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.



References:


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 (www.listverse.com)

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




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!


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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.

References:
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 (www.indianexpress.com)
3. Coronavirus Impact: Loan Moratorium May Lead to Greater Build-up of Credit Losses for Banks, says Moody’s, 21 April 2020 (www.sakaltimes.com)


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!

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