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Sunday 16 August 2015

Abe Statement: Apology, Abapology or Abomb? Crafty rhetoric, insincere politics

Japanese Prime Minister Shinzo Abe delivers a statement in Tokyo on Friday marking the 70th anniversary of the end of World War II. He acknowledged Japan had inflicted "immeasurable damage and suffering" on innocent people but said generations not involved in the conflict should not be burdened with continued apologies. TORU HANAI/REUTERS

BEIJING, Aug. 14 -- As Japanese Prime Minister Shinzo Abe releases an official statement later Friday to mark the 70th anniversary of his country's surrender at the end of World War II (WWII), he is standing at a critical crossroad.

Upon such a highly symbolic and closely watched occasion, Abe has a choice to make, and there is only one way that will lead him and his nation closer to the "normal country" dream he has so frequently shouted from the rooftops.

Choosing a wrong course -- or keeping going astray, given his record on the sensitive history issue -- will undoubtedly carry the second-term prime minister further away from a legacy in nation-building he so desperately needs, as his signature "Abenomics" is losing sizzle.

Any statement that flagrantly flouts the true history and fails to repent Japan's WWII atrocities would be tantamount to Abe dropping a bomb upon his country's international reputation and trustworthiness.

Such an "Abomb" would be particularly sad, as its sole victim would be Japan itself, Abe's motherland, which is the only country in the world that has been A-bombed and still in the healing.

It would also be extraordinarily irresponsible and destructive, not only because its shock waves would blow the chances for his "normal country" ambition to come true anytime soon, but because its fallout would further ail Japan's already morbid ties with its neighbors and stoke regional tensions. If Abe possesses any reasonable level of sobriety, he will not throw an "Abomb" at his own country. Rather, judging from the trial balloons he has released of late, a more likely scenario is that the canny nationalist would offer an adulterated apology.

An "Abapology" -- mentioning such key words as aggression and apology but placing them in a context that waters down their meaning, or releasing nuanced versions in different languages -- would be regrettable.

Such a half-hearted apology would once again reveal Abe's deep reluctance to face up to his country's wartime crimes and take on the noble responsibility on his shoulders in seriously reflecting on the past in order to usher Japan into a world-assuring future.

A muddle-through approach of that kind would be not only unworthy of the great significance of the historic juncture, but indicative of a conspicuous lack of political and historical calcium, which explains to a large extent why Japan remains an "abnormal" country 70 years after WWII.

The only right way forward is for Abe to stop his rightist slide and provide a proper and unalloyed apology -- explicit enough to demonstrate heartfelt remorse and a resolve to abandon his erstwhile troublesome attitude toward WWII history and help dispel the specter of distrust between his country and its neighbors.

Yet should history be any guide, even an apparently whole-hearted apology from Abe would not be enough. It is the least he should do. To realize his "normal country" dream and restore Japan's standing on the world stage, he has to follow up with concrete actions.

By Deng Yushan (Xinhua)

Crafty rhetoric, insincere politics 
(China Daily)

A very cleverly worded speech. An impressive play of the words. That's about everything we could say about Japanese Prime Minister Shinzo Abe's latest statement on his country's unseemly record in World War II.

Abe didn't seem to deviate much from the well-received benchmark statement in 1995 by then Japanese prime minister Tomiichi Murayama. And the key points of that historic speech, including "aggression", "colonial rule", "remorse" and "apology", did find their way into his speech, though with abundant ambiguity.

For many in his audience, his expression of "heartfelt gratitude" to those who have been tolerant of his country and helped it return to the international community might be an unexpected bonus - not unlike his pledge to "squarely face the history of the past". That could be why some believe Abe has delivered more than what had been anticipated, given the discrepancies among its versions in different languages.

That East Asia just got around a potentially explosive occasion that could have escalated tensions is itself something to celebrate. For Japan's vigilant neighbors, however, whether or not Abe included the salient points of the Murayama Statement in his speech is not just a touchstone to gauge his attitude toward history, but the bottom line as well. Once that line is crossed, Japan's deteriorating ties with neighboring China and the Republic of Korea will slide past a point of no return, at least during Abe's term in office.

Abe knows what will come next. So, even after provoking neighboring countries no end, he waved olive branches at them requesting meetings at the highest level. He is yet to get one, precisely because of his betrayal of the Murayama Statement's spirit.

By incorporating the key expressions of that milestone statement, Abe may effectively silence some of his critics, whose latest demand was that his statement include the core Murayama expressions.

But make no mistake, he didn't present an apology of his own. He merely stated the obvious truth that earlier Japanese cabinets had expressed "heartfelt" apologies for the atrocities committed by imperial Japan.

It would be naive to think the tensions paralyzing East Asia will thus be gone. That Abe didn't cross the Rubicon, at best, means he was aware of the dire consequences of doing so and avoided it. And, that tremendous public pressure from home and abroad forced him to squeeze those words into his speech doesn't mean he actually meant it.

Rhetoric counts when dealing with Japanese politicians, for whom whether or not the Abe statement includes those key words makes a difference. Japanese politicians' infamous tradition of "slip of the tongue", however, makes it even more important to see how they act.

Abe's track record belies his claims of commitment to peace and good neighborly relations. That Abe and his advisers had reportedly struggled over whether or not to include Murayama's expressions, that the ruling parties had not agreed on the exact use of the expressions in the final transcript until the very last moment, that Abe managed to avoid directly referring to Japan's war as one of aggression and some of the perished Japanese as war criminals, and that his words became evasive when it came to Japan's colonial rule and the "comfort women" issue all betrayed a sense of reluctance.

Needless to say, reading between the lines of the Murayama Statement and Abe's speech even a casual reader can feel the difference in tones. In contrast to Murayama's sincerity, Abe seemed eager to shut out the past, though its sophisticated wording did hit the sentimental sweet spot at some points. But that will not be possible until Abe acts sincerely to achieve real reconciliation.

Therefore, even after weathering an otherwise imminent crisis, East Asia will continue to struggle in the long shadow of history.

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Japanese Prime Minister Shinzo Abe delivers a statement in Tokyo on Friday marking the 70th annivers[Read it]
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Friday 14 August 2015

Property prices will hold as ringgit falls to new low against USD and S$



PETALING JAYA: The depreciation of the ringgit will not lead to real estate prices crashing.

The Malaysian Institute of Estate Agents (MIEA) president Eric Kho said property remained a sound investment despite the current economic climate.

“Holding property is always better than holding cash,” he said.

Kho acknowledged that demand for primary or new developments had slowed but not as a result of weakening currency.

He said the slowdown was due to Bank Negara guidelines for banks to be more prudent when providing loans as well as increased construction cost due to the Goods and Service Tax (GST).

Kho said construction cost had increased by up to 15% and some developers were holding back on launching new properties.

He said developers who had launched projects were offering huge discounts to attract buyers.

Kho said there was also a slowdown in the secondary market and those looking to buy could expect to pay between 5 and 10% less, depending on location.

Kho, however, expected this situation to be temporary and said property would eventually appreciate.
- The Star/Asia News Network

Ringgit falls to a new low

PETALING JAYA: China’s central bank adjusted the yuan downwards for the second consecutive day, sending markets and currencies reeling.

The ringgit continued its fall against the US dollar, hitting a new low of RM4.0275, largely due to the devaluation of the yuan.

All currencies in the region also continued with their decline against the US dollar.

On a year-to-date basis, the ringgit is the worst performer among its Asian peers, and is down 13.33%. This is followed by the Indonesian rupiah, South Korean won and Thai baht at 9.88%, 8.35% and 6.99%, respectively.

Comparatively, the yuan is now down approximately 4.61%.

The impact on the ringgit is worse compared to other countries because Malaysia is viewed as a net exporter of energy and prices are depressed now – hovering below the US$50 per barrel mark.

Stock markets across the region fell with the Jakarta Composite Index leading the pack by falling 3.1% followed by Hong Kong’s Hang Seng Index which dropped 2.38%.

There was a “bloodbath” on Bursa Malaysia where about 90% of the 1,000-odd stocks listed closed lower.

The benchmark KLCI fell for the fifth consecutive day, shedding 26.8 points yesterday to close at 1609 points. Since last Thursday, the index has been down by 116 points.

On Tuesday, the People Bank of China (PBOC) moved the guiding rate for the yuan 2% downwards and yesterday it set it at 1.6% lower. The guiding rate is the band within which the yuan is allowed to trade.

The downward movement is viewed as a devaluation of the yuan and the biggest currency movement for the world’s second largest economy since 1994. Although China abandoned its currency peg in 2005, the central bank manages the yuan in a tight range.

The devaluation of the yuan has sparked concerns that China’s economic slowdown was more severe than anticipated and the central bank had to devalue the currency to export its way out of the situation.

Independent economist Lee Heng Guie said that the devaluation that has sparked a global currency war may end up with no winners.

The impact on depreciating ringgit is likely to be felt most by companies which import their raw materials, consumers and parents with children studying overseas.

BY RAHIMY RAHIM, RAZAK AHMAD, AND L. SUGANYA The Star/Asia News Network

Ringgit hits new record low of 2.9109 to Singdollar

Malaysia's ringgit hit a new record low against the Singapore dollar on Friday (Aug 14).PHOTO: AFP

SINGAPORE - Malaysia's ringgit hit a new record low against the Singapore dollar on Friday (Aug 14), after the Malaysian unit slumped to a fresh 17-year low versus the US dollar.

With the fall in oil prices increasing concerns over the country's exports, the ringgit lost as much as 2.6 per cent to 4.1180 per dollar, its weakest since Sept. 1 1998.

It recovered some ground to trade at 4.0660 to the US dollar at 2:04pm, bringing its loss this week to about 4.5 per cent.

Malaysia pegged the ringgit at 3.8000 in September 1998 and maintained it until 2005.

Against the Singapore dollar, the ringgit tumbled 1.55 per cent to 2.9109 as at 11:45am from its close of 2.8665 on Thursday. The ringgit pared its losses to trade at 2.8944 as at 2:04pm.

Better-than-expected economic data on Thursday failed to dispel the gloom with the benchmark stock index falling 1.5 per cent on Friday morning, heading for its lowest close since 2012. Fve-year government bond yield rose to 3.982 per cent, its highest since November 2008.

Oil prices fell with crude futures hitting six-and-a-half lows, exacerbating worries about Malaysia's exports. The country supplies liquefied natural gas and palm oil.

Malaysia has also had to draw heavily on its foreign exchange reserves to defend its currency amid a political scandal, a yuan devaluation and slumping oil prices. Bank Negara governor Zeti Akhtar Aziz said on Thursday the central bank will need to rebuild the reserves that have fallen below US$100 billion for the first time since 2010.

"Foreigners are still selling," said Ang Kok Heng, chief investment officer at Phillip Capital Management Bhd. in Kuala Lumpur, told Bloomberg News. "Unless the ringgit stops weakening, I don't know how long the selling will continue." - New Straits Time

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Wednesday 12 August 2015

Chinese yuan extends fall, long-term depreciation unlikely, weakening is not devaluation


BEIJING, Aug. 12 (Xinhua) -- Chinese currency continued to fall on Wednesday after the central bank reformed the exchange rate formation system to better reflect the market.

The central parity rate of renminbi, or yuan, weakened by 1,008 basis points, or 1.6 percent, to 6.3306 against the U.S. dollar, narrowing from Tuesday's 2 percent, according to the China Foreign Exchange Trading System.

The People's Bank of China (PBOC), the central bank, changed the exchange rate formation system so that it takes into consideration the closing rate of the inter-bank foreign exchange market on the previous day, supply and demand in the market and price movement of major currencies.

The International Monetary Fund (IMF) described the central bank's move as "a welcome step" that allows market forces to have a greater role in determining the exchange rate.

"Greater exchange rate flexibility is important for China as it strives to give market-forces a decisive role in the economy and is rapidly integrating into global financial markets," an IMF spokesperson said in an email on Wednesday.

The IMF said it believes the country can achieve an effective floating exchange rate system within two or three years.

However, the move still surprised the market and prompted the lowest valuation of the yuan since October 2012.

Ma Jun, chief economist at the PBOC's research bureau, attributed the lower rate to a long-standing gap between the central parity rate and the previous day's closing rate on the inter-bank market.

In a latest statement released on Wednesday, the PBOC said the rate changes are normal, as it shows a more market-based system and the decisive role that the supply-demand relationship plays in determining the exchange rate.

"This may lead to potentially significant fluctuations in the short run but after a short period of adaptation the intra-day exchange rate movements and resulting central parity fluctuations will converge to a reasonably stable zone," the PBOC said.

Ma also said the shift is a one-off technical correction and should not be interpreted as an indicator of future depreciation.

A relatively robust economy, current account surplus and the internationalization of the yuan will help the currency remain stable, the PBOC said.

Official data showed the Chinese economy maintained 7 percent growth in the first half of 2015 against challenges at home and abroad, creating sound conditions for the yuan to hold steady.

Surplus in goods trade reached 305.2 billion U.S. dollars in the first 7 months, a fundamental prop for the exchange rate.

An internationalized yuan and open financial sector have boosted the demand for the currency in recent years, which serves as momentum for the rate's stabilization, the PBOC said.

In addition, the PBOC also cited China's abundant foreign exchange reserves, stable fiscal condition and healthy financial system. The central parity rate is based on a weighted average of prices offered by market makers before the opening of the interbank market each trading day. The currency is allowed to trade on the spot market within 2 percent of the rate.

The PBOC said it will strive to further improve market-based exchange rate formation, maintain normal fluctuations and keep the rate basically stable at an adaptive and equilibrium level.
- Xinhuanet


Yuan weakening is not devaluation: central bank economist


Photo taken on March 16, 2014, shows yuan (central) and other currencies in the picture. [Photo/IC]

BEIJING, Aug. 11 (Xinhua) -- Allowing the Chinese yuan to weaken sharply against the U.S. dollar does not signify the beginning of a downward trend, a central bank economist said on Tuesday .

The yuan central parity rate announced by the China Foreign Exchange Trading System (CFETS) stood at 6.2298 against the greenback on Tuesday compared to 6.1162 on Monday, down nearly 2 percent, the lowest level since April, 2013.

The shift is a one-off technical correction and should not be interpreted as an indicator of future depreciation, said Ma Jun, chief economist at the research bureau of the People's Bank of China (PBOC).

The central parity rate is based on a weighted average of prices offered by market makers before the opening of the interbank market each trading day. The currency is allowed to trade on the spot market within 2 percent of the rate.

The PBOC said Tuesday's lower rate resolved accumulated differences between the central parity rate and the market rate, and was part of improvements to the central parity rate formation system to make it more market-based.

Ma said a long-standing gap between the central parity rate and the previous day's closing rate on the inter-bank market led to the lower rate on Tuesday.

He said China's economic fundamentals support a "basically stable" yuan exchange rate. A central parity rate closer to the market rate will provide a more stable environment for macro-economic development.

The economy has shown signs steadying and recovery, with infrastructure investment accelerating and property sales improving. Compared with some economies under strong pressure to depreciate their currencies, China is better-off, with a current account surplus, huge foreign exchange reserves, low inflation and sound fiscal conditions, he explained.

From Tuesday, daily central parity quotes reported to CFETS before the market opens will be based on the previous day's closing rate on the inter-bank market, supply and demand and price movements of other major currencies, according to the PBOC.

In July 2005, the central bank unpegged the yuan against the U.S. dollar, allowing it to fluctuate against a basket of currencies.

Making formation of the central parity rate more market-based touches on the core of reform, compared with previous steps that mainly concerned how much the yuan can fluctuate, said Guan Tao, former head of the international payments department at the State Administration of Foreign Exchange.

The yuan was at first allowed to vary by 0.3 percent from the central parity rate each trading day and the trading band gradually expanded to 2 percent in March last year. The market expects it to expand to 3 percent in the near future.

The latest reform actually increases China's flexibility and independence in foreign exchange control, as a rigid exchange rate system is open to speculative attacks, Guan told China Business News.

Two-way fluctuations will become normal for the yuan in future, he said.

- Xinhuanet

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Tuesday 11 August 2015

Sorry is the hardest word for Abe


The news that the "draft of Abe's statement contains an 'apology'" made the headlines all day on Japanese broadcaster NHK on Monday. According to the report, the statement to mark the 70th anniversary of the end of World War II by Japanese Prime Minister Shinzo Abe on Friday will also include key expressions used in the 1995 statement by then-prime minister Tomiichi Murayama, including "apology," "deep remorse," "aggression" and "colonial rule." This is so far the first report released saying that Abe's speech will cover this positive content.

Yet over the past few days, a number of Japanese media have been quoting a variety of inside information saying that Abe's remarks will not include terms like "apology." As the day that marks Japan's defeat in WWII approaches, how Abe will talk about it has been placed under global public scrutiny.

Abe's statement will reflect the future path of the country. If he only reflects on the wartime past but tries to blur the nature of the war by refusing to apologize, or avoiding mention of "aggression," the nation will face serious doubts over whether it is planning to ditch peaceful development, and means to reshape the political and historical pattern that formed after the war.

Abe has always been beating about the bush, trying to lower the world's anticipation of him echoing the spirit of the Murayama Statement. Not long ago, his cabinet voted through revisions of the country's security rules, which has triggered quite a few domestic protests. His domestic support rate has tumbled sharply, causing him unprecedented pressure since he assumed office as prime minister for the second time.

Abe might compromise, and add those key words from the 1995 Statement. Yet this is not as certain as a compromise to political pressure, rather than his own moral and political responsibility. His historical revisionism is known by all, and opportunism is universally considered as his main principle to adjust strategies over historical issues. Hence, there is a good chance that he may rewrite his statement draft at the last minute.

Accordingly, instead of the real historical recognition by Abe's administration, the speech will more likely mirror Abe's scheming and calculating among all the pros and cons in the power structure of the Asia-Pacific region.

Even so, a statement that can be accepted by the international community is still worth welcoming.

Abe's political logic is weird. He should realize that the US is Japan's biggest obstacle on the path toward becoming a "normal state." But he won't let go of the rivalry with China. Some suspect that Tokyo is eager to stay in the good graces of Washington, letting its guard down and seeking a chance to get rid of its control. However, Japan is unable to make that work.

Abe will find that his ability falls short of his wishes over his strategy in the Western Pacific. We hope he will make the right choice for his statement, whatever the reasons. And history will judge him fairly.

- Global Times

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By-laws governing strata property management in Malaysia, part 2

General duties of a proprietors according to the Third Schedule of Strata Management Regulation 2015



WHILE last week's article covered the general by-laws under the Third Schedule of the Strata Management Regulation 2015, this week, we look at what is required and prohibited by the proprietor who is the house owner.

General duties of a proprietor

• Promptly pay to the management corporation the charges and contribution to the sinking fund relating to his parcel, and all other monies imposed by or payable to the management corporation under the Act;

• Promptly pay all quit rent, local authority assessment and other charges and outgoings which are payable in respect of his parcel;

• Permit the management corporation and its servants or agents, at all reasonable times and on reasonable notice being given (except in the case of an emergency when no notice is required), to enter his parcel for the purposes of:

a) checking for leakages or other building defects;

b) maintaining, repairing, renewing or upgrading pipes, wires, cables and ducts used or capable of being used in connection with the enjoyment of any other parcel or the common property;

c) maintaining, repairing, renewing or upgrading the common property; and executing any work or doing any act reasonably necessary for or in connection with the performance of its duties under the Act or the regulations made thereunder or for or in connection with the enforcement of these by- laws or additional by-laws affecting the development and forthwith carry out all the work ordered by any competent public or statutory authority in respect of his parcel other than such work for the benefit of the building or common property;

d) repair and maintain his parcel, including doors and windows and keep it in a state of good repair, reasonable wear and tear, damage by fire, storm, tempest or act of God excepted, and shall keep clean all exterior surfaces of glass in windows and doors on the boundary of his parcel which are not common property, unless the management corporation has resolved that it will keep clean the glass or specified part of the glass or the glass or part of the glass that cannot be accessed safely or at all by the proprietor;

e) maintain his parcel including all sanitary fittings, water, gas, electrical and air- conditioning pipes and apparatus thereof in a good condition so as not to cause any fire or explosion, or any leakages to any other parcel or the common property or so as not to cause any annoyance to the proprietors of other parcels in the development area;

f) forthwith repair and make good at his own cost and expense any damage to his parcel if such damage is excluded under any insurance policy effected by the management corporation and to carry out and complete such repair within any time period specified by the management corporation, failing which the management corporation may carry out such repair and the cost of so doing shall be charged to the proprietor and shall be payable on demand;

g) not use or permit to be used his parcel in such a manner or for such a purpose as to cause nuisance or danger to any other proprietor or the families of such proprietor; not use or permit to be used his parcel contrary to the terms of use of the parcel shown in the plan approved by the relevant authority; and

h) notify the management corporation forthwith of any change in the proprietorship of his parcel or any dealings, charges, leases or creation of any interest, for entry in the strata roll; and use and enjoy the common property in such a manner so as not to interfere unreasonably with the use and enjoyment thereof by other proprietors. Follow our column next week to learn of the general prohibitions of proprietors, power of the management corporation and changes to by-laws that are possible.

BY Datuk Pretam Singh Darshan Singh, a lawyer by profession, has previously worked as Senior Federal Counsel, Deputy Public Prosecutor with the Attorney General's Chambers and legal advisor to several government departments and agencies. He is currently the partner in a legal firm while simultaneously serving as President of the Tribunal for Home Buyers' Claims. Leveraging his vast knowledge and decades of experience and knowledge, he contributes articles to local and international journals, besides delivering lectures and talks in relevant forums.

Email your feedback and queries to: propertyqs@thesundaily.com

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Saturday 8 August 2015

Not wise to sell property or house to shore up ringgit Malaysia


ON Thursday, at a seminar organised by Malaysia Property Inc, the Employees Provident Fund (EPF) said it would continue to seek “opportunistic” investments abroad.

There are various reasons why EPF and the other funds absolutely need to do so if they are to provide a steady dividend stream to contributors over the longer term and to diversify risk.

As we have seen the last year or so, the ringgit has come under tremendous pressure and year to date, it has weakened against most currencies, especially the US dollar, the British pound and the Singapore dollar.

Had EPF not made forays abroad in 2009, its 14 million odd contributors would not have received dividends ranging between 6% and 6.75% between 2011 and 2014 and in the interim years of 2012, 6.12% and 2013, 6.35%.

Prior to this, EPF declared dividends of 5.8% in 2007, 4.5% in 2008, 5.65% in 2009 and 5.8% in 2010.

The Asian financial crisis in 1997/98 and the 2008 global financial crisis were costly lessons for EPF and the other funds.

Before its move to buy property abroad in 2008, less than 1% of its total funds were invested in real estate. Today, it has the mandate to invest up to 4% of its total funds of about RM700bil in local and foreign properties. It can also invest up to 26% of its available funds in non-ringgit denominated investment instruments including bonds, securities, properties and other others.

So far, EPF has invested more than £1bil in UK and more than 1bil euros in France and Germany. It also has properties in Japan and Australia.

Its core investments in Europe, excluding UK, are in the office and logistics sector. In UK, it has offices, logistics and 12 hospitals under the Spire brand. It also has a 20% stake in Battersea Power Station mixed used project. According to its head of global real estate in the private markets department Kamarulzaman Hassan, EPF would like to add retail hypermarket chain to its stable.

It is prudent and logical for EPF to seek opportunities in mature markets because although it knows the home market well, it is already in every sub-segment of the local real estate market - logistics, retail, office, residential.

As Kamarulzaman aptly said, EPF is “a big fish in a small crowded pond.” Other big fish in this small pond include Permodalan Nasional Bhd, Retirement Fund Inc (or KWAP) and Lembaga Tabung Haji, Perbadanan Hartanah Bumiputra among others.

There are several reasons why EPF has made forays abroad. It was badly hit in 1997 and 2008. Prior to this, it invested only in Malaysia. It had all its eggs in one basket.

Earlier this year, as the ringgit was weakening, certain parties in the government called on the various funds to bring their money home to shore up the ringgit. They were to curb investments abroad.

EPF subsequently sold 1 Sheldon Square, UK for £210mil (RM1.14bil), which it bought in 2010 for £156.7mi, giving EPF a net gain of £54 mil. Whether it made that decision to sell based on that call to bring the money home is a moot point. That property was tenanted out to Visa Services Europe until December 2022, with a 5.75% annual yield.

So far, KWAP and Felda have said they will not be selling their investments which gave them a good yield.

The thing is, if there is better yield to be had, and forex to earn, why dispose of them?

And why curb funds from investing abroad if they have done proper due diligence and are able to manage these investments well.

As it is, according to Kamarulzaman, London properties are so hot today that investors are willing to get 3.5% to 4% in annual yield.

Selling overseas real estate which were purchased when the pound was low, when it is offering a good yield, just to shore up the ringgit does not seem to be a wise call.

It is like killing the goose that lays the golden egg just to provide food for a day. Yes, London’s property prices are frothy now, but these property investment have long leases.

Besides, the markets it has invested in are mature markets with high liquidity. There is interest in these markets from around the world.

Because property sector is cyclical, the timing is important. EPF entered UK when the it was about RM5 to a pound. These investments came with long leases, which fit into EPF’s need for a steady income flow as it needs to pay dividends to contributors.

In short, going abroad gave it a much needed new investment platform which was not available at home.

These mature markets offer transparent legal and tax structures and clearly, governance was well established.

There is a clear exit option and this was demonstrated when it sold 1 Sheldon Square earlier this year.

UK properties have gone up in value considerably since. Whether EPF will continue to liquidate depends on various factors but to liquidate just to bring home the money to shore up the ringgit should not be one of them, especially when its investments are yielding good returns.

Property is today the biggest alternative asset class for institutional investors and forms the largest allocation for pension funds, insurance companies and sovereign wealth funds.

It is also not homogenous but in today’s volatile environment, it is more tangible than most other asset classes.

Comment by Thean Lee Cheng The Star/Asia News Network

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The riddled Ringgit Malasia hits 17-year low against US dollar

Falling rate: A moneychanger worker showing the ringgit and US dollar notes in Kuala Lumpur recently. The ringgit is still falling versus the greenback.

Policy Matters - The riddled ringgit

CURRENCY traders are speculators. They make their money by taking bets; betting that this currency will rise, or that will fall.

Traders deal with the sentiments of the moment. They place their bets on the basis of expectations. They are quick to sniff weaknesses and take advantage of them.

The Malaysian ringgit has been vulnerable in the hands of traders. Not that traders are evil people. This is just how capitalism works.

Buying and selling from minute to minute, based on breaking news, even rumours, foreign exchange strategists do not ponder over fundamentals and the long-term equilibrium value of a currency when short-term pressures are overwhelming.

With allegations of financial impropriety running wild, there is nothing juicier that traders can chew on.

Bank Negara Malaysia, the one organisation that would know about the movement of huge sums of money, has been aloof. As waves of rumours and allegations rise and crash, silence does not do anything to quell speculation.

Then, there have been recent political developments: the deputy prime minister, other ministers and the attorney-general were dropped.

The prime minister has had to roll up his pants and walk into the rising tide. Any attempt to induce calm can, at times, induce more speculation.

Again, a field day for speculators.

The outlook is not very promising for much of the year.

A declining ringgit would make exports cheaper while raising the cost of imports. In the short run, theory indicates that the trade balance would decline.

With the passage of time, again as theory suggests, the volume of exports might increase. At this point the value of the ringgit would rise.

Until such time as the ringgit floats back to its equilibrium level, the declining ringgit will not do a lot of good.

A declining ringgit would make the consumption of imported goods from machinery and equipment to chocolates more expensive. This would lead to a decrease in household consumption of foreign goods and services, and it would also reduce investment in capital. The latter would not be beneficial because it would affect future production.

Should there be an interest rate hike in the United States in September BNM might find it necessary to respond with a hike in Malaysia. This might stem some of the capital outflow, but it would also act as a dampener on domestic investment.

The declining ringgit would drive the central bank to prop up the ringgit, as it perhaps already has. This has led to the decrease in international reserves. Malaysia has had more than adequate reserves, so a run-down on reserves will not be damaging.

It would be problematic to see the ringgit slip after the sell-off of reserves. That would mean wasting resources only to see a short-lived support of the ringgit.

Another worrying factor is the impact of the fall in the ringgit on Malaysia's foreign debt. A weaker ringgit would mean a higher cost in debt servicing.

International rating agencies are known to look unkindly at declining international reserves and exchange rate weaknesses.

Hence, a deeper concern might be a downgrade in Malaysia's credit rating. It would be a pity if Malaysia were to be slapped with a downgrade because the government has gone to great lengths to convince international agencies of our credit worthiness.

Although the outlook is not particularly bright, all is not out of our hands.

First, confidence must be restored in our economy. In particular, companies must be given the support they need to wade through the difficulties they face.

Second, the domestic political risk factors have to be better managed.

Third, although there is not much room for expansionary fiscal policies, it may need to be used to counterbalance an economy that is faced with a slump in confidence and enthusiasm. Stakeholders must be reminded that the country's development plans are on track.

Fourth, it is necessary to convince stakeholders that the central bank can act appropriately should the ringgit continue to face strong pressures.

Trying to save the day by persuading agents not to sell the ringgit has a flat timbre to it, at least under current conditions.

Fifth, initiatives must be taken to push ahead with good institutions and governance structures. This is in keeping with the government's overall programme, and it is now most opportune to stress the commitment to this objective.

The Malaysian economy has weathered many a crisis. The challenges that present themselves now are not trivial, but they are surely surmountable.

By Shankaran Nambiar

Dr Shankaran Nambiar is author of The Malaysian Economy: Rethinking Policies and Purposes. The views expressed in this article are his own. Comments: letters@thesundaily.com

Ringgit to ease further against US dollar next week


KUALA LUMPUR: The ringgit is expected to depreciate further against the US dollar next week, as falling commodity prices coupled with domestic political development will hurt investor confidence further, a dealer said.

The dealer said consistent talks over a possible US interest rates hike next month has prolonged the greenback's strength, with most emerging Asian currencies succumbing to selling pressure including the ringgit.

Last Thursday, the ringgit breached 3.9000 against the dollar for the first time since the Asian financial crisis 17 years ago, amid political tensions. The local note was pegged at 3.80 per dollar from 1998 to 2005 during the Asian financial crisis by the then Prime Minister Tun Dr Mahathir Mohamad.

Capital Advisors Currency Trader, Justin Herling, told Bernama that other factors such as declining oil prices and China's struggling economy had largely contributed to the depreciation of the ringgit.

He predicted the ringgit to further depreciate to 4.05 over the next 30 days.

"However we see this as a short-term correction but in the long term fundamentals still remain strong," he added.

For the week just ended, the ringgit traded lower against the US dollar at 3.9220/9250 from 3.8230/8260 recorded last Friday.

The local currency also fell against the Singapore dollar to 2.8291/8317 from 2.7775/7799 last Friday and weakened against the yen to 3.1429/1458 from 3.0771/0800 previously.

It declined against the pound sterling to 6.0881/0943 from 5.9509/9563 last week and was easier against the euro at 4.2836/2885 from 4.1816/1860 previously. – Bernama

Getting into the ringgit engine room

The depreciating ringgit has caught the imagination of most people on the streets. Beginning this week, we are featuring a special column on the mechanics of the currency and the forces that dictates its movements.Armed with two decades of experience as an interest rate and foreign exchange strategist in various financial institutions, Suresh Ramanathan will be looking into the intricacies of currency markets. With a Doctorate in Economics from Universiti Malaya, Suresh specialises in Modelling of Interest Rate Swaps, Foreign Exchange Forwards and Monetary Policy Signalling.Voted as Asia’s best foreign exchange strategist last year by AsiaMoney, he remains intrigued and fascinated by the workings of financial markets.

JUST how much is a currency worth? Exactly what the last buyer was willing to pay for it. That is the short answer. The longer answer is complicated.

In Malaysia’s foreign exchange (forex) markets, figuring out what a currency is worth is suddenly urgent. Trading is erratic, bid and offer spreads are wide and volume is thin as the market adapts to currency volatility. Determining the fair value of a currency is not an easy task either, disagreements between economists on what the fair value is or how it is measured becomes a banter at coffee bars and rigorous in academia. While the simple approach in analysing recent currency weakness is taking a top-down approach – meaning looking into macro-economic issues, followed by external and internal factors – affecting the economy.

But in the current environment, it may not suffice. Expectations of currency depreciating is built over a period of time until it reaches a breaking point.

The breaking point for ringgit is when the rest of the macro economic variables such as economic growth, inflation and trade balances are impacted.

The big question being where exactly is the breaking point for the ringgit? For the ringgit, a factor that stands out, is the arbitrage-speculative mechanism in the forex forward market.

A forex forward contract is an agreement between two parties to buy or sell currency at a specified future time at a price agreed upon today. It is available in all banks and used primarily for exporters and importers as a hedging instrument. The forex forward market has two features – one being a deliverable forward contract traded in the domestic market and settled in ringgit.

The other feature being a non-deliverable forward (NDF) contract that is settled in US dollar and traded offshore. Generally the NDFs are traded in financial centres such as Singapore, London and New York.

The mechanism of how a NDF trade and settlement works is based on the tenure of the contract followed by the fixing rate. The tenure can range from one month to a year or more and the price is fixed at the time the trade is entered into between two parties.

The trade, fixing and settlement dates are crucial since the period between the inception of the trade and the fixing can decide the profit and loss of a non-deliverable trade.

The fixing of the ringgit against the US dollar is currently done onshore through a spot fixing mechanism monitored by Bank Negara. The mechanism of fixing the rate onshore or in the domestic market removes certain elements of arbitrage and speculation.

But it does not prevent traders from taking a position in the offshore market by going into an agreement to buy or sell NDFs. It provides an arbitrage opportunity. In simple terms, the difference between the spot rate that is fixed in the domestic market and the offshore rate indicated by the MYR NDF provides an arbitrage opportunity for traders.

The second channel of arbitrage – speculation involves yield when one buys or sell a currency contract in the forward market. Between the period of inception of the trade and the fixing date, the MYR NDF yield can move either way. It is here where banks profit the trade, via using the implied NDF yield arbitrage versus the onshore forward yield.

This spread has been the lynchpin of trading mechanism for currency markets, particularly for emerging market currencies that are not convertible in the international market and not allowed to trade offshore. This is a legacy that was left behind from the Asian financial crisis of 1997/98 when Malaysia imposed capital controls and ringgit no longer became an international tender.

In the current trading environment of ringgit, spreads on the implied yield between onshore and offshore forward markets have persistently stayed above 1%, since the third quarter of 2014. An implied yield spread of more than 1% between onshore and offshore forward market indicates weakness of the ringgit against the US dollar.

This provides an avenue for markets to exploit the difference in yield, particularly for financial institutions that have access to both the onshore and offshore foreign exchange forward market. As the arbitrage window gradually closes and the spread between offshore and onshore implied yield from the foreign exchange forward narrows, the impetus for the ringgit to weaken further slows in pace, and it is here the risk of the currency swinging to the firm side picks up momentum.

Bottom-line, it’s not the macro view ala top-down that affects the ringgit. It’s the trading arbitrage in the currency that truly plays a significant role for the ringgit’s current predicament.

By SURESH RAMANATHAN


The difference between now and 1998

THE ringgit is falling and so is the stock market. Contagion worries are building.

That scenario is a reality for Malaysian capital markets and the anxiety over a slowdown in China’s economy has got many worried about its effect on economic momentum in Malaysia.

Parallels from such a situation today can be drawn against what happened during the Asian Financial Crisis of 1997/98 but the setting is different than what happened almost 20 years ago.

Going back to 1997/98, it was a time when growth in Malaysia and South-East Asia was booming. Overheating worries turned into whether such growth was sustainable.

Starting with the attack on the Thai baht, the currencies of many South-East Asian countries were soon under attack.

The ringgit too felt the brunt of such attacks and at the worst, fell to RM4.80 to the dollar before recovering and ultimately pegged at RM3.80 to the dollar in September 1998.

“In 1997/98, it was contagion that caused problems. The currency crisis turned into a financial crisis,” says independent economist Lee Heng Guie.

The reasons for the fall in the ringgit this time is different.

The value of the ringgit was for some time after the peg was removed linked with the price of crude oil. As the price of crude oil rose, so the ringgit.

But as the price of crude oil collapsed like it has now, the ringgit felt the brunt. Political uncertainties in Malaysia is not helping the value of the ringgit.

The price of West Texas Intermediate is now at US$44.81 a barrel

The danger is what will happen to the real economy as the ringgit weakens?

The external trade sector will do well as seen in June’s export numbers. The steep decline of the ringgit in June lifted external trade by 5.0% year-on-year to RM64.3bil. “In part, the weak ringgit currency spurred exports growth during the month. Ringgit fell to an average of RM3.74 per US dollar in June versus RM3.60 in May. Exports growth were driven by most export products except the exports of petroleum including crude petroleum, LNG and petroleum products. Primarily, the exports of E&E surged by 13.5% following two months of contractions,” says AmResearch in a note.

Although there are similarities in the movement of the ringgit between 1997/98 and today, the stark contrast was economic strength.

In 1997 Malaysia had a current account deficit and a fiscal surplus. That situation reversed a year later and has been so ever since. The ringgit peg at RM3.80 afforded stability to exporters and that swelled the trade account in 1998. A fiscal deficit was realised after the Government embarked on priming, with the aid of lower government debt than today, to kickstart the economy which had been ravaged by a steep decline in economic activity.

One of the reasons why businesses found it hard going in 1998 was corporate leverage. A number of corporations were saddled with big debts and institutions such as Danaharta Nasional Bhd was formed to restructure corporate debt in Malaysia.

Conditions are reversed for most of corporate Malaysia today. Leverage has been kept in check and cash balances among corporates are in a far healthier state than it was in 1997/98.

The difference was also foreign reserves. From a high of US$34.6bil in May 1994, foreign reserves dropped to a low of US$17.5bil in 1997. Foreign reserves in Malaysia was US$96.7bil as at July 31.

Although the quantum of foreign reserves compared with the size of the economy is a comparative consideration, economists point out that the amount of reserves today is sufficient for nearly 7.6 months of imports. Back then, it was enough for just 3.2 months of imports.

“We have come a long way from the past. The banking system is well capitalised compared with back then,” says AmResearch economist Patricia Oh Swee Ling.

The biggest difference between 1997/98 and today are households.

During the Asian financial crisis almost two decades ago, household debt as a percentage of GDP was a meagre 16%.

At the end of last year, it was 87.9% and remains at an elevated level. The man in the street was generally immune to the crisis although there was an uptick in unemployment and higher loan repayments for loans as interest rates spiked.

While per capita income today is in excess of RM35,000 compared with RM12,314 in 1998, cost pressures have emerged. The goods and services tax (GST) has crimped spending power among consumers and retail sales, according to the Malaysia Retailers Association, contracted by 3% in the second quarter compared with a rise of 4.6% in the first quarter of 2015.

Purchasers by consumers has been a big factor in the growth of the economy and if private consumption, which accounts for 50% of GDP according to an economist, falls, then that will put pressure on economic growth in the second quarter.

Economic weakness ahead

Bank Negara will release second quarter GDP numbers next week and the general consensus is it will be lower than the first quarter. The consensus is for a growth of 4.5% for the second quarter.

Citigroup, in a note, projects second quarter GDP to come in at 4% compared with 5.6% in the first quarter.

“Services were dragged down by a 11.2% year-on-year plunge in motor vehicle sales post GST, while transport and utilities were also soft. Loan growth was stable, though fund raising in capital markets lifted financial services growth,” it says.

Citigroup says growth in mining slowed to below 8% from a year ago in the second quarter on weaker production volumes in gas and oil.

“Manufacturing also slowed below 5% year-on-year on softer April-May electrical and electronic production, although rebounding in June to 7.1% year-on-year. Growth was likely cushioned by a turnaround in palm oil production and strong construction.

“From an expenditure perspective, the slowdown in second quarter GDP growth was likely led by domestic demand, especially consumption. We remain cautious on third quarter prospects given continued slump in the Composite Leading Indicator, second half growth should be cushioned by base effects, a gradual recovery from the GST induced slump, and a lift to manufactured exports from a US recovery,” it says.

Affin Hwang Capital believes that despite households adjusting to the GST following its implementation in early April, it believes private consumption will remain supportive of economic growth in the second half, supported by favourable labour market conditions on the back of steady increase in income and low unemployment rate in the country.

“Malaysia’s real GDP growth is expected to slow from 5.6% y-o-y in the first quarter to an estimated 4.5% in the second quarter, before recovering to an average of 5% y-o-y in the second half. We highlighted that our full year 2015 GDP forecast remained unchanged at 5% in 2015, at the mid-point of the official forecast of between 4.5% and 5.5% (6% in 2014).”

Moody’s Investors Service was more optimistic. It expects Malaysia’s economy to grow by 5.1% in the second quarter.

“Exports are the main drag, driven by soft global demand and low oil prices. This filters through to the domestic economy as unemployment rises and consumers reduce spending. Capital expenditure should remain buoyant as government infrastructure projects come on line.

Malaysia’s economy should pick up later this year as the global economy strengthens,” it says.

By JAGDEV SINGH SIDHU The Star/Asia News Network

Slide continues despite efforts to arrest fall

THE ringgit slide continues despite aggressive attempts by the central bank to shore up the beleaguered currency.

Bank Negara said yesterday the country’s international reserves fell to US$96.7bil as at end of July, down US$8.8bil from a month ago. It came from a high of US$140bil in 2013.

Analysts said the recent sharp fall in reserves indicated that Bank Negara had step up its intervention in the currency market.

The ringgit had been under tremendous pressure in recent months as the outflow of funds continued unabated.

Bank Negara said foreign investors cut their holdings of Malaysian bonds by 2.4% to RM206.8bil in July. This is the lowest level of foreign holding in the Malaysian bond market since August 2012.

The outflow from the bond market coincided with the sell-off seen in the stock market.

MIDF Research earlier this week said global investors had pulled out an estimated RM11.9bil from Bursa Malaysia as of end of July.

This added to the RM6.9bil that left the stock market last year.

The rush to exit by foreign investors was a major force behind the ringgit’s sharp decline year-to-date. The local currency exchange rate against the US dollar hit 3.93 yesterday, which is a new 17-year low.

That put the ringgit down 11% year-to-date and made it Asia’s worst performing currency so far this year. To some, the currency’s recent plunge evokes an eerie reminder of past financial crisis.

The ringgit was fixed at 3.80 against the US dollar in September 1998, at the height of the Asian financial crisis. The currency peg was removed in July 2005.

Ten years down the road, the ringgit is again under pressure. And so are other currencies across the region as global investors adjust to the prospect of tighter monetary policy in the US.

In Indonesia, the rupiah was down 8.5% against the US dollar, while its stock market declined 8.7%.

Capital Economics, an independent macro-economic research firm said the biggest threat to Malaysia is slump of its currency and lower commodity prices that is hurting exports.

“With the exception of Malaysia, where US dollar debt is high, currency weaknesss is not a major threat to the region,” it said.

State owned Petroliam Nasional Bhd (Petronas) sold US$5bil of US dollar denominated bonds in March, while Tenaga Nasional Bhd recently said about 6% of its RM24bil debts are in US currency.

Others like 1Malaysia Development Bhd (1MDB) also have a significant portion of its RM42bil debts in foreign denominated currency.

Malaysia has also been hit hard by the fall in global commodity prices. The country is a net exporter of crude oil, liquefied natural gas and is ranked among the largest exporters of rubber and palm oil

For the first six months, exports declined 3.1% from a year ago, largely due to lower prices of commodities.

Next week will be a busy one for the market as the Government is scheduled to release the country’s factory output figures on Monday followed by gross domestic product (GDP) for the second quarter on Thursday.

The country’s economic performance and its outlook by the central bank should provide some bearing for the ringgit, which some analysts, including those at CIMB Research expect to touch RM4 against the US dollar by the end of the year.

By IZWAN IDRIS The Star/Asia News Network

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