CEO Forum 2014 – Some good notes to take note of.

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In the 6th CEO Forum 2014 in Malaysia organised by the Perdana Leadership Foundation, following was presented which I think is true and more needs to be done continuously.

1) If the income gap continues to grow in the country, it may cause the reforms to stop suddenly. This is demonstrated by the record high levels of household debts. What is worrying is that public discontent in the forms of potential street protests are high.

2) As per figures from Economic Planning Unit (EPU), the income growth has only been enjoyed by the top 20% of earners in the country while the remaining has remained almost the same. The reduction in subsidies continues to add pressure on this group of 80% whose income has stagnated.

3) Perhaps a national social net should be set up. Reason is because we have lots of assistance for the farmers, the BR1M, price controls, subsidies for health, universities already. Why not group it altogether and offer it to the 70% of Malaysians who does not earn more than RM5,000 in income?

4) Household debt is at 87% of Gross Domestic Product (GDP) and half belongs to households that earn a monthly income of RM5,000 or less. This meant that over RM400 Billion is owned by Malaysians who have little or no savings though this is partially offset by government’s subsidies. BR1M and so on.

5) Malaysia’s national debt is at 54.6% of GDP and ranked on the same level as Pakistan as having the second highest debt-to-GDP amongst 13 emerging Asian markets as per Bloomberg.

6) Fitch ratings agency also rated Malaysia’s sovereign debt at ‘Negative’ and Malaysia’s long-term foreign currency sovereign debt at A minus which is the LAST rung of the UPPER-MEDIUM GRADE ratings.

Before you think that with these bad news, it is doom for Malaysia, I think not at this moment. First of all, the reason why these statistics are available for public consumption is because the numbers continue to reflect what is happening and there’s not a lot which can be hidden. In terms of the top 20% and the bottom 80%, this income disparity is a problem in every country in the world, including even Singapore, UK, US and more. You can just google ‘income disparity USA’ or ‘income disparity Singapore’ and you would understand that this is a continuous work in progress. First step is acknowledging such a problem exists.

Household debt is a very important number and if we look at this, a huge chunk of it is due to the housing sector. At this point in time, my personal belief is that it is not a RED ALERT zone. Yellow Zone (Warning) perhaps. Reason is because 84% of all mortgages in Malaysia are for just one property. This has slowed since 2012, transactions has slowed down, prices in secondary has not risen like the primary ones and these days new launches are also more palatable compared to 2013 prices which was already crazily high.

fitchIn terms of ratings, please read carefully and note that even at the worst ratings, Malaysia’s long-term currency sovereign debt is at A-minus which is LAST rung of the ‘UPPER-MEDIUM’ grade ratings. Before this deteriorates to BB level, I would hold cash. Please refer to the full gradings by Fitch below.

If you think I am trying to tell you that there’s nothing to worry about, then you are WRONG. I am telling you that all these MUST be improved by the relevant authorities but to all the readers, it is very important that everyone also understand objectively what is truly happening. I have many friends who tells me that the situation in Malaysia is dire. Yet, they still buy new properties and still drive ever more expensive cars. If we do not know what is happening, it’s our fault. Today, information is available for almost free. You just need to continue to keep abreast with it and I think you should be better equipped than many GURUs in the market today. 🙂

written on 27th Sept 2014

Next suggested article:  Bloomberg, Bank Negara Malaysia, rate adjustment and economic growth

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