Thursday, July 12, 2018

The Tide Has Turned?



The local bourse has been drifting down for weeks now with no respite in sight. As written a few weeks back, Malaysia's problems were not largely associated with the USA-China trade wars:

The ProblemsWe are in the midst of "house-cleaning", while we are quite prepared to be patient, a few things are noteworthy. 

a) Removing of GLC CEOs and other BN appointees from important government positions - While I wholeheartedly support this, it also hampers all these affected GLCs to "move" or carry out projects. Nobody dares to negotiate contracts as the situation at the top is still fluid. This has to be managed FAST and QUICK. The longer we carry out this bloodletting, the longer the downtrend of the market will be. There is a very low-velocity number in the current velocity of money.

b) Tainted Companies - Those not in the GLCs bracket but 'tainted' listed companies are affected as well. Quite a number of these company owners are currently hiding in overseas waiting for the dust to settle. When the owners are not around and their fate so uncertain, these companies will do as little as possible.

c) Clean Listed Companies - They may not need to hide but since nothing is moving at the government level, it also meant the wheels of economic activity also grinds to a halt. 



Our PM and the Council of Elders must put in their strategy and action plan to work fast. More so when it comes to Malaysia because our country is highly dependent on the stock market as a major catalyst for domestic economic activity. Malaysia has one of the highest percentages of GDP that is listed on the stock market (over 75% by guesstimate) - that translates to a high correlation for market activity with the real economy.

However, today saw some silver lining appearing when the Minister of Finance approves the go-ahead for LRT3 project.



http://www.theedgemarkets.com/article/george-kent-mrcb-after-lrt3-set-proceed

This was very significant as instead of removing people from GLCs, we are starting to green light projects. Things needed to move. This move, in particular, was more meaningful in other ways. This project basically helmed by two "friendly counters to Najib's administration" (one more so than the other). It may be a signal that the bloodletting is over, now let's move on. As long as you stay the course of proper business management with no impropriety, you can be part of New Malaysia. If that's the message, its a huge relief for plenty of listed company owners.




TIMING

The timing couldn't have come at a better time. Let's look at the China trips coming up for Malaysia's top guns:

a) Finance Minister will be going to China end of the month of July

b) Tun Daim will be going a few days before Lim Guan Eng

c) PM will be going to China mid August.

Last month, it was reported that Prime Minister Tun Dr Mahathir Mohamad had said Guan Eng and Malaysian Anti-Corruption Commission officers will travel to China soon to discuss with relevant officials about the two gas pipeline projects under SSER. Before that, Dr Mahathir had also noted the need to renegotiate unequal terms of the controversial ECRL project.

So why do we need 3 separate trips? One can only argue about it logically since I am not inside those meeting rooms.

My theory is that Tun Daim has to go earlier than LGE to meet with "the real big guns" behind the scenes with appointments set up by Robert Kuok. Why? Because the whole shebang with China needs to be concluded positively with no hiccups.

I expect Daim and Robert to meet with people who can work the overall strategic picture. I expect the two to voice the case for Malaysia, how we have turned a corner, how we now have to grapple with a significant level of government debt and liabilities, how China can use the situation to further clamp down on "corruption" by China state firms overseas, how both countries can come up smelling like roses ...

China needs Malaysia in a way to consolidate ties in Southeast Asia, not just for the One Belt One Road thing but strategically China wants a partner to have indirect oversight over the Straits of Melaka, militarily and economically.

Only with the "heads up OK" from the real bigwigs can LGE go and renegotiate better terms for the existing China-linked contracts in Malaysia.

Hence when PM goes over, it will be a rapturous ceremony to seal the beginning of a new partnership. I see palm oil buying to be a major issue which can jump start Malaysia's major industry. Closer ties and agreements with respect to foreign exchange and mutual "support" of each others' currencies and its usage in trade could be forthcoming.

These potential developments are important as there are still plenty of genuine projects related to One Belt One Road for Malaysia and China. It will also mean that its not a "sin" to have a China company as partner in future projects.

The tide has finally turned?

Cautiously optimistic.

1 comment:

walla said...

What Trump is trying to do is move the centre of economic gravity back to the west; what China is trying to do is maintain its momentum to Asia. Therefore from the investment viewpoint, China is the better bet for a Malaysia needing investments to spur the growth needed to earn more revenue to pay off its sizeable debt servicing. The only question remains is where is Europe in the global trade equation. The UK is in the US' pocket and France is a fence-sitter so that remains Germany. Trump's starting the US trade war with China will create a global market in which the US' high-value competitors like Germany, Japan and South Korea will grow as China confers them special access privileges to its market and they will grow until on per capita basis they will compete even more thoroughly with whatever the US will be innovating. In short, the multipolar world may realign into a continental bipolar grouping with a special node in Central Asia that is the heart of the OBOR circuit.

There are many dimensions ahead. Does Malaysia 'export' services to China? Yes, in the revenue it earns from Chinese tourists. Is Malaysia dependent on China as a palm oil market? More than that, it will depend on how China treats its palm oil exports from their Central African plantations whose acreage will be one and a half times the total combined acreage of Malaysia and Indonesia. Can Malaysia's manufacturing and banking sectors tap China's capacity as both technology and market supplier? Possibly, if it plays the cards right over and above the 3R displacements in the background boxed against GE15 risks. Will the KLSE triumph again if there is a new Malaysia-China synergy? It depends on the narrative next month between a pro-Japan Mahathir and China's new strategy for its debt diplomacy with the 23 countries in its OBOR route in the light of the US trade war, alliances, oil-independence and dollarized-hegemony, China's own aging demographics, tianxia aspirations and supra-property capital reserves utilization, and Malaysia's own Vision2025 now being constructed in my head as i type this which may seek synergy with China's Vision2025 so that Malaysia can be the first of Asia to China what the UK has been the first of Europe to the US.

For us, everything dovetails to one deciding word - 3R - if we continue not to be Malaysian first but pander to the irrationality of 3R.

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