Many times, we tend to forget how important ratings are to a country. That difference between investment and junk status would mean more Foreign Direct Investments (FDI) versus nearly none at all because of the perceived higher risks. Many investors would be scared to buy properties in countries where the rating is under the junk status! Needless to say, the currency’s value would drop and the share market is deserted by all foreign investors. So, is this going to happen to Malaysia soon? Let’s see what Moody’s said in a note and reported by many local medias.
Remember recently many people were sharing about Malaysia being ‘downgraded’ by Moody’s Investors Service? In January 2016, it revised the A3 rating outlook to “stable” from “positive. Yes, A3 is still under the ‘investment grade.’ Safe for now,at least. This same rating agency was reported in a few local medias as saying that Malaysia’s monetary policy is effective in ensuring adequate levels of liquidity, banking stability and low inflation.
Adequate levels of liquidity is easy to see, there has been little change in the interest rates thus far and Bank Negara continues to adopt an accommodative stance. Banking stability can be seen from the still low Non-Performing Loans (NPL) though this is expected to rise in 2016 when compared to 2015. Low inflation would be something many would love to disagree and many times, they are right. Inflation is after all very dependent on the person. A year before, if you spend RM20,000 for the whole year and a year later, you suddenly bought a new smartphone for RM4,000, then your inflation has gone up by 20% even if everything else remained exactly the same.
Other information from Moody’s as follows: (My comments in bracket)
- Malaysia’s large domestic institutional investor base and net foreign assets gives ample buffer against financial shocks. (Be reminded, buffer against financial shocks does not mean we will have zero issues from any crisis, ok)
- Headline inflation averaged 2.6 per cent over the past decade and is lower than similarly rated peers (not the best in the world but better than similarly rated countries)
- Fiscal account are now in better shape to withstand oil price volatility at 3.2% vs GDP (This is why the subsidies must be structured to be more targeted)
- Malaysia’s effective regulatory and markets governance, along with substantial long-term institutional savings, had also enabled the country to become Asia’s third largest local currency bond market, after Japan and Korea. (Yes, it’s MALAYSIA and not other neighbouring or bigger countries)
- Malaysia has the the most advanced regulatory, accounting and market infrastructure for Islamic finance and is the world’s largest sukuk market. (Huge plus point, really. Must keep improving faster than everyone else. Many countries are trying to catch up)
- The change in outlook reflects the deterioration in Malaysia’s growth and external credit metrics due to external pressures over the past year, such as lower commodity prices. (Hope everyone reads this carefully, again. Understand why)
- Malaysia’s economy appears to be much more resistant to the commodities’ downcycle when compared with its peers. (We are definitely more diversified, even when compared to all regional countires)
- From 2001 – 2013, the average GDP growth is 4.8 percent. (Current growth numbers are really not that bad but hopefully the world recovers too so that every country can grow faster)
Happy reading and keep reading too. Nothing good can happen when the economy is not growing. Oh yeah, if we truly believe the economy is heading into a negative territory, do not touch property investment. It’s so hard to get out. The choice is ours to make. Happy investing.
written on 17 Mar 2016
Next suggested article: Ringgit: Happy, yes. Lasting, maybe. Undervalued, still is