Malaysians Say The Darndest Things!

When Dow Jones Burps, Will Malaysia Fart?

February 1, 2008

First off, I am no economics or stock market expert. But when the ‘financial experts’ in our government tell us that any recession in the US will have minimum impact on Malaysia, the optimist in me certainly hopes that it will be true. The skeptic in me and my gut tells me otherwise.

From Malaysiakini:

Abdullah Ahmad Badawi said that any US recession will not have a great impact on Malaysia’s economy because “our fundamentals are strong”.

“It is true that at one time we were greatly dependent on the health of the US economy but now with our policy of economic diversification, we have many other export destinations,” Bernama quoted him as telling a press conference in Davos last night at the end of his working visit to the World Economic Forum.

For example, the prime minister said, the value of Malaysia’s trade with the rest of Asean outweighs that with the US and on top of that, Malaysia has developed strong trade ties with other Asian countries such as China, India, Japan and South Korea.

Pardon me for thinking like a layman, but even though Malaysia’s trade is now more dependent on Asean, China, Japan, India, or South Korea, a few questions beg to be asked.
1. If the US goes into recession, will it affect the Asean, China, Japan, India or South Korea?
2. If yes to Question 1, then wouldn’t a US recession indirectly affect Malaysia as well?

I know that the stock market isn’t the only economic indicator that can be used, but when I see read news like this, sometimes I wonder if Badawi is just spinning the story for elections, or he’s totally clueless.

Asian markets plunge for second day (22nd January 2008)

Stocks plummeted across Asia for a second day on Tuesday on unrelenting fears that the US, Asia’s most important trading partner, is heading into recession.

Indian shares sank more than 11 per cent as the market opened, resulting in a one-hour trading suspension, and dropped as much as 13 per cent once trade resumed. Hong Kong had its worst two-day fall since the aftermath of the 1997-98 Asian financial crisis and Hong Kong-listed shares of Chinese groups slumped 12 per cent.

Investors in Japanese shares were also hounded by worries about economic growth at home, and the impact of an initially stronger yen. The Nikkei saw its worst two-day decline in nearly two decades, losing more than 5 per cent and falling below 13,000 for the first time since September 2005.

Australia’s S&P/ASX 200 recorded its biggest fall since the index was launched in 2000, closing 7.1 per cent lower. The drop compared with a 7.2 per cent fall in the rival All Ordinaries index in October 1997.

The MSCI Asia Pacific Index slid by 6.8 percent to 131.63 by early evening in Tokyo. It has now fallen by 24 per cent since its peak in November, meaning that by one common standard, the region has followed Europe into a bear market.

The fall is serious for three reasons, said Ian Bright, from Pali International: “the extent of the fall, the breadth of the fall, and the fact that we cannot be sure how the reorganisation of the finance industry in the US and around the world is going to be.”

The US reopens on Tuesday and is expected to fall heavily. Earnings are expected from Pfizer, Johnson & Johnson, Dupont and Bank of America before the market opens. After the close, Apple is to report.

“The market fears the weaknesses in the banking system in the US will mean that credit standards will be tightened so much that it will throw the US into a recession,” said Khiem Do, head of Asian Multi-Asset funds at Baring Asset Management in Hong Kong. “It could be a protracted one and a long one and that’s why the markets have been tanking, along with technical reasons.”

Hong Kong and India were especially vulnerable to profit-taking because of their high valuations and the popularity of warrants trading on these markets, Mr Do said. “When the market falls, the issuer of the warrants will have to sell more in order to unwind the hedges.”

Hong Kong’s Hang Seng index plunged 8.7 per cent to 21,757.63. It has lost 31 per cent since a peak of 31,638.22 on October 30. HSBC, which generates around one-third of its revenues in North America, slid to a four-year low, dropping 8.1 per cent at HK$104.40. Li & Fung, a big supplier to US stores like Wal-Mart, dropped 7.2 per cent to HK$23.15.

The China Enterprises index of H shares, or Hong Kong-listed shares in mainland companies, fell 12 per cent to 11,911.91

In Shanghai, the composite index sagged 7.2 per cent to 4,559.751. Financial shares were hurt by concerns that demand for loans will wane. ICBC, the country’s biggest listed bank, dropped 8.6 per cent at Rmb6.91. Ping-An, China’s second-biggest insurer, fell by the 10 per cent limit for a second day, to Rmb79.55.

The one-hour suspension in Mumbai preceded a volatile session which saw the market trim losses at one point to around 3 per cent. The benchmark index was down about 4.6 per cent at 16,803.83 at the closing bell.

Japan’s Nikkei 225 fell 5.7 per cent to 12,573.05. Shares took an extra hit from a yen which briefly reached its strongest point against the dollar in more than two-and-a-half years, going as high as Y105.6 to the dollar before retreating back through the Y106 level

The exodus from equities sent 10-year Japanese government bond futures to near two-and-a-half-year highs. Platinum futures on the Tokyo Commodity Exchange were also pummelled, falling by the maximum allowed. The yen also gained against the euro

Shares of Japanese real estate companies, exporters and banks took a beating. The Topix real estate index slid 8.5 per cent, while the banking index dropped 6.4 per cent. Honda, which relies on markets outside Japan for most of its profit, sank 6 per cent to Y2,915. Toyota lost 7.2 per cent to Y4,880,

Indonesian shares briefly fell more than 10 per cent. Sri Mulyani Indrawati, finance minister, said she was watching events with “great care and concern” but that she had no plans to introduce any emergency measures to stem the falls.

The benchmark Jakarta composite index has fallen 17 per cent this year after gaining 52 per cent last year. The market managed to rally a little but still closed 7.7 per cent down.

Taiwan stocks shed 6.5 per cent, and Singapore closed 1.7 per cent lower.

Hmm, Japan, India, China, and Asean markets dropping. For the record, the KL Composite Index shed 54.12 points or 3.84 percent to 1,354.48. Personally, my portfolio’s value dropped 7 percent.

So if Malaysia will not be affected by a US recession, why the big drop in the stock market?

Abdullah stressed that Malaysia’s good economic indicators are very evident.

They include an annual external trade value exceeding one trillion ringgit a year, a high rate of foreign reserves (US$104.3 billion or RM345.4 billion as at Jan 15), Bursa Saham’s market capitalisation of more than one trillion ringgit, a strong ringgit at 3.24 to the US dollar and a strong services sector.

The prime minister pointed out that 86 percent of Malaysia’s gross domestic product (GDP) is domestically generated, “and this is new development for our economy”.

“This has become one of our economic strengths (as we are no longer acutely dependent on external trade), and these strengths have come from the policies that we have drawn up and implemented which are far-sighted.

“Our strategies and approaches have proven to have brought more benefits than those before. So we will continue with our proven policies.”

Asked whether the government needs to take new steps to face external challenges in view of the possible US recession, Abdullah said: “If any measures are needed, we will consider them when the recession occurs.”

I know Mr. Finance Minister just wants to spin that Malaysia is in a better position to handle a global recession, but behind the scenes, is there any contingency plan? It’s best to start considering some measures now, Mr. Finance Minister, because you are starting to sound like an ostrich. The country prefers that you do not sleep on this one.

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