2017 - expect a bumpy year ahead worldwide

This will be a year like no other, as there will be a thunderous clash of policies, economies and politics worldwide. We should prepare for the challenges ahead and not be only spectators.

THE new year has dawned. Everyone agrees 2017 will be very interesting.

It will also be most problematic. From politics to economics and finance, we’ll be on a roller-coaster ride.

With his extreme views and bulldozing style, President-elect Donald Trump is set to create an upheaval, if not revolution, in the United States and the world.

He is installing an oil company chief as the Secretary of State, investment bankers in key finance positions, climate sceptics and anti-environmentalists in environmental and energy agencies and an extreme rightwing internet media mogul as his chief strategist.

US-China relations, the most im­­por­­tant for global stability, could change from big-power co-existen­ce, with a careful combination of competition and cooperation, to outright crisis.

Trump, through his phone call with the Taiwanese president and after, signalled he could withdraw the longstanding US adherence to the One China policy and instead use Taiwan as a negotiating card in overall relations with China. The Chinese perceive this as an extreme provocation.

He has appointed as head of the new National Trade Council an economist known for his many books demonising China, including Death by China: Confronting the Dragon.

Trump seems intent on doing an about-turn on US trade policies. Measures being considered include a 45% duty on Chinese products, extra duties and taxes on American companies located abroad, and even a 10% tariff on all imports. Thus 2017 will see protectionism rise in the United States, the extent still unknown. That is bad news for many developing countries whose economies have grown on the back of exports and international investments.

Europe in 2017 will also be pre­occupied with its own regional problems. The Brexit shock of 2016 will continue to reverberate and other countries facing elections will be less open to the world and become more inward-looking.

As protectionism, xenophobia and narrow nationalism grow in Western societies, Asian countries should devise development strategies based more on domestic and regional demand and investments.

2017 may be the year when resource-rich China, with its deve­lopment banks and its Belt and Road Initiative, fills in the economic void created by Western trade and investment protectionism.

But this may not be sufficient to prevent a finance shock in many developing countries now beginning to suffer a reversal of capital flowing back to the United States, attracted by the prospect of higher interest rates and economic growth.

In 2017 Malaysia will be among the countries most vulnerable to this, due to the large foreign ownership of local bonds and shares. As capital flows out and the currency depreciates further, the affected countries’ companies will have to pay more for servicing loans contracted in foreign currencies and imported machinery and parts, while consumers grumble about the rising cost of living.

On the positive side, exporters will earn more in local currency terms and tourism will increase, but this may not be enough to offset the negative effects.

Thus 2017 will not be kind to the economy, business and the pockets of the common man and woman. It might even spark a new financial crisis.

The old year ended with mixed blessings for Palestinians. On one hand, they won a significant victory when the outgoing President Barack Obama allowed the adoption of a United Nations Security Council re­solution condemning Israeli settlements in occupied Palestinian territories by not exercising a veto.

The resolution will spur international actions against the expansion of settlements which have become a big obstacle to peace talks.

On the other hand, the Israeli lea­dership, which responded defiantly with plans for more settlements, will find in Trump a much more sympathetic president. He is appointing a pro-Israel hawk as the US ambassador to Israel.

With Trump also indicating he will tear up the nuclear power deal with Iran, the Middle East will have an even more tumultuous time in 2017.

The commencement of floods in some parts of Malaysia during the holiday season, ironically following days of the taps going dry for millions in the Klang Valley, is a pre­lude to the environment continuing to be a critical issue in 2017.

Unfortunately, low priority is given to the environment. Hundreds of billions of dollars are allocated for highways, railways and urban buildings but only a trickle for conservation and rehabilitation of hills, watersheds, forests, mangroves, coastal areas, biodiversity or for serious climate change actions.

2017 should be the year when priorities change, that when people talk about infrastructure or deve­lopment, they put actions to protect and promote the environment as the first items for allocation of funds.

This new year will also be make-or-break for climate change. The momentum for action painfully built up in recent years will find a roadblock in the United States as the new president dismantles Oba­ma-initiated policies and measures.

But Trump and his team will face resistance domestically, including from state governments and muni­cipalities that have their own climate plans, and from other countries determined to carry on without the United States on board.

Indeed, if 2017 will bring big changes initiated by the new US administration, it will also generate many counter-actions to fill in the void left in the world by a withdrawing United States or to counter its new unsettling actions.

There are opportunities to think through and alternatives and re­forms that are needed on global and national economies, on the environment and on geo-­politics.

Most of the main levers of power and decision-making are still in the hands of a few countries and a few people, but there has also been the emergence of many new centres of economic, environmental and intellectual capabilities and community-based organising.

2017 will be a year in which ideas, policies, economies and politics will clash, thunderously, and we should be prepared for the challenges ahead, not just be spectators.


Global Trends By Martin Khor

Martin Khor (director@southcentre.org) is executive director of the South Centre. The views expressed here are entirely his own.


Related posts:

Trump and China’s bumpy ride begins

Trump and China's bumpy ride begins. Trump's diplomacy. Hot button: Trump's unpredictability is making him a big topic in China.— AFP.

Bizarre world of new debt, low, even negative interest ...

Oct 12, 2016 ... Global Trends By Martin Khor Global Trend The Star/ANN. Martin Khor (director @southcentre.org) is executive director of the South Centre.

Disruptive Donald J.Trump, US president-elect policies

US president-elect Donald Trump gives a speech during election night at the New York Hilton Midtown in New York on Nov 8, 2016. PHOTO: AF...

At the end of 2016, no new beginning of 2017... so there must be ...

Successful leader: Lee Kuan Yew has made Singapore economically successful as a result of the purely utilitarian benefit of the rule of t...

Year in review 2016 - MACC makes record haul in 49 years from top officers of Sabah Water dept

https://youtu.be/BL7sTmRnARk Azam Baki (L4) and other MACC officials with the cash and jewelry seized, at a press conference on Oct 5...

International Anti-Corruption Day, Work with MACC to fight corruption, Malaysians urged

United against corruption for development, peace and security Aerial group photo of staff in Geneva simulating the Sustainable Developme...

Hopelessness among public after rampant fraud & corruption cases, says Auditor-General

RM2bil recovered from audits The Government seldom receives dividends and whenever loans are given to these GLCs, they keep piling up&...

Structural defects to blame, stop history repeating itself !

https://youtu.be/7FRTMX53TLc Sniffing out signs of life: The K-9 unit of the City Fire and Rescue operations looking for possible vict...

 

No water but officials flush with funds: abuse of power, nepotism, cronyism, bribery and money laundering

Jabatan Air Negeri Sabah - http://malaysianlogo.blogspot.my/2014/06/jabatan-air-negeri-sabah-sabah.html KOTA KINABALU: Everywhere in Sab...

Easy to catch the corrupt if with a catch-all clause to tighten anti-corruption laws

"First of all, the Malaysian Anti-Corruption Commission (MACC) can only compel someone to declare his assets. Once the assets are d...

Trump and China’s bumpy ride begins

 

Trump's diplomacy

Hot button: Trump’s unpredictability is making him a big topic in China.— AFP

THE rest of the world will have to fasten its seat belts while the current worrying clash of superpowers China and the United States plays itself out. Although the saga of the underwater drone ended peaceably earlier this week, the drama signalled that the competition between the two has entered a new era. With help from the ubiquitous social media, their diplomatic engagement is taking place in real time swiftly, unpredictably and amid considerable tension.

The inauguration of President Donald Trump on Jan 20 is expected to see US-China ties transformed into a guarded quasi-friendship requiring day-to-day reassessment. The stability that prevailed during the eight years of the Obama administration is unlikely to survive. Trump is given to knee-jerk reactions and ill-considered grandstanding for the sake of quick gain and publicity, as well as for his brash pursuit of the art of the deal, none of which bodes well for US’ relations with Beijing.

Still a month from taking office, Trump has already endangered his country’s long-standing recognition of the One China Policy by accepting a phone call from Taiwanese leader Tsai Ing-wan, a breach of protocol adopted after Washington formally recognised communist China in the early 1970s.

President Barack Obama immediately warned that any shift from this policy would have a serious impact on American dealings with Beijing, an important trading partner and backer of the US economy. Aiming to renegotiate extant overseas deals, Trump does not appear to care, and seems ready to test Chinese mettle on every issue.

China’s regional neighbours are aware that the nature of its relationship with the US increasingly depends on Beijing’s dealings with other countries, including the 10 nations of South-East Asia.

The attitude in the Philippines has radically changed. Whereas Manila traditionally regarded the US as the region’s military guardian, current President Rodrigo Duterte- taking umbrage at perceived American slights-has welcomed Chinese overtures. Thanks to Washington’s tendency to overreach in its authority, perceptions elsewhere are not so different.

Thus, its chief justification for wielding influence here to serve as a stopgap against China assertiveness is on the wane.

The Philippines’ abrupt refusal to be a pawn in either of the major powers games is admirable, even if it comes with risks. With sovereign territory in the South China Sea at stake, Duterte is taking a gamble in realigning with Beijing, but if those two countries can settle their differences amicably and equitably, it will have been worthwhile. The other South-East Asian claimants to maritime territories in dispute are sure to follow suit.

During the Trump presidency, more than at any time before, China has a golden opportunity to show the region and the world that it is rational and responsible in its overseas dealings. With goodwill and a commitment to peace and stability, it can take advantage of America’s loss of credibility over the election of a man who is ignorant of foreign affairs and absent in the spirit of international diplomacy. Patriotism and profit alone guide Trump, and nearly half the American electorate stands by him.

Also to be expected is a cautious realignment among the more developed Asian powers particularly Japan, India and South Korea which might pursue greater mutual cooperation as a safeguard against potential American error and affront under Trump.

No one will be surprised, meanwhile, if President Trump cosies up to Russia. While he and Vladimir Putin deny there is any special bond between them, evidence to the contrary has mounted. But using Russia as a foil against China would be detrimental to American financial and geopolitical interests. And, for Asia, while Russian investment is welcome and valued, Moscow has only a modicum of Beijing’s economic clout.

Sources: The Nation/Asia News Network

Related:

Trump’s advisers may ignite trade war

The high interdependence of bilateral trade indicates that any form of trade war provoked by the US will ultimately hurt itself. It is probably difficult for the Trump team to figure out how much self-damage their country is able to withstand.

Trump’s Navarro nomination may raise risk of Sino-US conflict 

Alarm bell ringing due to Trump's new pick on trade

 

 

Underwater drone just a sample of US military action against China

Drone incident hints at new tension in South China Sea  

Drone incident should prompt US to reflect 

 

 China's carrier fleet must sail beyond offshore zone 

China cannot hesitate on nuclear buildup

Related posts:

Global Reset 2016~2017

Dec 8, 2016 ... In a world facing challenges and uncertainties, embrace opportunities for success through innovation. “I went looking for my dreams outside of ...

Xi, Trump discuss China-US cooperation 

 

What Trump means for Asian investors? 

 

Disruptive Donald J.Trump, US president-elect policies 

 

Donald Trump Wins US Presidential Election 

 

Philippine President calls Obama the "son of a bitch", reveals cracks in ties as he refuses to be lectured on human rights 

 

US electoral democracy is failing, enter the China model? 21st century belongs to strivers

Disruptive Donald J.Trump, US president-elect policies

US president-elect Donald Trump gives a speech during election night at the New York Hilton Midtown in New York on Nov 8, 2016. PHOTO: AFP

I was going to write about disruptive technology but the whole week was taken up with the disruption that Donald J Trump caused in upsetting the US establishment by winning the Presidential elections.

The establishment was so confident of a Hillary win that the New York Times predicted 85 per cent chance of her winning and the Economist magazine showed a cover picture with Hillary as America and the rest of the world’s best hope.

Trump’s victory repeated the Brexit phenomenon that the elites don’t get it.

The voters are angry and even if Hillary had the support of women, African Americans and Latinos, it was not enough.

Trump basically tapped into the anger in the dominant American white voter that life has not been good in the last 30 years, attributing this to globalisation, immigration, disruptive technology and mostly, the failure of the elites to listen.

There was something quite Darwinian about the US elections.

Here was an alpha male challenging the establishment, both on the Republican and Democratic sides.

Against all odds, he defeated the Bush dynasty and the Republican party leadership to win the nomination.

Then he crushed the alpha female (Hillary), partly because somehow no one could quite trust what she really stood for.

Certainly, Wall Street would have benefited most, being her major supporter.

But no one quite trusts banksters these days.

Trump put the Clinton/Obama dynasty into its place.

We are likely to see some major changes affecting Wall Street.

Remember how in 1934, newly elected President Franklin Roosevelt sent Joseph Kennedy Senior to go after Wall Street?

How did Trump get there?

Firstly, as a businessman, he understood that the old model was broken because he read the signals right – the average American voter was angry and wanted their issues fixed.

Secondly, he knew that the mainstream establishment media was against him but they didn't get what his pollsters were reading.

The Web traffic was showing that his outrageous statements were touching raw nerves.

Politics ultimately is about the gut rather than the rational mind.

Thirdly, the pollsters were reading the old tea leaves, not appreciating how voters were refusing to show their hand till the last minute.

An American friend had this insight – most of his friends refused to tell anyone that they supported Trump.

They did not want to appear politically incorrect to support a ranting candidate that was not playing to the traditional songs.

But they wanted change – and Obama did not deliver what they wanted.

What next for Trump and for Asia?

Based upon his campaign language, Trump is likely to be quite tough on allies and competitors alike.

American military support wouldn’t come free for allies and he is also likely to be tougher on his foes.

This means essentially that everyone will have to look after their own interests.

The election also showed that what concerns the voter most is the need for good jobs.

This is where globalisation and technology disruption have upset the status quo.

Jobs either go abroad where wages are cheaper or technology is such that most manufacturing can be done onshore, but robotics are replacing grunt labour.

Hence the only Tech Age solution is proper education and training on the job.

In the tech age, governments cannot assume that the market will provide the jobs without state help.

Employers need to be aware that you can’t shed labour without investing in people.

Universities and schools have been disrupted by the Internet, because the best teaching is now accessible online and mostly free.

Massive Open Online Curriculum (MOOC) means that anyone can access the best online lecture course by some of the top lecturers at the best universities, fully up to date.

Who needs uninterested local professors who are still teaching out-dated texts they learnt thirty years ago?

​Digital divide

The Digital Divide means the line between those who are digitally connected and those who are not.

Increasingly, societies are networks across which goods, services, information and value are traded, exchanged and created.

Those who have access to these networks grow wealthier, outstripping those who are not.

Hong Kong is a perfect example of how cities become successful by being a free port, where there are low transaction costs, with rule of law and access to free information.

Having superior marine port, airport and road and now rail connection to the Mainland of China made Hong Kong not just the entrepot centre for Chinese trade with the world, but also a globally connected city.

But making money through trade, finance and real estate is no longer viable when every business is disrupted by technology.

Alibaba, Amazon, Google and Facebook are just a bunch of smart people that integrate multiple markets using their digital platform.

Their cost expense ratios are a fraction of the traditional bricks and employee business of Walmart, real estate developers, banks and newspapers.

They have global reach, especially the young and mobile.

All this means that as America becomes strong under Trump (which he promised), every country or city needs to compete even more fiercely in the digital age.

Cities have better chances of getting their acts together to get the government, business and civil society to work together and achieve how they really want to compete in the digital age.

I was in Shenzhen last month looking at how they are coping with the digital age.

Shenzhen is now green and dynamic, with showcase drone technology, Huawei telecommunications and genomic technology that are at the cutting edge of innovation.

No one I talked to cared about the angst that was going on in Hong Kong, where the young and old are still squabbling over their own identities.

Shenzhen was moving to compete head-on with Silicon Valley, Bangalore, Shanghai and Hangzhou. And this is a city that thirty years ago had no university of its own and no serious manufacturing to speak of. This is an immigrant city par excellence finding its own place in global technology.

Disruption comes from sheer willpower. Either you disrupt or you become disrupted.

Trump and Shenzhen are showing the way. Everyone else please wake up.

By Andrew Sheng, Asia News Network/The Star

The writer, a Distinguished Fellow of Hong Kong-based think-tank Fung Global Institute, writes on global issues from an Asian perspective.

 

Trump policies

 

 

Post-Trump: Where does the ringgit go from here?

DONALD Trump’s shock upset in last week’s US presidential elections have triggered a massive move in the global currency markets over the past few days.

Giving the Trump’s up or down

 

 

Why the worry on the offshore ringgit market?

The alternative view - By M. Shanmugam
REGIONAL currencies coming under pressure after the US presidential election were something that was expected given that the Federal Reserve was looking at raising interest rates before the year ends.

Ringgit sinks offshore just as economy perks up

SINGAPORE/KUALA LUMPUR: Malaysia's ringgit plunged to its weakest in more than 12 years in offshore markets on Friday as investors dumped government bonds, forcing the central bank to use its persuasive powers to keep the spot rate steady by deterring sellers onshore.

US elections: More coverage here

US elections: Live blog

US elections: Live results

US elections: Top stories on The Straits Times

US election: Full coverage by The Straits Times

Related posts:

Donald Trump Wins US Presidential Election

https://youtu.be/YKIOAMcTuWI NEW YORK, Nov. 9 -- Republican candidate Donald Trump was projected by U.S. media to have won the 270 ... 

TPPA in danger of collapse after its biggest critic wins US presidency

KUALA LUMPUR: The Trans Pacific Partnership Agreement (TPPA) faces its biggest challenge with the election of its major critic Donald Tru...

US presidential hopefuls show a country lacking in leadership ...

Sep 29, 2016 ... US presidential hopefuls show a country lacking in leadership, debate falls into trite format. Monday's first presidential debate between ...

Timely superpower funds from China to ease woes

Fruitful talks: Top Malaysian businessmen having a meeting with Li (centre right) on Nov 23. Also present was Prime Minister's Special Envoy to China Tan Sri Ong Ka Ting (centre left)

Republic’s generous gesture is like prescribing right medicine to a sick patient, say top businessmen.

LAST Monday, Chinese Premier Li Keqiang announced numerous measures to help Malaysia stabilise its financial market, and their positive impact was felt the next day with the gains in ringgit and bonds seen.

For the country, the most significant measure had to be Beijing’s pledge to buy up Malaysian government bonds, which have been hit by foreign dumping since the second half of last year after crude oil prices began to plunge.

For 1Malaysia Development Bhd (1MDB), the sale of its power assets under Edra Global Energy Bhd to state-owned China General Nuclear Power Corporation for RM9.83bil cash was a huge relief. This transaction will help 1MDB cut its debts of RM42bil by about 24%.

And for Prime Minister Datuk Seri Najib Tun Razak, China’s choice of Malaysia to issue the first “silk-road” bond and plan to invest more here is a major diplomatic victory.

As expected, sentiment on the capital market improved the following day. The ringgit rose the highest among emerging-market currencies, while stocks and bonds gained, due mainly to the power deal, according to Bloomberg. The ringgit strengthened 1.3% to 4.2495 a dollar in Kuala Lumpur while the KLCI index rose 0.5%.

On the sale of power assets, Credit Suisse said in its research report on Nov 24: “The sale of the 1MDB power unit is the first step towards resolving 1MDB’s RM42bil debt. We see this news as positive for the ringgit. The sale of 60% of Bandar Malaysia will likely be concluded by year-end. We believe 1MDB would then be wound down.”

Strong ties: (picture left) Najib showing the development of Putrajaya to Li during the latter’s recent visit to Malaysia.

Strong ties: Najib showing the development of Putrajaya to Li during the latter’s recent visit to Malaysia.

To recap, at the Malaysia-China High-Level Economic Forum on Nov 23 in Kuala Lumpur, Li said: “It is imperative to stabilise the financial market. So, we want to assume a market role by purchasing your treasury bonds in accordance with market principles.”

The Chinese premier also said that in the next five years, China was expected to import foreign goods worth US$10 trillion (RM42.6 trillion) and this demand could unleash business opportunities for Malaysian firms.

“A waterfront pavilion gets the moonlight first,” he said, citing a Chinese proverb. This means that Malaysia, being close in terms of distance and diplomatic ties with China, will enjoy the most benefits generated by China’s economic policy.

Li was in Malaysia for four days from Nov 20 to 23 to attend the Asean-East Asia Summit and to hold bilateral talks with Najib.

But Li, who was paying his first official visit to Kuala Lumpur as premier, did not reveal how much Beijing would invest in Malaysian bonds. However, businessmen who know China well believe this bond purchase could be major.

“As the Chinese Premier handles China’s economic policy and affairs, I believe this bond purchase will be significant enough to stabilise the ringgit that is grossly under-valued,” says Datuk Ter Leong Yap, president of the Associated Chinese Chamber of Commerce and Industry of Malaysia (ACCCIM).

Ter was among the 10 corporate captains whom Li met with before speaking at the forum. Ter, in this private meeting, says he had proposed that China buy Malaysian bonds to halt the ringgit’s decline.

Malaysian top businessmen meeting with Premier Li on Nov 23 of 2015. -
Ter (left) sharing a light moment with Li during a meeting as Ong (centre) looks on.

The ringgit, seen as facing further decline due to the impending hike in US interest rates, has been hit by three waves of outflow of foreign funds.

The first came after the crude oil price plunge, the second after the 1MDB saga was highlighted and the third, political instability amid calls for the resignation of the Prime Minister.

The ringgit has lost about 20% of its value to the dollar so far this year. Its fall is the biggest among currencies in the region.

The outflow of funds has not only hit Malaysia’s economy and investor confidence, but also reduced its international reserves tremendously.

Li also announced that China would provide a 50 billion yuan (RM33bil) quota under the Renminbi Qualified Foreign Institutional Investor (RQFII) programme for Malaysian institutional funds to purchase shares and bonds directly in the world’s second largest economy.

In response to this announcement, Bank Negara Malaysia said the RQFII programme would complement the renminbi clearing bank arrangement in Malaysia. And collectively, the initiatives will support the growing bilateral trade, investment and financial flows as well as position Malaysia as an offshore renminbi centre in the region.

In conjunction with Li’s visit, China Construction Bank (Asia) Corporation Ltd announced it would list the world’s first ever 21st Century Maritime Silk Road bond of one billion yuan (RM667.1mil) on Bursa Malaysia. The notes will support China’s “The Land & Maritime Silk Road” initiative.

“These announcements, together with the bond purchase, are significant for Malaysia as they imply that this big economic power is reading Malaysia positively and has confidence in our country. Confidence crisis is a major reason for people dumping the ringgit.

“By making announcements to invest in Malaysia and invite local funds to invest in China, Li is sending two strong signals: China is reading Malaysia positively and this superpower has confidence in Malaysia,” said Ter in an interview.

Chinese daily Nanyang Siang Pau describes Li’s announcements as “gifts” that will stabilise Malaysia’s financial market, while China Press sees these as “timely rain after a long drought”.

During one of his speeches here, Li told Malaysia to get ready for the influx of Chinese tourists, as his government would encourage its people to visit the country.

Chinese tourists, who form a significant portion of in-bound visitors, have declined since the dis­appearance of Flight MH370 last year.

As tourism is high on Najib’s agenda to bring in the much-needed foreign exchange earnings, this influx will cheer Malaysia up.

But China’s generous gesture is not to be taken that it’s all about friendship, though both countries say bilateral ties have been lifted to a new height now. There is the interplay of diplomatic and economic reasons.

It is public knowledge that Beijing appreciates Malaysia’s stance to play down China’s dispute with other nations in the disputed waters of South China Sea, in which China, Japan and several South-East Asian nations, including Malaysia, are territorial claimants.

China’s construction on islands and reefs in the disputed waters has caused diplomatic tension, heightened recently by the United States’ move to send a warship within 12 nautical miles of a Chinese reef in the area.

There are also investment returns and economic benefits in the long run for the Chinese.

“China’s investments in Malaysia is a smart move, contrarian investing at its finest. What the wise man does at the beginning, the fool does at the end. Our fundamentals are intact, ringgit tremendously undervalued,” says Ian Yoong Kah Yin, business development director of Red Sena Bhd.

This former investment banker at CIMB believes Chinese investments will pay as the ringgit should improve to 3.70-3.90 to a dollar by the end of 2016, from current levels of around 4.25 to 4.30.

In response to China’s timely aid, Najib pledged that Malaysia was committed to awarding the Johor Baru-Gemas double-track rail project to a consortium of Chinese companies. Indeed, China’s state-owned construction giants have been awarded local projects worth over RM15bil in the last three years.

Najib also took note of China’s interest in the high-speed rail project between Kuala Lumpur and Singapore, but said this would be decided via international tender.

Referring to the bilateral trade target of US$160bil (RM683mil) by 2017, the Prime Minister said there should be doubling of efforts to reach the level. Annual bilateral trade has exceeded US$100bil (RM426bil) since last year.

Summing up Li’s visit to Malaysia, QL Resources Bhd’s Dr Chia Song Kun says: “All these measures announced by Premier Li during our most trying times will certainly help Malaysia, be it from the economic or political aspect.”

The vice-president of the Selangor/Kuala Lumpur Chinese Chamber of Commerce adds: “Our country is facing a confidence crisis and this has undermined business and consumer confidence. China’s move this time is like prescribing the right medicine to a sick patient.”

By Ho Wah Foon The Star/Asian News Network

A superpower, but not a threat

Premier Li’s visit to Malaysia serves as ‘silent counterattack’ over South China Sea conflict.

600-year-old bond: Li (second from right) and his wife Cheng Hong touring the Cheng Ho Museum during their visit to Malacca. — Bernama

“WE come in peace, as always,” is the strong message sent out by China’s Li Keqiang to Malaysia and other countries in the region during his recent visit.

When the Premier made repeated refe­rence to Admiral Zheng He (or Cheng Ho) in his speeches, he reiterated that the prominent navigator had embarked on his voyages with friendship and peace in mind.

Admiral Zheng He and his Chinese fleet of the Ming Dynasty did not invade the lands they visited 600 years ago, and China has no plans to do so now, too.

China wishes to assure its neighbours that its rise as a superpower in the realms of politics, economy, and military should not be seen as a threat.

On the contrary, it is now offering vast opportunities to cooperate for mutual benefit while insisting on harmonious ties with other countries.

Li, who was on his first official visit to Malaysia as the Premier of China, had inclu­ded Malacca in his itinerary.

Dotted with historical landmarks, the state has a meaningful position in the relations between Malaysia and China.

It was where it all began.

From the Sky Tower observatory deck on the 43rd floor of The Shore shopping complex, Li looked out at the Strait of Malacca, which Admiral Zheng sailed through to dock at the port of Malacca during his voyages.

At the Baba Nyonya Heritage Museum, Li learned about Peranakan culture that came into existence from the interactions between people from the two lands. He also toured the Cheng Ho Cultural Museum, where Admiral Zheng’s warehouse once stood.

But Li’s visit to the state was more than just a walk down memory lane.

Malacca is now the “friendly state” to China’s southern province of Guangdong. This is the first of such status approved by the Cabinet, as the usual practice has been establishing a sister city tie with another foreign city instead of a state-to-state pact.

According to the Chinese Foreign Ministry, Guangdong province is now “actively dovetailing development with Malacca, and making preparations to build a modern seaside industrial park integrating maritime high-tech industries, deep-water wharf and logistics centres”.

The Strait of Malacca is included in the route of the 21st-century Maritime Silk Road, together with the land-based Silk Road Economic Belt, which represents China’s great ambitions to boost connectivity and cooperation with countries in the world.

Malacca Port is also one of the six Malaysian ports to form an alliance with 10 Chinese ports, as specified in a memorandum of understanding signed between both coun­tries during Li’s visit.

Li’s stopover in Malacca, although brief, has reverberating effects. Besides giving an official stamp of approval to the bilateral project in Malacca, Li wanted to get across the message of peaceful exchanges, harmony and inclusiveness.

China Foreign Affairs University vice-president Jiang Ruiping told state-owned news agency, China News Service, that Admiral Zheng’s friendly diplomacy is still relevant today.

It serves as a “silent counterattack” at a time when the international community plays up the South China Sea issue, referring to the territorial row between China and a few South-East Asian nations including Malaysia.

China’s assertiveness over the waters, as illustrated by its recent reclamation activities, has prompted the United States to patrol in the disputed waters. The US Navy has received the support of Japan, which is also embroiled in a territorial dispute with China over islands in the East China Sea.

Opposing the interference from countries outside the region, Li, when speaking at the Asean-China Summit in Kuala Lumpur during his visit, said China sees the high-profile intervention as an act that does no good to anyone.

He said China is committed to peaceful settlement of the dispute through negotiation and consultation.

“Together with our Asean friends, we have the confidence to make the South China Sea a sea of peace, friendship and cooperation for the benefit of all countries in the region.”

 By Tho Xin Yi Check-in China

Related:Post:

A new journey to make history 

Related:

1MDB exits power business, sells it to China for RM9.83bil ...

Ringgit at 5-week high - The Star Online

Malaysian currency hardest hit in Asia by Greek crisis and political conerns, Fitch boost short-lived!

PETALING JAYA: The simmering economic crisis in Greece and weakness in China continued to roil financial markets across the region, with the ringgit being the hardest hit among Asian currencies.

Sentiment on the ringgit was further compounded by rising domestic political risk, lingering concerns about 1Malaysia Development Bhd’s massive debt problems and lower oil revenue.

The local unit fell to a 16-year low yesterday at 3.809 against the US dollar - a level last seen before the exchange rate was pegged in 1998.

It was down 8.1% year-to-date and is currently the worst performing currency in Asia.

Independent economist Lee Heng Guie said Greece might be a small economy but the contagious implications on other weaker links in the eurozone could spook investors if Greece were to be forced out of the bloc.

“Recovery in the eurozone is still weak and people are worried that a possible fallout from Greece may impact the region’s economy,” he said.

Another economist said the depleting international reserves indicated that Bank Negara had carried out some currency stabilising activities.

A source suggested that Bank Negara may have sold more than US$1bil yesterday to shore up the ringgit, which had dropped to an intra-day low of 3.814 in early trade.

The country’s international reserves stood at US$106.38bil as at end-May, slightly higher than US$105.95bil at end-April.

“Our current account is still in surplus mode, so a twin deficit is unlikely.” the economist said, adding that the reserves level should be sustainable at above US$100bil.

“Bonds and the Malaysia Government Securities (MGS) have continued to thrive. Foreigners still believe in the country’s long-term outlook, as they remain the biggest bondholders,” she said.

Foreign investors had been increasing their holding of MGS up until the end of May this year, according to a recent estimate by Standard Chartered Global Research.

As at end-May, foreign ownership of MGS stood at 47%, or US$43bil of the total outstanding of US$92bil.

But May marked a significant turning point, both for the ringgit and the stock market.

MIDF Research, in a recent note, observed that foreign investors had been net sellers of local equities in the past two months. It said, June was the worst month for Bursa Malaysia since 2014, as foreign outflows totalled more than RM3bil.

This increased the cumulative net foreign outflow for the year to RM9bil, significantly higher than the RM6.9bil that had left the market in the whole of 2014.

“The Greece NO vote means uncertainties ahead and there will likely be a global sell-off in equities in the immediate term,” MIDF Research said.

“However, the Greece outcome should have been expected and priced in,” it added.

But the worst, however, may not yet be over for the ringgit.

“Fitch’s revision of Malaysia’s outlook seemed to be short-lived because of the negative sentiments. Investors don’t like uncertainties,” one analyst said.

A foreign report last Friday had alleged that there was investigative evidence of money from state fund 1Malaysia Development Bhd being channelled to what was believed to be Prime Minister Datuk Seri Najib Tun Razak’s personal accounts. Najib has denied the allegations and is looking at legal options against the publisher.

Meanwhile, the economy is still absorbing the impact of the goods and services tax while the country’s biggest trade partner, China, shows signs of slowing down.

“We expect a worse third quarter, as we foresee weaker economic numbers,” the analyst said.

By Ng Bei Shan The Star/Asia News Network

Ringgit hit by Greek crisis

Currency hit by Greek crisis

Currency plunges to 16-year low against US dollar

PETALING JAYA: Uncertainties in Greece have hit Asian stock markets and currencies, with the ringgit taking the brunt of it amid renewed political concerns within the country.

The ringgit hit a 16-year low of 3.8142 against the US dollar during intra-day trade before settling at 3.809 against the greenback at 5pm.

It broke the crucial 3.80 level for the first time since the US dollar peg was removed 10 years ago.

The ringgit had been pegged at 3.80 against the dollar since 1998 at the height of the Asian Financial Crisis to 2005. Closing lower by 0.78% against the dollar yesterday, the ringgit was the biggest loser among Asian currencies.

Malaysia’s stock market took a heavy beating, with the benchmark FBM Kuala Lumpur Composite Index falling 17.19 points, or 1%, to close at 1,717.05 points.

Other Asian currencies and equity markets also closed lower yesterday due to capital outflow after Greece on Sunday voted against further austerity to qualify for new bailouts to help its ailing economy.

Greece’s Finance Minister Yanis Varoufakis resigned and the country is now at risk of exiting the single-currency eurozone, raising questions about the future of the 17-nation region.

Greek voters overwhelmingly rejected the bailout terms demanded by international creditors, with official figures from Sunday’s referendum in that country showing 61.31% voting “no” and 38.69% voting “yes”.

In Malaysia, the impact of capital outflow was worsened by renewed political uncertainties after The Wall Street Journal’s (WSJ) report on July 3 alleging that about US$700mil (RM2.6bil) from 1Malaysia Development Bhd (1MDB) had ended up in Prime Minister Datuk Seri Najib Tun Razak’s personal bank account .

The allegations had resulted in some quarters calling for Najib to take leave and be investigated.

1MDB is being ­investigated by the Public Accounts Committee while a special task force involving Bank Negara, MACC and the police are looking into WSJ’s claims.- The Star

Related posts:

Separate the Attorney-General’s powers to correct a flaw in Malaysian legal system !

Tan Sri Abdul Gani Patail Revise Attorney-General's powers There is a flaw in our system, inherited since before Independence, tha... 

Sue or don't sue WSJ's report: RM2.6bil was moved to PM Najib Tun Razak's bank accounts?

KUALA LUMPUR, Malaysia—Malaysian investigators scrutinizing a controversial government investment fund have traced nearly $700 million ...

 Fighting corruption must be serious !

Stupid fellow ! Dr Ling, former Malaysian Transport Minister slams Attorney-General

Stupid fellow ! Dr Ling, former Malaysian Transport Minister slams Attorney-General. UTAR Council Chairman Tun Dr Ling Liong Sik speaking to the media regarding UTAR Initiatives and Developments at the Sg Long Campus, Kajang on Tuesday. KAJANG: There was nothing wrong in the land purchase for the Port Klang ... It's only the A-G (attorney-general who) thinks it's a wrong decision. Stupid fellow,” he said at a press conference here yesterday to announce ...

Global currencies weaken in currency war against super US dollar; exporters gain

Central banks making moves to check appreciating currencies against US dollar

A number of central banks have been making moves to shake up their currencies over the past few months.

Faced with slowing global growth and lower inflation – disinflation or deflation in a number of countries – central banks started taking action primarily by cutting interest rates or injecting liquidity into the system.

From Japan increasing its monetary stimulus to Singapore putting the brakes on its currency’s appreciation against a trade-weighted basket of currencies, stemming currency appreciation has led to talk that a currency war could be brewing.

Using the value of currencies to boost trade-heavy economies has been the flavour, as global economic growth slows.

The International Monetary Fund cut its global growth outlook from 3.8% to 3.5% this year and with growth easing in China, Europe and a number of emerging economies, giving support to such economies has been the focus of governments.

The European Central Bank instituted its own quantitative easing (QE) policy on Jan 22 to get growth going in the European Union.

The effectiveness of that policy has been questioned, but the immediate result was that the euro, which has been weakening against the US dollar, continued to fall against the greenback.

With Japan flooding the market with liquidity to get growth and inflation going with its own QE, the result has been a marked weakness in the currency.

The yen’s steep depreciation against the dollar, according to reports, is causing uneasiness in South Korea, which competes almost head-to-head with Japan in the export markets.

What is allowing countries that have taken action to cut their interest rates has been the slowing inflation.

The steep fall in crude oil prices since June last year to below US$50 a barrel has eased inflationary pressure worldwide, as energy is usually the biggest component of inflation. It’s been reported that over the past six months, 18 out of 50 MSCI countries have cut rates.

The Reserve Bank of India, which has an inflation targeting policy, cut interest rates this month. India, along with Denmark, Switzerland, Canada, Egypt and Turkey, has cut interest rates this month itself.

That was followed by Singapore’s move to slow its rise against a basket of currencies, which saw the Singapore dollar continue its recent drop against the US dollar.

Falling inflation was the primary reason for the Monetary Authority of Singapore (MAS) to make its pre-emptive move to slow down the appreciation of its currency by reducing the pace of increase. But quite a number do not pin that move as a significant competitiveness boost.

“The adjustment does not translate into a massive competitiveness impact,” says Saktiandi Supaat, Malayan Banking Bhd’s head of foreign exchange (forex) research based in Singapore.

MAS’ next policy statement will be due in April where it could give some clarity on the competitiveness angle, but the drop in the Singapore dollar against the greenback does help to boost inflation, which is expected to be lower than had been earlier estimated. The previous outlook was for a -0.5% to 0.5% rise in inflation.

A slower rate of appreciation would also help Singapore’s economy, which is already dealing with cost pressures from a tight labour market where the unemployment rate was a meagre 1.6%.

Furthermore, with non-oil domestic exports reportedly dropping for the past two years, a weaker Singapore dollar will help, especially when exports to China and the United States have fallen on a year-on-year basis.

Pressure is also emerging in Thailand, where the stronger baht is also not helping with exports, which dropped 0.4% last year.

Finance Minister Sommai Phasee was recently reported to have said that the Thai central bank should “in theory” lower borrowing costs, and that exports are under pressure from a stronger baht.

Fundamentals back appreciation

The Philippine peso and the baht are two currencies in this region that have in recent months seen an appreciation against the dollar. The reason for this is that the fundamentals of these economies have improved.

“The Philippines is not reliant on commodities as much as Malaysia, Indonesia and Thailand and that is the biggest driver of its currency,” says a currency strategist in Singapore.

“It just registered its strongest gross domestic product (GDP) growth over three years since the 1950s.”

The Philippine economy grew by 6.1% last year after expanding by 7.2% in 2013.

Thailand, recovering from floods and political unrest, has also been a flavour for foreign investors since stability returned.

Its stock market in US dollar terms is now bigger than Bursa Malaysia and one of the reasons for the currency’s rise is the drop in oil prices.

The fall in crude oil prices is expected to have the biggest economic benefit to Thailand and the Philippines among countries in this region, according to Bank of America Merrill Lynch.

“Lower oil prices have not resulted in any sizeable GDP growth upgrade as yet for emerging Asia, in part because of slowing global growth outside the United States.

“Lower oil prices have, however, improved the trade surplus significantly, supporting the current account balance and FX reserves positions.

“Lower oil prices have also resulted in a sharp drop in inflation, particularly in Thailand, the Philippines and India, which has allowed central banks to stay accommodative. Emerging Asian countries will likely see a boost to GDP growth in the range of +10bp to +45bp with every 10% fall in oil prices, if the oil price drop was purely a supply shock,” it says in a note.

The low-inflation environment will also allow central banks in this region to become more accommodative.

“Lower crude oil prices and loose global monetary policy will likely keep inflation lower in 2015 with rising probability of rate cuts in Asean,” says Morgan Stanley in a note.

How low will the ringgit go?

The past three months have been a volatile period for global currencies and no more so when it comes to the ringgit, which is the second-worst performing currency in Asia against the US dollar over the past 12 months after the yen.

Directly, the drop in crude oil prices has affected the fundamentals of Malaysia and carved a chunk out of government revenue, as receipts from crude oil production account for slightly less than 30% of income.

With revenues depleted, the Government has revised its budget for this year to take into account crude oil averaging US$55 a barrel in 2015 from an earlier projection that it would average US$105 a barrel when the budget was announced last October.

The revised budget also led to a slight increase in the fiscal deficit to 3.2% of GDP from an earlier projection of 3%.

That percentage is lower than the 3.5% target for 2014.

Apart from fiscal discipline, the ringgit’s fortunes have been loosely linked to the price of crude oil.

With this July marking the 10th year when the ringgit peg to the US dollar was lifted, the decision to remove the RM3.80 to the US dollar peg was to ensure that the ringgit reflected the fundamentals of the economy.

Prior to that decision, the price of crude oil had started to rise, delivering valuable additional revenue to the Government.

When the peg was lifted, brent crude oil was trading at US$55.72 a barrel, and over the years, the ringgit loosely tracked the value of crude oil, often appreciating against the dollar when crude oil prices were high and weakening when crude oil prices dropped.

Anecdotally, the ringgit gained strength against the dollar when oil prices soared and approached the RM3 to the dollar mark when crude oil hit more than US$140 in 2008.

It dropped in value as crude oil prices retreated from there, and as crude oil prices went up again and stayed at elevated levels for a prolonged period, the ringgit then crossed the RM3 level into the RM2.90 range.

Forex strategists say sentiment does affect the movement of a currency, but it moves in parallel with the fundamentals of an economy. With Malaysia’s fortunes closely linked to the price of crude oil, it is inevitable that the thinking of the country’s fundamentals will also change.

“If energy prices continue to drop, then it will hurt the ringgit,” says a forex strategist based in Singapore.

Bank Negara governor Tan Sri Dr Zeti Akhtar Aziz recently said the ringgit, which is currently trading at multi-year lows against the US dollar, did not reflect Malaysia’s strong underlying fundamentals.

“Once the global events settle down and stabilise, the ringgit will trend towards our underlying fundamentals,” Zeti told reporters at an event.

Apart from lower crude oil prices, the ringgit has also been hurt by capital outflows.

Malaysia’s forex reserves in the first two weeks of January were at its lowest level since March 2011 and foreign investors held 44% of Malaysian Government Securities (MGS) as of the end of last year.

Analysts say while foreigners have sold off a chunk of government debt, the remaining are not expected to do so as long as they are making a decent return on their holdings. The rise in the value of the 10-year MGS will give support to their holdings.

A number of forex analysts think the ringgit will not slip below RM3.70 to the US dollar, but some do admit they did not think it would be trading at the current level of around RM3.63 a few months ago.

“If it does go to RM3.80, then people will get panicky,” says one forex analyst.

By Jagdev. Singh Sidhu The Star/ANN

Semiconductor and rubber glove makers to gain from weak ringgit

Kenanga Research believes that the semiconductor industry will stay resilient with the global sales continuing to show healthy momentum.

THE decline of the ringgit is generally viewed as a problem for the economy but there are always two sides to the story.

Exporters with high local ringgit-denominated content and strong external demand are the obvious winners as they are expected to benefit from the weakening ringgit.

The winners are said to be the semiconductor and technology, rubber gloves and timber-based sectors. The share prices of a number of those companies have already factored in the benefits to their business from the weaker ringgit after the currency started its decline,which was more pronounced since the beginning of the fourth quarter of last year.

On the semiconductor front, Kenanga Research says believes that industry will stay resilient with the global sales continuing to show healthy momentum. Bottom-fishing is recommended as a strategy especially with the current risk-reward ratio less favourable following rich valuations in some counters.

“Typically, first and last quarters of a calender year, the earnings for the semiconductor players are seasonally weaker.

“That said we see any price weakness in these stocks as opportunities to accumulate as the earnings shortfall could be made up by the seasonally stronger second and third quarters on the back of the resilient industry prospects,” it says in a recent report.

Screening through the semiconductor value chain, Kenanga Research sees Vitrox Corp Bhd, being the leading solution providers of automated vision inspection systems to continue benefiting from the increasing complexity of semiconductor packages, which requires enormous inspection.

The research house is sanguine over OSAT (outsourced chips assembly and testing) players such as Unisem (M) Bhd. Inari Amertron Bhd is among the research house’s top pick.

PIE industrial Bhd managing director Alvin Mui says the group would see its sales rising this first quarter.

“But this is due to the new box built products we are doing for the medical equipment segment.

“The weakened ringgit will of course boost our revenue and bottom line,” Mui says.

Meanwhile, Elsoft Research Bhd chief executive officer CE Tan says the weak ringgit has boosted orders for its LED test equipment for the first quarter of this year.

“We expect to perform by a strong double digit percentage growth over the same period last year,” he says.

Tan says the LED testers the group produces are niche products with competitive pricing.

Rubber gloves players have seen strong price appreciation since late last year. Maybank IB Research likes Kossan Rubber Industries Bhd due to its stronger earnings growth in financial years 2015 and 2016, underpinned by the full contributios of its latest three plants.

Meanhile, JF Apex Securities mentions Latitude Tree, Poh Huat and Heveaboard among the timber-based industry stocks that can benefit from strengthening US dollar against ringgit.

The US market is the biggest for the industry which will gain from cheaper ringgit-denominated local content and stronger US economic growth.

The losers from a weaker ringgit, JF Apex Securities Bhd senior analyst Lee Cherng Wee mentions, are automotive players which import a lot of parts especially for completely-knocked down vehicles.

Lee says counters such as Tan Chong Motors and UMW Holdings are likely to be affected.

RHB Research in a recent report says about 60% of Tan Chong’s manufacturing cost of sales is transacted in foreign currency (80% in US dollars) which RHB sees as a risk.

“Continued US dollar strength will crimp margins that will not be offset by a weaker Japanese yen,” it says.

Lee also predicts the consumer sector players with high imported content in dollar terms could risk slimmer margins coupled with sluggish consumer sentiment due to goods and services tax.

MIDF Investment Research analyst Kelvin Ong said he foresees banking groups with higher foreign shareholdings like CIMB Group Holdings Bhd, Alliance Financial Group Bhd, AMMB Holdings Bhd and Public Bank Bhd as banks that can be impacted by the weaker ringgit.

“Foreign shareholding may slip if the domestic currency continues to weaken. The Fed’s tightening of the interest rate turns out to be more aggressive than expected, and crude oil prices continue to be on a downward trend. This will impact valuations of banks, but on the flip side, it will present buying opportunities for investors on a more attractive valuation,’’ he says.

By Sharidan M. Ali and David Tan The Star/ANN

Related posts:

Oil & Gas lead to wealth crunch, Malaysian Ringgit beaten and dropped!

PETALING JAYA: With the oil and gas (O&G) sector being the hardest hit in the current market rout, tycoons who own significant stake...

Malaysia revised budget 2015: cuts RM5.5 bil deficit target 3.2%, focus on manufactured goods