Two free fall bars on Sept 5 and 6 wiped out more than 50 points from KLCI. A free fall like that usually will drop between 80 to 100 points before it can rebound. If it was not the Global Mega rally due to ECB pulling out the Bazooka we would have seen the third leg down.
Most people explained that S&P threatened to cut our rating if Malaysia failed to deliver but I think it is more than that.Fitch rating actually already delivered the same warning at the beginning of August but nobody was paying attention.
KUALA LUMPUR, Sept 6 — Malaysia’s sovereign credit rating may
be cut if the government does not deliver promised reforms to cut
spending to reduce its fiscal deficits, Standard and Poor’s (S&P)
has said in its latest report on the country, joining other global
ratings agencies in warnings about the strains on the country’s credit
profile.
S&P said reforms the government should look at include the introduction of a goods and services tax (GST) and subsidy cuts.
“We may raise the sovereign credit ratings if stronger growth and the
government’s effort to reduce spending result in lower-than-expected
deficits, as indicated in the 10th Malaysia Plan. With lower deficits, a
significant reduction in government debt is possible.
File
photo of people shopping in Putrajaya. S&P has said the government
should look at introducing a goods and services tax and cutting
subsidies. — Reuters pic
“We may lower the ratings if the
government can’t deliver the reform measures to reduce its fiscal
deficits and increase the country’s growth prospects. These reforms may
include, but are not limited to, the GST and subsidy reforms on the
fiscal side, and private investment and economic diversification reforms
on the economic growth agenda,” said the ratings agency.
Last month Fitch Ratings said in a separate report that Malaysia had
yet to present a convincing plan to tackle the twin fiscal threats of
its federal budget deficit and federal debt.
Fitch also said that data clearly showed public sector-linked
activity had been a key driver of GDP growth for the last four quarters
alongside robust private sector activity.
It said that the ratio of federal government debt to GDP reached 51.8
per cent at end-2011 despite strong GDP growth but barring a further
deterioration in the global economy, the Malaysian government should be
able to meet its 2012 deficit target of 4.7 per cent of GDP.
Fitch added that improving the nation’s fiscal position would be
challenging without significant reform to address the cost of fuel
subsidies, broaden the fiscal revenue base, or reduce dependence on
energy-linked revenues.
S&P’s latest Malaysia report appeared to echo some of those views.
The country’s moderately weak fiscal and government debt profile for
the rating category constrains the sovereign rating, it said.
Putrajaya had made some moves towards cutting subsidies last year,
but political pressure in the run-up to elections have relegated some of
these reforms to the back of the line.
Plans to introduce GST have also been shelved because of fears that
it would cost votes for the ruling Barisan Nasional (BN) government.
S&P said it believed Malaysia’s slow fiscal consolidation stems
from high subsidies and the relatively weak revenue structure.
“Malaysia depends largely on petroleum-related revenues. The
government has been planning to reform the subsidy system and introduce a
goods and services tax.
“However, given the political sensitivities, we expect significant
implementation, if any, would only be after the general election,” it
said.
The agency added that for more than a decade, Malaysia’s economic
growth was partially brought about by large public investments —
sometimes exceeding that of the private sector — and this had adversely
affected the government’s fiscal position.
“However, this pattern might be changing. For example, foreign direct
investments (FDI) seem to have bottomed out. Besides, the recent
rebound of private sector investments was partially due to the
government’s initiatives for the Economic Transformation Programme. If
the trend continues, the Malaysian economy could regain its vitality.”
While the Najib administration’s efforts to help tide the country
over a rocky global economic environment with a longer term goal of
transforming the country to a high-income nation by spending more on
salary hikes and kick-starting large infrastructure projects has helped
boost GDP growth, analysts have noted that its debt has outgrown revenue
since 2007.
Figures from the Federal Treasury’s Economic Reports show that the
federal government’s domestic debt almost doubled in the space of less
than five years — from RM247 billion in 2007 to an estimated RM421
billion in 2011 — far outpacing its revenues which only grew 31 per
cent, or from RM140 billion to RM183 billion, during the same period.
While the Najib administration has vowed not to let federal
government obligations exceed 55 per cent of the country’s GDP, there is
increasing worry that when government-backed loans or “contingent
liabilities” are taken into account, the government’s total debt
exposure has already risen to about 65 per cent of GDP last year.
THE WSJ
KUALA LUMPUR--Malaysia's exports contracted in July,
squeezing the trade surplus to its smallest in more than a decade, in
the latest sign that weaker demand in China and Europe is chipping away
at the growth prospects of Southeast Asia's trade-reliant economies.
Malaysia's trade surplus stood at 3.61 billion ringgit ($1.16
billion) in July, according to figures released Friday by the Ministry
of International Trade and Industry. That was the lowest level since
April 2002 when it was MYR2.03 billion, and a sharp decline from MYR9.20
billion in June.
The narrower trade surplus was driven by a 1.9% drop in exports, much
worse than a rise of 3.7% predicted by private-sector economists and
compared with a 5.4% increase in June. In addition, imports increased by
9.5% in July, outstripping a 5.1% gain forecast by economists and
accelerating from June's 3.6% pace.
The latest data underscore the weak demand facing Asian economies,
which are dependent on exports to power their economic growth. South
Korean exports--considered a bellwether for the region's trade--dropped
6.2% from a year earlier in August, the second month of contraction.
Indonesia's exports fell 7.27% in July from a year earlier.
The soft reading in Malaysian exports indicates it is starting to
feel the pinch from weak external conditions, but the robust import
growth in July suggests domestic demand is still holding firm, which
could help cushion a sharp downturn in external demand.
"The strong import growth is the silver lining in July trade...which
suggests construction and transportation sectors are holding up," and
that would prevent the central bank from cutting rates immediately, said
Rahul Bajoria, a Singapore-based economist at Barclays.
Bank Negara Malaysia Thursday held the policy rate steady at 3.0% for the eighth successive time.
Analysts expect exports to remain weak through the remaining months
of 2012 and that could mean Malaysia posting a trade deficit toward the
end of the year or start of next year. Malaysia hasn't posted a monthly
trade deficit since the 1997-98 Asian Financial Crisis.
Exports have been volatile–contracting for two months through April
and then sharply expanding by 6.7% in May–tracking wavering overseas
appetite for its key electronics and electrical shipments.
Exports of electrical and electronics products, which account for
about a third of total exports, declined 4.8% from a year earlier in
July to MYR19.63 billion, mainly due to lower demand from China, the
ministry said. Overall exports to China fell 13.1% from a year earlier
to MYR7.03 billion.
Imports were driven by growth in consumption goods as well as a rise
in capital goods, which suggests Malaysian companies continued to take
deliveries of heavy equipment for construction activity.
The Star.
KUALA LUMPUR:
Petroliam Nasional Bhd (Petronas)
said the outlook for the rest of its financial year 2012 (FY12) will be
challenging amid geopolitical problems in Sudan where it has presence
and the unfavourable economic situation in the eurozone economies and
the United States.
Petronas' net profit for the second quarter
ended June 30 dived 29.9% year-on-year to RM15.22bil from RM21.71bil
while second quarter revenue fell at a slower pace of 3% to RM70.7bil
from RM72.94bil.
President and
chief executive officer Tan Sri Shamsul Azhar Abbas said the renewed economic crisis in Europe and possibly the United States could put downward pressure on oil prices.
“We
are now in the third quarter, it is going to be worse off. Why? It is
very simple, lower profits will be due to (issues) in Sudan.
“Now
in the South (Sudan) we are seeing zero production. It is reflected in
the second quarter and the worse is going to happen in the third and
fourth quarters,” he said at a briefing.
“For the next six
months, we expect zero production out of Sudan and what is the impact on
our bottomline? It is about US$1bil (RM3.11bil) a year. We are also
impacted by gas production in Turkmenistan,” he said.
Locally, Shamsul said oil production in Malaysia “will remain a challenge” until 2014 mainly because of depletion of reserves.
“It
is only from 2014 onwards, with the completion of new oilfields that
(comes) onstream (such as) the Gemusut Kakap. For the next couple of
years until 2014, please expect production in Malaysia to remain
challenging as far as Petronas is concerned,” he said.
Executive vice-president (finance)
Datuk George Ratilal said the price of oil for the second quarter fell compared to an uptrend in the first quarter of financial year 2012.
“The
price of oil for the relevant quarter from April to June 12 basically
took a dive from US$134 to US$103 per barrel for the Tapis (type). For
Dated Brent, (it dropped) down from US$125 to about US$94 per barrel but
in between that period it also came down to as low as US$88,” he said.
George
said Petronas' healthy financials highlighted that it would need to
spend on capital expenditure (capex) moving forward although it had been
able to sustain this with internal funds.
“Going forward, the caution is that (internal) operations' cash may not be enough to sustain capex and dividends.
“Cash,
while it is healthy here, it will be needed to sustain any deficits in
(internal) operations cash you will see a decline in cash, moving
forward,” George said in his presentation.
