What’s Behind Facebook’s Plunge in Value of USD232 Billion?

Facebook parent Meta lost more than $232 billion in value on 3 February 2022. That's the biggest one-day drop in value in the history of the U.S. stock market. Meta's plunge, based on a weaker-than-expected revenue forecast, topped the prior record set by Apple, when it lost $182 billion in market value in September 2020. The seven biggest drops in stock market history have all occurred in the last two years, as Apple, Microsoft, Tesla andAmazon have ballooned in valuation. Prior to 2020, the largest drop was from Facebook — a $119 billion decline in 2018. That also occurred after Facebook forecast revenue was below analyst estimates.

Meta's drop in value comes as the company is looking past its current businesses, such as Facebook, Instagram and WhatsApp, and toward the metaverse, a virtual world based on new technology. Chief Executive Officer Mark Zuckerberg announced Wednesday Meta had a net loss of $10 billion in 2021 attributable to Meta's investment in the metaverse.

The following is a chart of the largest one-day valuation drops in U.S. stock market history since July 2018:

Other reasons cited for the huge one-day drop include:

• Challenges to its core advertising business;

• Decline of Facebook activity by users in the U.S. and Canada; and

• Young people are less likely to be use Facebook

Meta’s lost market value is more than total market capitalisation of companies like Oracle and Cisco. Mark Zuckerberg’s personal loss was more than USD30 billion.

The wild swings on prices could be the early signs of a major market correction (or collapse) but Meta for now looks like a value stock then a growth stock!

Reference:

Facebook’s $232 billion fall sets record for largest one-day value drop in stock market history, Alex Sherman, CNBC, Feb 3, 2022 (https://www.cnbc.com)

Office Space: Is There an Oversupply in KL/Klang Valley?

The Klang Valley office market is in a state of oversupply. The pandemic has made it worse. But landlords have been trying to get creative to maximise the value of their assets.

CBRE|WTW in its 2022 Market Outlook Report says the Klang Valley office sector is a tenants’ market, with landlords focusing on tenant retention via cost-cutting, asset enhancement and leasing strategies. Companies are benefitting from the current market to secure more favourable leasing terms. Landlords are enhancing building specs and offering more flexible leasing arrangements to drive or retain the occupancy.

According to Knight Frank Research, the average rental rate of office space in the Kuala Lumpur City (KL City) area retreated to RM6.79 per sq ft per month in the second half of 2021 (compared with RM6.87 in the first half), as the pandemic continued to impact the economy and businesses.

Similar to KL City, Knight Frank Research says the average office rent within the KL fringe area in the second half of 2021 was also lower at RM5.60 per sq ft per month (compared with RM5.69 per sq ft during the first half of the year).

In Selangor, it declined marginally to RM4.10 per sq ft per month during the period under review (from RM4.15 per sq ft per month in the first half).

During the review period, Knight Frank Research says asking rents of Prime A+ and Grade A office space within the KL City area ranged from RM5 per sq ft to RM12 per sq ft per month, depending on location. Within the new central business district (CBD), rentals ranged between RM7 per sq ft and RM12 per sq ft per month, while in the old CBD, it ranged from RM5 per sq ft to RM6.50 per sq ft per month.

According to Knight Frank Research in its Real Estate Highlights for the second half of 2021, the cumulative supply of office space in Klang Valley stood at around 112.6 million sq ft during the period under review, following the completions of Plaza Conlay@Conlay 301 and Imazium@Uptown in Selangor.

It adds that there are nine office buildings scheduled for completion by the first half of 2022, with five located in KL City and two each within the KL fringe area and Selangor. Upcoming completions in KL City are Menara Affin, PNB 1194, The Stride@Bukit Bintang City Centre (BBCC), Merdeka 118 Tower and UOB Tower 2.

In the KL fringe area, the upcoming buildings are The MET Corporate Towers and Aspire Tower. The impending completions in Selangor are Empire City Block J and Block G. Collectively, these completions will add around 5.2 million sq ft of space to Klang Valley’s existing cumulative office stock.

Amid growing challenges in the office market, Knight Frank Research says the overall occupancy rate of purpose-built office space in the KL City area dipped further to record at 65.5% during the second half of 2021. Similarly, the occupational demand in Selangor was also under pressure at 74.2%, compared with 75.8% in the first half of last year. Meanwhile, the overall occupancy rate within the KL fringe area remained resilient during the review period at 86.1%, compared with 85.9% in the first half of 2021.

Setting new benchmarks in sustainability, Knight Frank Research says the Merdeka 118 tower will be the first building in the country to earn platinum rating with international sustainability certification. “The tower includes 1.7 million sq ft of net lettable area of premium Grade A rentable office space, while the top 17 floors will house the first and only Park Hyatt Hotel in Malaysia. Knight Frank Research notes that the Merdeka 118 tower, which is 85% completed, is on track for completion by this year.

With the onset of the pandemic, CBRE|WTW says the movement control order in June last year prolonged companies’ work-from-home (WFH) arrangements and delayed the return to offices. Depending on the nature of work, CBRE|WTW says most organisations are likely to adopt a hybrid working mode.

Another notable trend is the conversion of office buildings into hotels as an alternative way to maximise asset value.

Many factors are at play in development of office space – general market conditions, flow of foreign direct investment, demand for office space, attitudes towards work in a confined space, travel time and amenities provided (gym, restaurants, newsstands etc). The best approach is to hedge “bets” with office space, hotel and other services in a building that straddles a transport hub?

Reference:

Landlords maximising value amid Covid and oversupply, Eugene Mahalingam, The Star, 

19 Feb 2022

Are We “Shameless” Malaysians?

In an article by JD Lovrenciear in Aliran (24 Feb 2022) a similar topic as above was posted. As he sees it, shame can be best described as a painful feeling of humiliation or distress caused by the consciousness of wrong or foolish behaviour. Shame manifests human thinking and a feeling of deep regret over a situation or action.

All major religions provide immense teachings and emphasis on shame. Voluminous psychological studies are on shame abound. Philosophers have also expressed their thoughts on this emotion throughout human civilisation.

Source: https://www.gottman.com

With the 1MDB case panning-out in a New York courtroom, we may have a sense of shame. But its true meaning is lost in Malaysia. Many are not ashamed of the sordid details spewed out in the courtroom. They are not ashamed that someone who was already convicted in our own court remains free “pending appeal”.

They are not even ashamed to parade with pride in large gatherings and chant, “Malu apa, bossku?!” (What’s there to be ashamed of, boss).

They are not ashamed that there is still one person at large, whom the authorities are helplessly unable to extradite and bring back to Malaysia to be tried.

Not just that. They are not ashamed that prestigious titles given out in good faith and with dignity and honour are not withdrawn, when the whole world knows the sins of the personalities associated with the 1MDB sovereign fund debacle.

Malaysian businesses are not ashamed when they are punished severely by foreign authorities for violating human rights and flouting rules against forced labour.  They deny first, accept under duress and re-dress when given little choice.

Some top civil servants have hit the headlines for questionable conduct. But, to them, the public shaming is often like water off a duck’s back. We have heard about cartel operatives within our police force. We have also heard about court clusters in the country. We have the top graft buster busted from charges. Where is the sense of shame?

The ultimate shame is that these sins of commission and omission and the mismanagement of the country’s wealth have resulted in a colossal loss for the people of Malaysia.

The obvious failure in stopping the rape of natural forest reserves and its plunder provide a clear barometer of the levels of shamelessness that have taken root – from the highest authority to greedy business tycoons acting with impunity. The ‘elite’ have lost their moral compass and behave like Vikings.

Our national shamelessness is also on display when many of us throw up our hands up and say, “What can we do lah?”

When shame has left the nation, we have sold the nation’s soul. When shame is no more a vital consideration to measure our progress and successes, we have pawned the country into a vulnerable spot that makes it easy meat for rogue nations to exploit. So, it was for Ukraine, corrupt to the core.

The question is, why are we increasingly becoming shameless?

We hear of many leaders elsewhere who resigned on their own volition to register their sense of shame and to save their respective nations from being shamed. But no more in Britain, with Boris hanging on despite parties during lockdown.

We hear of corporate magnates confessing and regretting their shameful actions in many places around the world and even stepping down from their positions. May be true in Japan or South Korea but not in Malaysia.

Do we have no sense of shame? Do we no longer fear God? Are we numb to those who commit crimes and get away scot-free? What can we do lah?

We can pray for righteous people rising to take the country forward. We can express our disgust in social media (or other medium). We can act to restore “Dignity, Integrity and Remorsefulness” by observing a day of fasting and prayer? We could get our religious leaders (and others) to organise a peaceful gathering to raise consciousness and change the current malaise? This has to be a “grass-root” movement not from the current leadership/elite who are mired in controversy.

Reference:

1MDB and beyond: When shame has lost its meaning in Malaysia, JD Lovrenciear, Aliran, 24 Feb 2022

Rapid Fall in Costs of Renewable Energy

Although all forms of renewable energy have become more competitive, the price of onshore wind and solar photovoltaic-generated power have both fallen below five US cents per kilowatt hour for the first time, the International Renewable Energy Agency (IRENA) says. Solar photovolaics has tumbled from nearly 8 times that figure just 10 years ago, while onshore wind has fallen steadily from nearly 9 cents per kilowatt hour in 2010.

Fossil fuel-fired power generation is estimated to cost between 5 and 18 cents per kilowatt hour, according to IRENA.

In April 2019, the United States generated more electricity from renewables than from coal for the first time. In the same month, the UKwent for 18 days without using any coal to generate electricity.

IRENA says $23 billion could be wiped off the world’s energy bills if the costliest 500 gigawatts of coal-generating plant was replaced by solar and wind power. While switching generation from fossil fuels to renewables would reduce global CO2 emissions by 5%, it says. Reasons to use coal to generate electricity are evaporating as renewables provide power more cheaply in the majority of cases, says IRENA. Over half of new renewable installations delivered generating costs that were lower than the cheapest comparable new coal-fired plant.

Three factors that mean renewables will continue to grow: public environmental concerns; falling renewable energy costs; and the fact the technologies are now available to make the renewable energy revolution happen.

Hopefully, Malaysia will be more aggressive in implementing renewable energy installations.

Reference:

5 charts show the rapid fall in costs of renewable energy, Douglas Broom, Nov 16, 2020 (https://energypost.eu)

Covid Impact: USD4 Trillion?

 The crash in international tourism due to the coronavirus pandemic could cause a loss of more than $4 trillion to the global GDP for 2020 and 2021. This is according to an UNCTAD report. The estimated loss has been caused by the pandemic’s direct impact on tourism and its ripple effect on other sectors closely linked to it.

The report, jointly presented with the UN World Tourism Organization (UNWTO), says international tourism and its closely linked sectors suffered an estimated loss of $2.4 trillion in 2020 due to direct and indirect impacts of a steep drop in international tourist arrivals.

A similar loss will occur in 2021. Tourism sector’s recovery will largely depend on the uptake of COVID-19 vaccines globally. COVID-19 vaccination rates are uneven across countries, ranging from below 1% of the population in some countries to above 60% in others. According to the report, the asymmetric roll-out of vaccines magnifies the economic blow tourism has suffered in developing countries. These countries may account for up to 60% of the global GDP losses.

The tourism sector is expected to recover faster in countries with high vaccination rates, such as France, Germany, Switzerland, the United Kingdom and the United States, the report says. But experts don’t expect a return to pre-COVID-19 international tourist arrival levels until 2023 or later, according to UNWTO. The main barriers are travel restrictions, slow containment of the virus, low traveller confidence and a poor economic environment.

The report assesses the economic effects of three possible scenarios – all reflecting reductions in international arrivals – in the tourism sector in 2021.

Figure 1: As tourism falls world GDP takes a hit in 2021 (3 alternative scenarios)

The first one, projected by UNWTO, reflects a reduction of 75% in international tourist arrivals – the most pessimistic forecast – based on the tourist reductions observed in 2020. In this scenario, a drop in global tourist receipts of $948 billion causes a loss in real GDP of $2.4 trillion, a two-and-a-half-fold increase. This ratio varies greatly across countries.

Figure 2: Estimated losses in GDP by region from reduction in tourism (percentage)

The second scenario reflects a 63% reduction in international tourist arrivals, a less pessimistic forecast by UNWTO. And the third scenario, formulated by UNCTAD, considers varying rates of domestic and regional tourism in 2021. It assumes a 75% reduction of tourism in countries with low vaccination rates, and a 37% reduction in countries with relatively high vaccination rates, mostly developed countries and some smaller economies.

According to the report, the reduction in tourism causes a 5.5% rise in unemployment of unskilled labour on average, with a high variance of 0% to 15%, depending on the importance of tourism for the economy. Labour accounts for around 30% of tourist services’ expenditure in both developed and developing economies. Entry barriers in the sector, which employs many women and young employees, are relatively low.

In July last year, UNCTAD estimated that a four- to 12-month standstill in international tourism would cost the global economy between $1.2 trillion and $3.3 trillion, including indirect costs. But the losses are worse than previously expected, as even the worst-case scenario UNCTAD projected last year has turned out to be optimistic, with international travel still low more than 15 months after the pandemic started.

According to UNWTO, international tourist arrivals declined by about 1 billion or 74% between January and December 2020. In the first quarter of 2021, the UNWTO World Tourism Barometer points to a decline of 88%.

Developing countries have borne the biggest brunt of the pandemic’s impact on tourism. They suffered the largest reductions in tourist arrivals in 2020, estimated at between 60% and 80%. The most-affected regions are North-East Asia, South-East Asia, Oceania, North Africa and South Asia, while the least-affected ones are North America, Western Europe and the Caribbean.

It looks like a long haul for recovery. Many had viewed 2022 as the year for recovery. IATA believes it won’t be until 2023 that passenger numbers are expected to reach pre-pandemic levels. For Southeast Asia it may be 2024. The chart below (IATA) suggests a conservative outlook:

Source: IATA/Tourism Economics Air Passenger Forecasts, November 2021

The implications are severe for our hotel, aviation, tourism and other related sectors. Will the Government do anything?

References:

1. Global economy could lose over $4 trillion due to Covid-19 impact on tourism, UNCTAD, 30 June 2021 (https://unctad.org)

2. 20 Year Passenger Forecast, IATA (https://www.iata.org)

Ukraine Conflict: What Are Its Economic Consequences?

Western countries have imposed severe sanctions on Russia but the economic fallout could also have a major financial impact on people around the world - from the availability of food to the cost of energy and petrol.

1. Escalation of Gas/ Oil Prices

Russia is the world's largest natural gas exporter. People in the UK and Europe are already paying high prices for energy and fuel. The Russia-Ukraine conflict is expected to drive these prices even higher. Oil price jumped to its highest level in more than seven years, while future gas prices have increased 60% in just one day.

Martin Young, an analyst at the banking group Investec, has warned that household fuel bills in the UK could reach an annual £3,000, while motoring groups said average petrol prices had already hit a record high of nearly 149.5p on Wednesday, with diesel at 152.83p.

Russia is the second-biggest exporter of crude oil, and the world's largest natural gas exporter, which is vital to heating homes, powering planes and filling cars with fuel.

The UK gets only 6% of its crude oil and 5% of its gas from Russia. The EU, however sources nearly half of its gas from Russia.

But customers could still be hit in other ways - if airlines decide to pass on the rise in costs of aviation fuel, the price of a plane ticket could get more expensive.

2. Food Prices Could Go Up

Ukraine has been called the "breadbasket of Europe". Russia and Ukraine export about a quarter of the world's wheat and half of its sunflower products, like seeds and oil. Ukraine also sells a lot of corn globally. Analysts have warned that war could impact the production of grains and even double global wheat prices.

More than 40% of Ukraine's wheat and corn exports go to the Middle East or Africa - and disruptions to supply could affect availability in these areas.

3. Higher Inflation

Inflation, which measures how fast the cost of living rises over time, hit 7.5% in January in the US - the highest level seen there since February 1982 - and rose by 5.5% in the UK.

But it could hit close to 10% in major Western economies if the cost of energy and food is pushed up by dwindling supplies, according to the Centre for Economics and Business Research.

That might encourage the US Federal Reserve or the Bank of England to increase interest rates. Consequently borrowing costs for businesses, homeowners and others will be higher. 

4. Stocks Will Fluctuate

Russian stocks crashed by as much as 45% in the wake of the Ukraine invasion, with banks and oil companies among the worst affected. It also led to steep falls on stock markets elsewhere around the world: in Europe the UK's FTSE 100 index fell more than 3% while Germany's Dax index was nearly 5% lower.

Many people's reaction to stock market changes is that they are not directly affected, because they don't invest money in stocks and shares. But there are millions of people with a pension whose savings are invested in the stock market.

Widespread falls in share prices, such as those triggered on last Thursday, are likely to be bad news for passive investors. 

Some investors or savers might look to protect their money or assets by moving them to traditional "safe havens", like gold, especially as the markets are likely to see more volatility as the crisis develops.

5. Cars could get pricier

The car industry was already reeling during the pandemic from a chip shortage and supply chain problems. Russia is one of the world's largest suppliers of metals used in car manufacturing, such as nickel, which is used in lithium-ion batteries, and palladium, which is used in catalytic converters.

If supplies of these metals are not cut-of in retaliation to sanctions, the supply problems could worsen, with car firms having to find alternative sources.

Countries such as South Africa and Zimbabwe produce substantial amounts of palladium, but demand has been increasing and prices could rise as a result.

Russia is also home to manufacturing hubs for brands like Stellantis, Volkswagen and Toyota. Factories in the region could struggle to operate under sanctions, potentially hampering production and the availability of new cars.

6. Lower Economic Growth

With oil prices higher, supply chain disruptions, GDP growth of major economies will dent by at least 1%.

Whatever the reason for the invasion, the fragile economic recovery is now going into a tailspin. It will impact most nations unless it is a closed economy. So, it is good for us to brace for impact.

Reference:

Ukraine conflict: Five ways life could get more expensive, Lora Jones, BBC News

Ukraine Conflict: What Does Putin Really Want?

Russian troops are closing in on Ukraine's capital, days after Russia's leader ordered a full-scale invasion from the north, east and south. In a pre-dawn TV address on 24 February, he declared Russia could not feel "safe, develop and exist" because of what he claimed was a constant threat from modern Ukraine.

Airports and military headquarters were hit first then tanks and troops rolled into Ukraine from Russia, Russian-annexed Crimea and ally Belarus. Many of President Putin's arguments were false or irrational.

President Putin has frequently accused Ukraine of being taken over by extremists, ever since its pro-Russian president, Viktor Yanukovych, was ousted in 2014 after months of protests against his rule.

Russia then retaliated by seizing the southern region of Crimea and triggering a rebellion in the east, backing separatists who have fought Ukrainian forces in a war that has claimed 14,000 lives. 

Late in 2021, Russia began deploying large troop numbers close to Ukraine's borders, while repeatedly denying it was going to attack. Then Mr Putin scrapped a 2015 peace deal for the east and recognised areas under rebel control as independent.

Russia has long resisted Ukraine's move towards the European Union and the West's defensive military alliance, NATO. Announcing Russia's invasion, he accused NATO of threatening "our historic future as a nation".

It is now clear that Russia is seeking to overthrow Ukraine's democratically elected government. President Putin blamed partly his decision to attack on NATO's eastward expansion. He earlier complained Russia had "nowhere further to retreat to - do they think we'll just sit idly by?" Ukraine is seeking a clear timeline to join NATO and Russia's Deputy Foreign Minister Sergei Ryabkov explained: "For us it's absolutely mandatory to ensure Ukraine never, ever becomes a member of NATO."

In 2011, President Putin wrote a long piece describing Russians and Ukrainians as "one nation", and he has described the collapse of the Soviet Union in December 1991 as the "disintegration of historical Russia".

He has claimed modern Ukraine was entirely created by communist Russia and is now a puppet state, controlled by the West.

President Putin has also argued that if Ukraine joined NATO, the alliance might try to recapture Crimea. But Russia is not just focused on Ukraine. It demands that NATO return to its pre-1997 borders. In President Putin's eyes, the West promised back in 1990 that NATO would expand "not an inch to the east” but did so anyway.

NATO views itself as a defensive alliance with an open-door policy to new members. Its 30 member states are adamant that will not change. There is no prospect of Ukraine joining for a long time, as Germany's chancellor has made it clear. But the idea that any current NATO country would give up its membership is a non-starter.

So, what does Putin really want? Yes, NATO to stop its expansion westward. Yes, Ukraine to be more integrated with Russia. Yes, the cultural, language, religious and historical links may justify that this is for the betterment of “one people”.

But is that all? No, Putin wants Ukraine for three other simple reasons:

(i) there are huge gas reserves off the Ukrainian-Romanian coastline in the Black Sea. That ensures economic stability for Russia;

(ii) the existing gas pipeline to Europe through Ukraine has been downgraded because of the high tariff imposed by Ukraine. Russia had to build and pump gas through alternative routes for Western Europe;

(iii) Ukraine has “blocked” the water channel for Crimea because of Russia’s invasion of Crimea in 2014.

The first point alone is enough reason to warrant this adventure and he (Putin) knows the consequences are small with his bets “hedged” with China. It is America and Europe that must “climb down” and accept a new, different regional realpolitik. Will they do that?

References:

Why is Russia invading Ukraine and what does Putin want, Paul Kirby, BBC News

NATO: Why Russia has a problem with its eastward expansion, https://www.dw.com