“See You at 5”

There was an expression during the Asian Financial Crisis (“AFC”) of “see you at five”, this was when the ringgit to the dollar was headed south and before capital controls was imposed. The weakening ringgit have led many to believe that this is possible, especially when the Fed is hawkish.

But the ringgit is firmer (year-to-date) against the Japanese yen (12.5%), British pound (7.2%), South Korean won (7.1%) and marginally higher (0.9% to 3.8%) for the yuan, baht, Philippines peso and the euro.

Over the long-term (10-15 years) its relative performance is shown in the chart below:

While the picture looks respectable over a 5-year period, it looks depressing over the 10-15 year period (see Chart 2). We have collapsed by almost 50% to the U.S. dollar, over the last 10 years. Other significant declines are against Chinese yuan (34.7%), Singapore dollar (24.4%) and the Thai baht (24.4%). The ringgit has slid from RM3.05 to the USD in 2012 to RM4.53 by September 2022.

On a Real Effective Exchange Rate basis, the ringgit is undervalued by 16.8%. A fair value is approximately RM3.89 to the USD. But this is far from its current position and expectations of some others (The Economy Forecast Agency) as shown below:

By June 2024 (or sooner?), we could hit RM5 to the dollar. In fact, one former Minister of Finance thinks it could be RM5.50 to USD by year end. But we can change this scenario if we are willing to consider the following:

• Raise OPR by 0.75% to 1% in November;

• Stem outflow – remittances/overseas investments without capital controls;

• Repatriate funds from investments made overseas;

• Improve quality of local education and stem outflow for student fees/living expenses;

• Use import substitution to reduce import of food products (RM60bil or more);

• Provide more job opportunities for Malaysians in the STEM area;

• Declare “war” (jihad) on corruption;

• Reduce scale of “shadow” banking;

• Ease doing business in Malaysia for FDIs and DDIs;

• Halt flip-flop policies; and 

• Actually practice “Keluarga Malaysia’.

Can we do that?

Reference:

Whither the ringgit? Pankaj Kumar, The Star, 17 September 2022

U.S.: inflation and Household Debt

In an economy that has produced the highest inflation rate since 1981, Americans are struggling to keep up with expenses. Nearly 40% of consumers cannot put any money at all into savings, according to a recent analysis of household financial health and readiness by the American Consumer Credit Counseling. Another 19% said they had to reduce their savings rate. About 78% of Americans are living paycheck to paycheck.

As of the second quarter of 2022, 48% of consumers said the rising cost of basic necessities impacted their family's lifestyle, a steep jump from 39% in the first quarter.

In order to make ends meet, 43% of Americans expect to add to their debt in the next six months, especially young adults and parents with young children, according to a separate study by LendingTree. Most will rely on credit card debt to bridge the gap between what they need and what they can afford, the report found. Already, the rise in borrowing, together with auto loans, student debt and mortgages, propelled total household debt to a record $15.84 trillion at the beginning of the year.

When you’re drowning in debt, it can feel like the world is caving in around you. Your thoughts are swirling and just won’t stop. You’re not sleeping, and you’re worried your next paycheck won’t be enough to provide for your family. And then the questions fueled by endless worry begin: How will I make ends meet? How in the world will I cover my mortgage/rent this month? Will these debt collectors call my boss (how embarrassing)?

1. Have a budget.

Making a budget is one of the most important steps you can take. It’ll show you where all your money is going and why you feel like you’re drowning. This is your first step toward taking control of your money—and never feeling like you’re in over your head in debt again.

When you’re making your budget make sure your basic needs are met:

• Food

• Utilities

• Shelter

• Transportation

2. Cut back on the extras.

Take inventory of any automatic payments that might be draining your bank account. Maybe you have a subscription that you need to terminate. 

Cutting back on non-essential items include:

• Make coffee at home instead of Starbucks!

• Cut back on your grocery bill.

• Don’t even step foot in a restaurant.

• Sell everything that’s not nailed down. 

3. Pause all investing.

Saving for your future when you’re living paycheck to paycheck (or worse) isn’t the best idea. At least not yet. If you’re still trying to pay off credit cards, an upside-down car loan or a huge pile of student loan debt, it’s time to press pause on your future investments—temporarily. This frees up extra cash you can use to pay down your debt.

4. Don’t take on any new debt.

So don’t take on even another penny of debt. Having a credit card for emergencies seems like a good idea until your next “emergency” looks like your next afternoon coffee run. When you cut up those cards, you’re choosing to put an end to that awful cycle of debt for good.

5. Increase your income.

Now that you’re on a budget and you’ve decided to stop taking on any new debt altogether, it’s time to figure out how you can increase your income. Take a second job or pursue a side venture that will give you the extra income. Whether that’s working at your local coffee shop, mowing lawns, or driving for Grab.

6. Start working the debt snowball.

You’ve got some extra money coming in each month, it’s time to start paying off your debt with the debt snowball method:

• List your debts from smallest to largest—no matter the interest rate. Keep making minimum payments on all of them except the one with the smallest balance.

• Attack your smallest debt with everything you have. Throw your earnings on this debt. Keep putting anything extra you make toward this debt until it’s gone.

• Once that debt is paid, take what you were paying on it and throw it at the next-largest debt while paying minimum payments on the rest.

• Keep this snowball rolling until you’re debt-free!

7. Stop the comparison trap.

Comparison is one of the worst things you could do while you’re getting out of debt. If you’re scrolling through your news feed and see your friend  on a European vacation with her mom, that doesn’t give you permission to plan a fancy vacation too. 

8. Start (or keep) working the Baby Steps.

These seven steps are the proven (and practical) way to help you change your life, pulling yourself out of the debt quicksand and on to more stable ground.

Baby Step 1: Save $1,000 (or 10% of income) for your starter emergency fund.

Baby Step 2: Pay off all debt (except the house) using the debt snowball.

Baby Step 3: Save three to six months of expenses in a fully funded emergency fund.

Baby Step 4: Invest 15% of your household income in retirement.

Baby Step 5: Save for your children's education.

Baby Step 6: Pay off your home loan early.

Baby Step 7: Build wealth and give.

And good luck on your new discipline, may you rise above the worries!

References:

Nearly half of all Americans are falling deeper in debt as inflation continues to boost costs, Jessica Dickler, CNBC

What to do if you’re drowning in debt, Ramsey Solutions, 23 August 2022

Interest Rate Hikes: Does it Matter?

There are research houses who maintain that there will be no overnight policy rate (OPR) hike during the Monetary Policy Committee (MPC) final meeting in November, keeping the end-2022 interest rate at 2.50 percent.

For 2023, one brokerage firm has priced in two 25 basis points (bps) rate hikes, bringing the OPR to 3.00 percent. Meanwhile, the energy crisis in Europe will likely push the European Union into recession, and China’s property market woes could only be the beginning of a major problem. 

Although Bank Negara Malaysia raised the OPR by 25 bps to 2.50 percent on 8 September, its third consecutive hike, it has not stemmed currency depreciation and hence food inflation.

The outlook for the US dollar/ringgit is likely to remain bleak. Year end 2022 forecast is 4.61 (USD to ringgit) due to a weaker trade surplus and adverse impact from developments in China. 

Going forward, the level seems to be more adverse (as forecasted by The Economy Forecast Agency):

One may argue that exchange rate depreciation is due to several factors beyond BNM. But have you observed that when there is IMF intervention, interest rates are hiked to stem outflows. That’s a crisis situation and some “hot” money may return. Here we have a chance to contain food import inflation and stabilise currency depreciation in the medium-term. Unless we move away from growth-centric policies, we are in for higher inflation and more depreciation (of currency) in the medium-term.

Malaysia’s growth for Q3 2022 is anticipated to be 8.8%, slightly lower than 8.9% for Q2 2022 (according to CGS-CIMB Research). But it may drop sharply in Q4 2022 with decline in commodity prices and softening prospects in China and the U.S.

What does that mean? It is more fuel for exchange rate depreciation. That is why BNM has to be more hawkish and raise OPR by at least 0.75% in November. It matters if we are to reduce imported inflation, especially on food.

Beyond interest rates, the Government has to look at overseas investments by GLCs and reverse the flow by disposing assets where possible. The return of Malaysian funds overseas will partly help stem depreciation of the ringgit. The other option is to examine the flows – are these pure speculative forces and/or large remittances by locals/foreigners.

Whatever the case, the fight against inflation is multi-pronged and I have only focused on exchange rate depreciation and its impact.

References:

Research houses mixed on expectation of year-end interest rate hike, Malaysiakini/Bernama, 9 September 2022

USD to MYR Forecast, The Economy Forecast Agency

Is There a Major Shift in the Job Market?

There is an ongoing shortage of skilled labour worldwide. This may hinder growth of businesses in the post-Covid-19 period. In the United States, the talent shortage has more than tripled in the last 10 years. For the United Kingdom, a study found that 69% of employers there were experiencing skill shortages.

By 2030, global consulting firm Korn Ferry estimates that the global talent shortage could reach 85.2 million people, resulting in the loss of trillions of dollars in economic opportunity. The industries that will be most affected are the “knowledge-intensive” industries such as financial services, technology, media, telecommunications and manufacturing.

The financial impact of this talent shortage could reach US$8.45 trillion (RM38 trillion) in unrealised annual revenue by 2030. Interestingly, India is the only economy in the study seen maintaining a talent surplus in 2030.

Several factors can affect talent availability – changing demographics, public policies, wages, digital transformation and the education system. Covid-19 played the role of disruptor and increased the reliance on digitalisation. 

For Malaysia, it is generally at the low-skilled or blue-collared worker level. Malaysia is in fact facing a “critical double crunch” where low-skilled workers without digital experience seem less employable, while those still employed must be reskilled to ensure career advancement and employment continuation.

Governments around the world, including Malaysia, are betting heavily on technology for future growth. Traditional cashiers will now have a more comprehensive range of career choices, like eCommerce analyst or as back-end logistics manager overseeing deliveries. So, it opens the door for new job opportunities, but this needs re-skilling.

The global hunt for talent is heating up. Australia, which has a long-standing shortage of skilled workers has now decided to ease its visa rules in a bid to attract skilled workers. Germany is allowing skilled foreign professionals to live in the country before securing a job, while the United Kingdom has introduced a new special visa for graduates from 50 of the world’s top universities. Singapore is offering a new five-year visa for high-earning foreign nationals, while Malaysia too has launched a new premium visa programme to draw rich investors to settle in the country, not necessarily skilled professionals.

Malaysia seems to be attracting more low-skilled workers than professionals. We have long suffered from a talent outflow to neighbouring countries like Singapore, China, Australia, the UK and the United States. This is largely due to better job opportunities, pay packages and lifestyle.

There are many expatriates who work in Malaysia but bureaucracy in relation to work permits and visas has denied their quest to stay for the long term. The Government, especially MITI and Home Ministry have to rethink their strategies.

Flip-flop policies and our inherent insecurity of “pendatangs” will leave us well behind others in the region and the world. Do we need STEM (people) to remain? Do we attract the best talent globally? Or, are we so focussed on one race only? Do we understand IR4.0 or is our blueprint a book for the coffee table? We need fresh ideas but this is unlikely from the present Government.

Reference:

Major shift in the job market? Gurmeet Kaur, The Star, 10 September 2022

“Malu Apa Bossku?”

A mother of four was sentenced to 14 months jail for allegedly stealing 2 packets of Milo worth RM74. An ex-PM was jailed 12 year for stealing RM42 million. Is this sentence fair? Shouldn’t it be longer?

Bottom-line, a theft is a theft. But some will say it is only one if you are caught. That’s the moral dilemma for this nation. Corruption is not deemed as sufficiently vile, but “rezeki” for some warped in their thinking.

Source: https://www.howtobecome.com

How simplistic can we get? Now the ex-PM is compared to Nelson Mandela, who fought against apartheid. Did the ex-PM fight for some “earth-shattering” moral movement or was he the problem? The guilty is now playing the victim. How convenient?

To make matters worse, he has filed for a pardon! On what basis? Is it on his record as the PM; as the architect of state election victories in Melaka and Johor; as the faithful husband of “Can I advise you something”?

If a pardon is granted, I suppose the lady who stole the Milo packets and every other soul in prison should be freed! We don’t need prisons; we don’t need too many judges – only the compliant ones would do; we don’t need lawyers – just those who are enlightened to admit hearsay “evidence” or an oath; and we don’t need too many police, because we will free the innocently guilty ones.

We have seen the ex-Chief Minister of Sabah freed, the former spy chief acquitted and many more who have changed their political beliefs for personal gain. Character of a leader is fundamental. Look at Boris and Trump – deny, admit, apologise – and all will be well! Fortunately, both fell from power because of deceit and character flaw. Yes, we are humans and we make mistakes. When mistakes and lies continue as second nature, it is a serious character flaw.

Pardon me on my aimless diatribe, the “soul” of a nation is being destroyed. Liberty is being misused to rouse mobsters for a political end. God save Malaysia!

Malaysia Day: A Chance to be Thankful!

Critical challenges continue to blight Malaysia as we celebrate almost six decades of Malaysia’s formation. Never-ending financial scandals, incessant corruption, escalating cost of living, unemployment, threats to food security and climate change are among the main issues afflicting the country today.

The billions of ringgit lost in financial scandals could have been used to improve the quality of life of millions of ordinary people. An emphasis on integrity among the people must be the top priority of the government.

Much more needs to be done to check the escalating cost of living, which is squeezing the people, especially the low and middle-income groups.

Are there any concrete government proposals to enhance food security? We import over RM60bn of food products. The high import bill is a cause for concern, especially with the ringgit weakening over the last few months. Why is the government not coming up with long-term solutions to ensure food security? Why have there not been proposals to develop a food ecosystem? Why can’t we develop food cooperatives as in Denmark?

Countless employment opportunities for graduates and non-graduates could be generated if we develop the food sector.

Source: https://www.tbxmultimedia.com

Malaysia is blessed with an abundance of sunshine, and so the government should aggressively promote the use of solar energy in our daily lives. By moving in this direction, we would reduce our carbon footprint. 

We should also emulate Singapore, which has set an exemplary example in greening its environment. The island republic has already planted 400,000 trees or two-fifths of its target of a million trees by 2030. Any form of greenery soaks up greenhouse gases.

Norway is another country we should follow in our quest to become an ecologically friendly nation. By 2025 motor vehicles using fossil fuels will be banned in the country, paving the way for only electric vehicles on the road.

Racial polarisation is given in Malaysia and it permeates all levels of society. I don’t see tangible measures being undertaken to unite the people as Malaysians first. “Keluarga Malaysia” is just a slogan like “1Malaysia”.

Can we have ethnically balanced student compositions in schools, colleges and universities? Employment in the public and private sectors should also reflect the racial composition of the nation. Then different ethnic groups can mingle with each other and reduce racial polarisation.

All countries have their challenges and Malaysia is no exception. We did quite well in handling Covid. In fact, we did far better than many developed and developing countries. Malaysians are fortunate to have access to free public healthcare. Some of our public hospitals have excellent and dedicated medical personnel. We also have a world-renowned health institute like the National Heart Institute (IJN).

Despite the criticisms levelled at the civil service, we still have some admirable civil servants in agencies like the Public Complaints Bureau. Staff at this bureau are the pride of the civil service.

Despite many issues facing the nation, we are still grateful to God for sparing Malaysia from calamities such as earthquakes, hurricanes, typhoons, volcanic eruptions and the more severe impacts of climate change.

There are many decent Malaysians who rise to the occasion by their little daily acts of kindness, humanity and compassion.

Malaysia Day on 16 September is a time for us to reflect key challenges facing Peninsular Malaysia, Sabah and Sarawak. Together we have the resources, courage and goodwill to overcome any challenge. May our politicians draw diversity as a blessing to celebrate rather than an impediment to progress! And may we be thankful to the Almighty for His myriad of blessings even though we murmur and complain daily. God Bless Malaysia!

Reference:

Malaysia celebrates six decades of independence with concerns and blessings, Benedict Lopez, ALIRAN, 29 August 2022

Is China’s Gen Z for “Tang Ping” or “Bai Lan”?

The most educated generation in China’s history was supposed to blaze a trail towards a more innovative and technologically advanced economy. Instead, about 15 million young people are estimated to be jobless, and many are lowering their ambitions.

A perfect storm of factors has propelled unemployment among 16- to 24-year-old urbanites to a record 19.3%. This is more than twice the comparable rate in the US. The government’s hardline coronavirus strategy has led to layoffs, while its regulatory crackdown on real estate and education companies has hit the private sector. At the same time, a record number of college and vocational school graduates—some 12 million—are entering the job market this summer. 

This highly educated cohort has intensified a mismatch between available roles and jobseekers’ expectations. The result is an increasingly disillusioned young population losing faith in private companies and willing to accept lower pay in the state sector. If the trend continues, growth in the world’s second-largest economy may suffer. The number of jobless under-25s amounts to a 2% to 3% reduction in China’s workforce. And fewer workers means lower gross domestic product. Unemployment and underemployment also continue to impact salaries for years—a 2020 review of studies reported a 3.5% reduction in wages among those who had experienced unemployment five years earlier.

More young people taking roles in government may leave fewer jumping into new sectors and fuelling innovation.

China's pool of graduates has grown more than tenfold over the past 20 years.

All workplaces have been hit hard by China’s snap lockdowns and strict quarantine measures, but private companies were more likely to lay off workers. Beijing’s main employment-boosting policy has been to order the state sector to increase hiring.

President Xi Jinping may be relieved that the country’s unemployed youth are trying to join the government rather than overthrow it. During a June visit to a university in the southwestern China’s Sichuan province, he advised graduates to “prevent the situation in which one is unfit for a higher position but unwilling to take a lower one.” He added that “to get rich and get fame overnight is not realistic.”

The message is getting through: Graduate expectations for starting salaries fell more than 6% from last year to 6,295 yuan ($932) per month, according to an April survey from recruitment firm Zhilian. State-owned enterprises grew in appeal over the same period, the recruiter said.

But lower income expectations and talent shunning the private sector are likely to lower growth in the long term, challenging the president’s plan to double the size of China’s economy from 2020 levels by 2035—by which point it would overtake the U.S. in size.

The phrase “tang ping”—“lying flat”—spread through China’s internet last year. The slogan invokes dropping out of the rat race and doing the bare minimum to get by, and reflected the desire for a better work-life balance in the face of China’s slowing growth. As the unemployment situation has continued to worsen, many young people have adopted an even more fatalistic catchphrase: “bai lan,” or “let it rot.”

Impossible goals to meet which are set by the bosses, too much pressure in life, never ever making it, may cause many to the “goblin mode” – and they are enjoying it!

“Bai lan” has gained more popularity than “tang ping” – rejecting gruelling, severe competition and high social expectations have prompted many to give up “996” which is essentially working 9.00 am to 9.00 pm, 6 days a week.

But “bail lan” is not unique to China, it is similar to the “slacker” generation in America in the 1990s. And “tang ping” last year was rejection of ultra-competitiveness in Chinese society. Shrinking opportunities, joblessness and unrealistic expectations have led to “bai lan”. Is it the final stages of cynicism amongst Chinese youth remains to be seen.

Reference:

China’s Gen Z is dejected, underemployed and slowing the economy, Bloomberg News, 25 July 2022