minister could have improved the graduated scale for corporates and individuals. It is pointless to “race to the bottom” on corporate taxes with the likes of Hong Kong or Singapore. And again, the informal and “gig” economy were not accounted for. Perhaps, he could review taxes with an expert panel (or commission) before suggesting any new ones.


1. The appalling state of the tax system, 12 Oct 2019, The Star
2. Characteristics of an Effective Tax System, Oklahoma Policy Institute,

Friday, 18 October 2019

CFA Institute Investment Foundations Program: Chapter 13 – Structure of the Investment Industry (Part I)

In a previous article, we introduced the CFA Institute Investment Foundation Program (Read more here).  It is a free program designed for anyone who wants to enter or advance within the investment management industry, including IT, operations, accounting, administration, and marketing.  Candidates who successfully pass the online exam earn the CFA Institute Investment Foundations Certificate.

There are total of 20 Chapters in 7 modules, covering all the essential topics in finance, economics, ethics and regulations.  This series of articles will highlight the core knowledge of each chapter.

Chapter 13 provides an overview of the Structure of the Investment Industry. The learning outcome of chapter 13 is as follows:

·       Describe needs served by the investment industry;
·       Describe financial planning services;
·       Describe investment management services;
·       Describe investment information services;
·       Describe trading services;
·       Compare the roles of brokers and dealers;
·       Distinguish between buy-side and sell-side firms in the investment industry;
·       Distinguish between front-, middle-, and back-office functions in the investment industry;
·       Identify positions and responsibilities within firms in the investment industry.

The investment industry provides services to those who have money to invest—individual and institutional investors who become providers of capital. Investing involves many activities that most individual and institutional investors cannot do themselves. Investors must

·       determine their financial goals—in particular, how much money they will need to invest for future uses and how much money they can withdraw over time.
·       identify potential investments.
·       evaluate the risk and return prospects of potential investments.
·       trade securities and assets.
·       hold, manage, and account for securities and assets during the periods of the investments.
·       evaluate the performance of their investments.

Financial planning helps investors set their financial goals and determine how much money they should save for future expenses and/or how much money they can spend on current expenses while still preserving their capital.  Meanwhile, investment management assists retail, institutional, and high-net-worth investors in implementing their savings and investment plans to be able to achieve their financial goals. The three major investment management activities are asset allocation, investment analysis, and portfolio construction.

Asset allocation indicates the proportion of a portfolio that should be invested in various asset classes to help meet financial goals. Asset classes typically include cash, equity and debt securities, and alternative investments (such as private equity, real estate, and commodities).

Investment analysis involves estimating the fundamental value of potential investments and identifying attractive securities and assets. An investment’s fundamental value, also called intrinsic value, indicates the price that investors would pay for the investment if they had a complete understanding of the investment’s characteristics. A widely used approach to estimating the fundamental value of an investment is to estimate the present value of all the cash flows that the investment will generate in the future.

Portfolio construction is the activity that brings everything together. It requires investment managers to invest in the attractive securities and assets they identified through their investment analysis, taking into account the client’s requirements and appropriate asset allocation. To do so, investment managers must trade securities and assets; hold, manage, and account for these securities and assets during the periods of investment; and evaluate the performance of these investments.

Investment managers may suggest passive or active investment management, or both. 
Passive investment managers seek to match the return and risk of an appropriate benchmark. Benchmarks include broad market indices that cover an entire asset class, indices for a specific industry, and benchmarks that are customised to the needs of a specific client.

In contrast, active investment managers try to predict which securities and assets will outperform or underperform comparable securities and assets. The managers then act on their opinions by buying the securities and assets that they expect to outperform and selling (or simply not buying) the securities and assets that they expect to underperform. Active investment strategies are more expensive than passive investment strategies because they require greater resources, so investment clients hire active investment managers only when they believe that these managers have the skill to outperform the market after taking into consideration all fees and commissions.

Many investors and investment managers obtain investment research, financial data, and consultancy services from firms that specialise in providing these services. These companies include investment research providers, credit rating agencies, financial news services, financial data vendors, and investment consultants.

Passive managers will most likely: free polls