No News Is Bad News
Free falling Ringgit Anwar’s political waterloo?
https://www.youtube.com/watch?v=8SZ1akhMryA&t=33s
KUALA LUMPUR, Nov 4, 2023: Suspected CIA-backed political website, Malaysia Chronicle (MC), which is rooting for the downfall of Malaysia’s 10th Prime Minister (PMX) Anwar Ibrahim has posted another two stories damning the PMX and the country, amid possible US economic sanctions on Malaysia for latter's support for Hamas terrorists and Palestine jihadists.
Watch the video link above.
No News Is Bad News reproduces the two stories below for our readers’ reading pleasure:
DAP NOT READY TO DITCH ANWAR YET? - EVEN SO, EXPECTATIONS RUN HIGH A NEW PM WILL TAKE OVER SOON - AS EVEN ANTHONY LOKE HIMSELF DOESN'T DARE SAY IF 'MADANI' GOVT WILL STILL STAND AFTER ITS FIRST & PERHAPS ONLY TERM
posted by politics now! on November 03, 2023
Written by Stan Lee, Politics Now!
KUALA LUMPUR (Politics Now!) - As storm clouds gather over talk of a new super unity coalition led by a new prime minister, DAP secretary-general Anthony Loke insists he is confident the current unity government led by Anwar Ibrahim could last out the 5-year term it won through the King's support last year.
Howver, Anthony was careful to sidestep comment on what happens after that - raising eyebrows when he admitted it was 'already an achievement' for Anwar's 'Madani' to survive a year.
"The fact that the government has survived almost a year is an achievement by itself,” he reportedly said in an interview with Bloomberg.
Anthony, who is also Transport minister, based his optimism on the warming relationship between his Pakatan Rakyat coalition and the Umno-BN coalition.
Bitter enemies for decades, the pair came together in November last year to seek consent from the King to form the federal govt. They were joined by Sarawak's powerful GPS coalition and Sabah's GRS and together, they now hold a super-majority of more than two-thirds of the seats in Parliament.
UNDERWHELMING PERFORMANCE
However, Anwar has invited severe backlash and criticism, as he tried to brush off the effects of a free-falling ringgit, which has fallen to its lowest in history - breaching even the 25-year lows hit during the Asian Financial crisis.
Holding both the prime minister as well as the finance minister posts, Anwar's underwhelming performance has drawn calls for him to step down and take responsibility for the ringgit's shock freefall.
The GPS has also snubbed his call to make Malay the official language in the civil service, openly stating it would stick with lingua-franca English. A 'Palestine Solidarity Week' launched by Education minister Fadhlina Sidek to be held in schools in 'empathy' with the Palestinians was also tersely ignored.
Adding fuel to the fire were the unrestrained remarks from the Johor crown prince Tunku Ismail that Anwar was indecisive and lacked courage to do what was needed to put the nation back on track. Tunku Ismail's father is set to become Malaysia's King on Jan 31, 2024,
Given how the existing King, who is the Pahang Sultan, had played key roles in the determination of Malaysia's past 3 administrations, many believe the PN-PAS opposition led by Muhyiddin Yassin and Hadi Awang would try to topple the underperforming Anwar soon.
"All the opposition needs to do to come back to power is to present to the King enough statutory declarations of support from Members of Parliament. This will show the King that they and not Anwar's 'Madani' government have the people's support," a political watcher told Politics Now!
Written by Stan Lee, Politics Now!
BRACE FOR A 'SWARM-IN' ON THE RINGGIT & THE RUPIAH - CONCERNS GROW RM5 TO THE DOLLAR MAY NOT HOLD - NEITHER CAN 16,500 FOR THE RUPIAH - AMID POLITICAL INSTABILITY IN MALAYSIA, RUNAWAY INFLATION IN INDONESIA
posted by politics now! on November 03, 2023
Written by Sam Chee Kong, Politics Now!
KUALA LUMPUR (Politics Now!) - The mood and feelings of despair and desperation currently surrounding the people in Malaysia are reminiscent of the period during the Asian Financial Crisis in 1997.
Besieged by huge debts and balance of payments deficits their economies are vulnerable to a currency attack. In what appeared to be the calm before the storm, the events leading to the eventful moment on July 2nd 1997 caught everyone by surprise due to the speed of the unfolding events.
It started when Thailand unpegged the Baht from the USD. It quickly spread to neighboring countries such as Malaysia, Indonesia and Korea. It set off a series of devaluations which also led to massive
capital flights from the region. Some of those currencies devalued by more than 50% within a period of few months.
Today, we are revisiting the same scenario again but within a larger context. Meaning we now have much bigger debts not only confined to Asia but the whole world. It seems we didn’t learn from our past mistakes.
But history tends to repeat itself. What has led to the current crisis? It all started during the Global Financial Crisis in 2008. At that time the world is threatened with a global recession if something is not done. The catalyst for the GFC was due to the bust of the US housing market. Housing prices are collapsing and borrowers unable to repay their mortgages. To illustrate the problem, the following is the 25 year interest rate chart of the US.
As can be seen the interest rate back in 2008 was 5.25%. To alleviate the problem or bailout the economy, it has to be brought down. Thus the Federal Reserve Bank implemented a policy of 10 interest rate cuts which eventually drove it down to 0%. The zero interest rate policy lasted until 2016 when the global economy started to recover.
To revive the economy global central banks also began their “money printing” spree. Spurred by the growing economy and optimism, it encouraged banks to give out easy loans to home buyers, credit card, personal and businesses. The following is the money supply M2 chart of the US. Look at the angle of ascent especially during the pandemic years.
Hence to prevent inflation from getting out of hand while encouraging growth interest rates began to rise as from 2016. However, that came to a halt in 2020 when the world was struck by the Covid-19 pandemic. Things began to fall apart when countries began implementing lockdowns. Businesses starting to fail and people are unable to survive on their own not to mention paying their mortgages, credit cards and personal loans. Moratoriums on payments on debts are implemented to aid the situation.
This only provided a “band aid” solution as it is only effective in the short term. The elephant in the room was the huge loans taken by governments and corporations in developing countries during the early years of post GFC recovery.
Unfortunately most of these loans are denominated in USD. Thus bringing with it one of the most devastating effects of “foreign exchange exposure”. That is exactly how it wiped out many hedge funds by using what known as the “carry trade”. The following best explains how a carry trade works.
https://www.investopedia.com/carry-trade-definition-4682656
Thus , a borrower will be subjected to two major risks. One is the forex exposure or a drop in the
borrower’s currency. Meaning more domestic will be needed to repay the same loan. The second big risk is the interest rate exposure. Meaning when the interest rate goes up during the tenure of the loan then the costs of servicing the loans will be higher.
This is exactly what happened to those emerging market economies. And it’s basically a rerun of the Asian Financial Crisis in 1998. Thus two Asean currencies that I mentioned that risked collapse is the Malaysian Ringgit and Indonesian Rupiah.
Let’s take a look at some fundamentals of the Malaysian economy.
WORST-PERFORMER RINGGIT
As can be seen USD/MYR is almost hitting the all time low of 4.88 which was recorded earlier in an intraday spike. Bank Negara Malaysia has intervene in the forex market through buying and selling the USD to support the Ringgit.
However intervention into the forex market do have it’s unintended consequences if the impact is not sterilize. Such as runaway inflation or the credibility of the government. The main problems during such interventions are mainly in determining the timing and the amount of intervention. This presents a huge dilemma to most central banks as both involves research and understanding in both technical and fundamentals of the country.
This is also a highly complex maneuver as we are dealing with an ever changing real time situation. Thus in most cases a corrective intervention has to be taken immediately after the first attempt. To put it into perspective, if you were to look into “the hedge book” of a corporate treasurer, within a single month you can see multiples {up to 10} call or put options executed following an initial trade so as to cover the errors of forecasting.
From what I see from the chart, I reckon Bank Negara Malaysia (BNM) has failed to performed it’s task of stabilizing prices. Our Ringgit has been on the downward spiral despite repeated intervention and it is almost at the all time low. This has caused spikes in prices in most food and
consumable items as many of them are imported such as rice, vegetables, wheat and so on.
And despite the weakening of the Ringgit, it is a miracle that our inflation rate is still maintained at 2%. This I called a bluff. I have written a report on how our Government manipulated our CPI (Consumer Price Index) basket of goods so as to provide a miniscule rate of inflation. Here is the
report which was published in www.MarketOracle.co.uk. I suggest you read the article in order
to fully understand how a country’s CPI calculated behind the scene. (https://www.marketoracle.co.uk/Article35613.html )
As can be seen from the report the CPI figure is being manipulated through bias in grouping,
weighting, under reporting and so on. Thus I can conclude that Bank Negara has failed in it’s mission in maintaining price stability.
The following is the chart of our inflation rate.
So, do you all believe our inflation rate is still at 2%?
Despite our Ringgit plunging to a new low, our exports surprisingly does not tag along. Meaning when Ringgit fall our export products will be cheaper than our competitors. But it is not happening. Below is our export chart.
From the forex chart above you can clearly see that our Ringgit starts plunging last year. As previously mentioned cheaper Ringgit equates cheaper Malaysian goods and thus will increase demand for our products. But when you look at our export chart above, it is not happening. In
fact it reverses or went down. What happened? Is this a new conundrum in the economics space? Lower exchange rate = lower exports?
MALAYSIA NO LONGER COMPETITIVE, RM5 TO THE US$1 MAY NOT HOLD
What I can determine is that our products are no longer competitive. Even though or Ringgit has fallen substantially, it is not enough to compensate for the increased costs of production incurred by our manufacturers.
One simple reason most of our industries are still labour intensive. We needed to bring in huge number of foreign workers because locals reckon those
jobs are only good for foreigners. Thus they prefer jobs in the gig economy such as delivery boys for online platforms such as Grab or FoodPanda.
RINGGIT HORSE HAS FLED THE BARN
The second and more ominous reason is we are lagging behind our neighbors such as Thailand and Singapore in applying industrial automation such as robotics. (https://nixma.com/why-asean-is-leading-the-industrial-robotics-adoption-race/ ).
Our once mighty rubber glove industry is currently being decimated by international
competitors such as Thailand and China. During the pandemic years our rubber glove companies
are raking in RM billions in profit. However this led to the rush in rubber glove production from China and Thailand. As a result there is a supply glut which lasted years already. Hence the price plunged back to pre pandemic level (https://theedgemalaysia.com/node/685359 ).
Our glove manufacturers still depended on Bangladesh, Nepal, Vietnam, India, Cambodia, Indonesia and you name it for our supply of workers. While our competitors in China and Thailand are applying more automation into their production. In China, they have already automated their rubber tapping. (https://blog.st.com/rubber-tapping-robot
Hence, coming back to our discussion on foreign exchange, what I read the other day was that an official from BNM claimed that they have yet to intervene into the forex market. They have the necessary tools to reverse our Ringgit weakness. I am just wondering what secret tools they have in mind? Hiking rates? Direct intervention into the forex market? Open market operations?
Issuing Ringgit denominated securities to attract foreign capital inflows?
As for the Ringgit, I reckon the horse has left the barn. Whatever they do next might be “too little too late”. In any aspect I am not surprised to see the Ringgit breaking the 5.00 level before December 31st 2023.
Reasons being it is futile to go against the trend. When our Government’s credibility is at stake due to political instability like now. It is very easy being a victim to those currency vultures. I got a feeling they are now encircling the Ringgit waiting for the plunge once the Ringgit breaks 5.00. After that it will be no surprise Ringgit to test the 5.50 level next year as round figures such as 5.00, 5.50 or 6.00 tends to be the strongest points.
BRINGING THE BAZOOKA TO THE INTERST RATES GUN FIGHT
As for the Indonesian Rupiah, I reckon there has been much intervention of multiple methods and size of commitment. Bank Indonesia has been actively intervening the Rupiah since last year
to prevent it from going above the 16,000 level against the USD. What I can say is that the
16,000 level is very important for the Indonesian policy makers. Because Indonesia depended a
lot on their imports for their local industries especially industrial, electrical, electronic parts,
food such as wheat for their instant noodles and so on.
Thus it can be said the 16,000 level is the threshold of the currency as anything above that will cause devastating effect to their economy. Today it closed at 15.935.00. Just a tad from 16,000.
It is said that many local SMEs are refraining from increasing their prices afraid of losing customers. As a result they are absorbing the increased costs due to weakening Rupiah. Bank
Indonesia has tried direct intervention, open market operations, selling tradable Rupiah
denominated securities hoping to attract capital inflows so as to not depend on using it’s depleting foreign exchange reserves to defend the Rupiah.
To further add substance to the effort, Bank Indonesia brought out their bazooka to the gun fight. Unfortunately even though they hiked their interest rate by another 25 basis points, it failed to prevent further deterioration of the Rupiah.
Despite the weakness of the Rupiah, exports did not increase but in fact decreased. As shown below.
I reckon it is another case of un-competitiveness as in Malaysia. It failed to lure in buyers as the depreciation of Rupiah is not enough to cover their high costs of production. This is a serious issue and need to be address fast if not it will risked widening the development gap further. Take a look at the Balance of Trade.
COMPLEX & DEEPLY-ROOTED PROBLEMS
It seems that Indonesia has more complex and deep rooted problems. As can be seen from above their Balance of Trade is declining since the reopening of most global economies since 2022. When Balance of Trade (Exports – Imports) declines, it indicates either the country is
losing competitiveness or imports costs surging due to weakening Rupiah or both.
From what I see, it’s both as exports also falters during their economic recovery. Moreover, I reckon Bank Indonesia is running out of tools as they have been aggressively intervening in the forex market.
This can be shown by their huge depletion of foreign exchange reserves in recent months.
Since March their foreign exchange reserves has been depleted by more than USD 10 billion.
Thus I reckon it will again futile to employ such tactic in future to support the Rupiah. Another intriguing aspect about the Indonesian economy is a sudden explosion in their M1 money supply in late December 2021. The M1 money supply more than doubled hinting huge money printing by the Indonesian government. Take a look.
Thus I have some reservation regarding their low inflation rate which happens to be 2.56%.
Take a look at the inflation rate chart.
How can Bank Indonesia manage to bring down inflation by more than 50% since the beginning
of the year when the Rupiah is weakening and import costs rising?
Apart from that, the Rupiah seems to have a direct relationship with their stock market. Whenever the Rupiah nears the 16,000 level it crashes. For example as for today the Rupiah rebounded to 15,935 from yesterday’s 15,884. The Jakarta Composite Index plunged 109 points or 1.63% to 6642.41. A loss of about 600 points from the high.
Moreover the JCI is heavily supported during the pandemic years using unorthodox measures.
For stocks valued between Rp 50 and Rp 200, their limit down is 7% while limit up is 35%. Stocks at Rp 201 to Rp 5000 limit up 25% and down 7%. While those above Rp 5000 limit up is 20%.
This clearly sets up for a bullish sentiment. Thus this helped powered Indonesian stocks to a new record high of 7235.
In summary, I reckon this is a very risky strategy as without Government support, the stock market
will not be able to stand on it’s own. Further to this it is expected that Indonesian corporate earnings is going to take a hit as costs of production went up due to importation costs.
A lot of SMEs will have to raise price to survive. By doing this it will help raise the inflation rate throughout the country. Further to this with the strengthening of the dollar, it will have serious
repercussions on the Indonesian economy because Oil & Gas is Indonesia’s number one import. With both items priced in dollars, it is going to have an effect on the costs of production, transportation and so on.
POLITICAL INSTABILITY IN MALAYSIA, RUNAWAY INFLATION IN INDONESIA
In summary, what I can foresee is that both the Ringgit and Rupiah are facing an ominous situation in the coming months. Malaysia with it’s political instability and Indonesia risking a runaway inflation will have an uphill task to defend their currencies.
Despite numerous strategies and interest rate hike, it doesn’t seem to be working. Both currencies are at their all time lows coupled with depleting foreign exchange reserves, options are limited. And this presents an excellent opportunity for currency traders to do a “swarm in” collective effort to drop those currencies.
In a nutshell, I am not surprise to see Ringgit touching 5.00 and Rupiah 16,500 by December 31 st 2023. If these levels are breached new contingency plans are needed. I hope capital controls happening will not be enacted. But more unorthodox economic measures needed turn this tide. Unfortunately, time is not on their side as timing is everything in the markets.
Written by Sam Chee Kong, Politics Now!
Politics Now!
No comments:
Post a Comment