The Carry Trade: Hot Bubble,Double Trouble!

The Asian Development Bank (ADB) circa Nov 25 has raised red flags that Southeast Asian countries may suffer asset bubbles if hot money continues to flow in.

The Business Times Singapore reported that Noritaka Akamatsu, senior adviser at ADB’s Office of Regional Economic Integration, has said that some regional governments are thinking of limiting capital inflows in the “short-term, liquid side of the market”. This could destabilise financial systems.

“They are clear about the benefits of long-term inflows such as foreign direct investments, but there is concern about the short-term money,” he said.

Last week, Indonesia’s central bank said that it was “studying” possible limits on foreign ownership of short-term debt but has no plans for controls on capital or the currency.

Meanwhile, within Asia, the South Korean government plans to hold talks on what can be done to handle inflows financed with cheap US-dollar loans — the so-called carry trades.

The strong inflows into the region result partly from the yield differential between Asian economies and Western markets. The US has slashed its benchmark rate to near zero, and it is not clear if there will be a rate rise soon.

As a result, global investors seeking higher returns on their money are parking capital in regional assets — and driving up regional currencies against the greenback.

Akamatsu warned that the stronger currencies may crimp Asian exports growth to the West, as most South-east Asian economies are still run on export-oriented growth models.

To sterilise the effect on currency values, central banks typically raise the supply of domestic units, but this can potentially fuel domestic inflation.

And if central banks mop up the added liquidity in their systems by selling government bonds, this may leave them with higher debt on their books, and raises concerns about whether central banks are sufficiently capitalised to take on higher interest expenses.

Akamatsu also said yesterday that the ADB was working with the Chinese authorities to issue a yuan-denominated “panda bond” — a second tranche since 2005.

The money would be used to finance development projects in China, but he declined to disclose the amount or the timing of the issue, citing price sensitivity.

According to ADB’s Asia Bond Monitor, East Asia’s local-currency bond markets grew 15 per cent in the third quarter of 2009 from a year earlier, as governments and corporations took advantage of lower interest rates to fund spending.

So will Malaysian assets and stocks go up soon on this "hot air" money?

Bank Negara.: The Rate Stays!

For the sixth time, Bank Negara Malaysia kept the interest rates steady at 2.0 per cent,saying inflation will remain modest in 2010 as the economy revives.

Analysts said that the central bank appeared in no hurry to hike rates, in sharp contrast with some other central banks in region, and the bank said current monetary policy was “appropriate” and would continue to support economic activity.

The decision comes as Asia’s third-most trade dependent economy is recovering from an economic slump triggered by the global financial crisis. A pick-up in domestic demand helped the economy to contract less-than-expected 1.2 per cent in the third quarter.

“If there are any rate hikes, we think it will be in the second half of next year in the small magnitude of 25 to 50 basis points,” said Julia Goh, an economist with CIMB in Kuala Lumpur.

The Malaysian government kicked in with a RM67 billion ringgit stimulus package to cushion the impact of global slowdown, which the central bank said was helping the recovery.

The central bank noted that the private consumption and public sector spending would lend support to the economic growth going forward. While that was expected to turn inflation positive in the coming months, the central bank was not alarmed about price pressures building up in the economy.

“In the absence of further unanticipated price adjustments and external influences, inflation is expected to remain modest in 2010,” the central bank said in a statement.

The central bank said it would only hold six rate setting meetings from 2010 onwards, down from eight up until now, in accordance with a new act.

“As price pressures and inflation expectations are expected to remain contained going forward, the assessment is that the current monetary policy stance is appropriate and will continue to provide support for economic activity,” the statement added.

A Reuters poll showed 15 economists saying rates would be held at 2 per cent with the earliest sign of a hike coming after the first half of next year.

The central bank has cut the benchmark OPR by a total of 150 basis points since November in an attempt to reduce the impact of the global downturn on the local economy.

It stopped easing in April and has repeatedly said that rates are “appropriate” and that rate cuts had been “frontloaded”.

Inflation is not a worry as consumer prices have turned negative. It was a negative 2 per cent in September and inflation is not expected to return until the fourth quarter.

Bilingualism in both English and Mandarin is Better

This is an interesting article. It may yet pave the way for Malaysia to be more serious about developing English language skills then be hung out to dry in a deeply globalised world of intense global economic competitiveness.

This mysinchew.com article is appended.

NOV 24 – Unlike their ancestors, young generations from Johor Baru and Singapore do not emphasise family ties. Even though they are still maintaining certain blood relations, the sense of alienation becomes greater and greater as time goes by.

Sometimes, these young people will look down on each other but inevitably, they also reveal their sense of inferiority in front of each other.

When young people from Johor Baru go to Singapore, they will find that their command of English is terrible and, thus, they dare not speak English.

Similarly, when Singaporean young people come to Johor Baru, they always say, shyly: “I’m sorry, my Chinese is not good.”

Young people in Johor Baru (more appropriately, Malaysia) speak broken English while young Singaporeans speak terrible Chinese. This is the inevitable result of different education policies in the two countries, as well as a fact that must be accepted by the two governments.

Interestingly, after a few decades of bilingual education policy, Singapore found that the English standard of its young generation is fine but the Chinese standard is poor.

It may even affect their competitiveness in the future. Its Minister Mentor Lee Kuan Yew admitted that Singapore was headed in the wrong direction and he vowed to spend the rest of his life correcting the mistake.

After neglecting English for over 30 years, former Prime Minister Tun Dr Mahathir Mohamad realised the reality that English is, after all, the international language. Therefore, he made a sharp about turn before his resignation and implemented the policy of teaching Science and Mathematics in English.

When Prime Minister Datuk Seri Najib Tun Razak took the office, he decided to gradually stop the policy that was hastily implemented in the past. However, it is still a major educational goal for the Malaysian government.

Malaysia and Singapore, with interrelated historical and cultural backgrounds, have to bear the consequences of educational deviations.

As Malaysia had neglected English, its young generation is not able to make good use of English in learning and communications. As a result, the country can only cultivate “kampung champions” who are unable to walk out from their local communities.

As Singapore had neglected Chinese, English has become the “mother tongue” of its younger generation (primary school first year students from English-speaking families have increased to the current 60% from the 10% in 1982). It does not conform to its national interests as Singapore has targeted China’s vast economic market.

In fact, we are committed to enhance our English standard while Singapore is committed to enhance its Chinese standard based on a common objective: a better integration with the world and compete in the international market.

It is going to become a bilingual world. It will be a greater advantage if we can master more languages. But when will our young people be no longer afraid to communicate in English and Singaporean young people, to speak Chinese? 10 years? 20 years? Or 30 years?

Malaysia: Maid Exporter?

This news article by Lee Wei Lian in the Malaysian Insider is worrisome.

With the current educational issues as yet unsettled and where runaway blind language nationalism seems to be winning all the way up to the tertiary level,your worse nightmare of not only a brain drain but now also a brawn drain is fast becoming imminent. Do not look down on the likes of Bangladeshis and Indonesians coming to work in Malaysia. Malaysian may soon be in the same situation if the current crop of politicians in power do not mend their ways!

Let us read Wei Lian's report circa November 24, 2009.

The nation’s mismanagement of talent could have serious repercussions not only on its ambitions to become a high income economy on par with that of developed nations but could also lead it to fall further behind even its counterparts in the region.

Head of research at Corston-Smith Asset Management, Lim Tze Cheng, recently did a tour of South East Asian countries and came away sufficiently impressed that he feels Malaysia may soon be found lagging behind its neighbours that it was once ahead of.

He cited a recent visit to the Philippines, a current major supplier of maids, where he visited a company, International Container Terminal Services Inc (ICTSI) and he drew comparisons to local port champions Westport and Port of Tanjung Pelepas.

He said that ICTS now draws 50 per cent of its revenue from eight profitable ports outside the Philippines, and noted that no Malaysian port company can boast of similar achievements.


“I give it a 70 per cent chance that Malaysia will be exporting maids in 20 years. I wouldn’t be surprised if that happens unless we get our act together,” he said.

Lim says that the issues plaguing Malaysia includes its “problematic” education system and distressingly low ability to retain talent.

“Whoever manages to excel in our education system will be courted by Singapore,” he points out.

Lim is not the only one who is worried about Malaysia’s talent issues and there has been warnings from other parties as well including the World Bank and the Malaysian Employers Federation (MEF).

MEF executive director Haji Shamsuddin Bardan says that Malaysia is currently a net exporter of talent with outflows exceeding inflows.

According to Haji Shamsuddin, Malaysia has only about 38,000 expatriates as compared with seventy to eighty thousand in the 1990s even while some 785,000 Malaysians are working abroad, two out of three of which are professionals.

“Our ability to attract expatriates is quite challenged,” he said.

If Malaysia falls further behind our neighbours in the next twenty years, it wil be a case of history repeating itself.

Lim points out that Malaysia in the 1970’s was once economically on par with Korea.

“Electronics will be dominated by Thailand and Philippines, plantations by Indonesia, financial services by Singapore and our oil could be depleted in 20 years,” Lim predicts.

[Malaysia’s future? Bangladeshi workers wait at an airport carpark turned immigration depot in KLIA. — Reuters pic]

Malaysia’s future? Bangladeshi workers wait at an airport carpark turned immigration depot in KLIA. — Reuters pic
“The (Malaysian) economy seems to be caught in a middle-income trap - unable to remain competitive as a high-volume, low-cost producer, yet unable to move up the value chain and achieve rapid growth by breaking into fast growing markets for knowledge and innovation-based products and services,” the World Bank said recently.

Prime Minister Datuk Seri Najib Razak appears aware of the problem and has been stressing the need for the country to embrace innovation to escape the “middle-income trap” as well as attract overseas talent, Malaysian or otherwise.

He noted recently as an anecdote that half of the medical specialists working at the Mt Elizabeth hospital in Singapore were Malaysians and two weeks ago hosted a dinner for about 100 Malaysians in Singapore and told them that the government would make Malaysia a better place to live and work in, to bring back its citizens who are residing overseas and also attract global talent to the country.

“We will create more opportunities, more excitement and more buzz in Malaysia to attract the Malaysian diaspora and expatriates to the country,” said Najib.

Lim says that revamping the education system could take years and one fast way to lure talent was to open the Malaysia My Second Home programme to talented individuals such as scientists and researchers instead of limiting it to just retirees.

Haji Shamsuddin says that the government needs to put in place the right policies and structures to retain local talent.

“Otherwise, we become a training ground for others,” he said.

Are those in power deaf, blind and brain dead?

Growth in 2010-A Citigroup Perspective

Citigroup Inc. upgraded its 2010 economic growth forecasts for several countries on Monday (23 November 2009), and said it expects a sustained but uneven global recovery next year.

The annual report, released by Citi's global research unit, said almost all major economies exited recession in the second and third fiscal quarters.

Central banks are unlikely to hike key interest rates through next year, and the threat of global inflation appears contained, according to the report.

Citi said a recovery looks to be even across major economies in the beginning of the year, while Asia - excluding Japan - will see sustained momentum.

While the U.S. will see fairly strong economic growth, Europe and Japan will experience a more gradual recovery.

Citi lifted its 2010 growth domestic product outlook for the U.S., Japan, Britain, Australia, New Zealand, Hong Kong, Korea, Argentina, Hungary, Poland, Czech Republic and Turkey.

However, it said credit availability will likely be limited for at least another year or two as banks seek to raise extra capital.

Michael Saunders, Citi's global head of developed markets economics, warned that countries will need to adjust some fiscal policies.

"Global economies need central banks and governments to successfully manage the exit strategies from extreme monetary accommodation, without creating further instabilities and denting future growth prospects," he said.

Saunders expects the rankings of global economies to change drastically in the next 15 years as resource-rich regions like the Middle East, Africa, Latin America, Russia and Brazil see growth.

Meanwhile, as emerging markets industrialize, consumer spending there is expected to fill the gap left by moderate spending in the U.S. and other industrial countries.

This is a broad stroke of the brush. Hope it is indicative of some sustained growth.

Pornthip: Forensic Crusader

Nov 21,2009 is a day of much significance to the family of the late Teoh Beng Hock. This day the dead 30-year-old political aide buried in July, will be exhumed for another autopsy.

A new autopsy team will reassess if he really did die from jumping off a high building unaided or was pushed out a window after being beaten up to the point of passing out.

Thai pathologist Dr Pornthip Rojanasunand engaged by the Selangor state government had testified in an inquest last month that there was a 80 per cent probability that his death was a homicide rather than a suicide, which was the finding of the first autopsy by two local pathologists.

The coroner’s court has agreed to let Dr Pornthip and one other British forensic expert — hired by the Malaysian Anti-Corruption Commission (MACC) — observe the second autopsy, which under Malaysian laws, must be performed by local doctors.

It is only Dr Pornthip’s second time advising a case outside of her native country.

Her first consultation outside Thailand was three years ago, in Muslim-majority Aceh.

Like Malaysia, Indonesia’s laws limit a foreign forensic expert’s role in an autopsy.

She had been called in to assist a second and independent post-mortem on an opposition member who was thought to have been killed by the country’s powerful military.

“It was more than six months after his death. He was also Muslim. The body was not in good shape,” Dr Pornthip said.

Unlike a Christian burial where the body is encased in a coffin, a Muslim body is wrapped up in a shroud and laid directly into the earth.

Dr Pornthip had previously testified that a post-mortem is best done within the first six months of burial as the natural decaying process holds a higher risk of eating up evidence in suspicious deaths.


Even so, in Aceh, the second autopsy confirmed the public sentiment that foul play was involved in the victim’s death.

What happened next to the case?

Dr Pornthip shrugged her thin shoulders, sending her multi-coloured lion’s mane fluffing sideways.

She does not know. She was specifically engaged for her scientific knowledge only.

In Thailand though, things are slightly different for her.

As the director-general of the Bangkok-based Central Institute of Forensic Science Institute (CIFS), she reports directly to the chief secretary in the Ministry of Justice, and is granted greater clout in the investigation process.

She explained that there was an attempt in Thailand a few years, to bring the various investigative and prosecution divisions under the same roof, namely the Ministry of Justice, to better co-ordinate the entire justice system.

But it failed. She blamed it on politics, noting that then Prime Minister, Thaksin Shinawatra — who she says once worked as a police constable — refused to push the Bill in Parliament.

The police itself, said Dr Pornthip, reports directly to the prime minister, again unlike Malaysia where its powers lies with the home minister.

Then, as now, the police force decides what cases go to court for prosecution, unlike Malaysia where it is the Attorney-General who decides.

Apart from these outward divisions of power, the two countries are bound by a common public perception that the authorities — the police especially — frequently abuse their power and have a deeply entrenched practice of selective prosecution.

These two points were critically highlighted in the Corruptions Perceptions Index launched worldwide earlier this week by global corruption watchdog Transparency International.

Dr Pornthip is often at odds with the chief of police in public over her institute’s findings, which more often than not, contradict the findings of the police investigation teams, and this has put her personal and professional life at risk.

Strident critics in Thailand have labelled her an “egomaniac”, a fact she is well aware of, but was surprised to learn that those hateful comments have also started springing up in Malaysia in the wake of the Teoh Beng Hock case.

“I don’t want to be something like a heroine. When they want to find the truth, I don’t want my name to be first,” she added, and explained that it was because of high-profile cases that received a lot of media attention that she became famous.

Dr Pornthip remarked that it had started when a member of the Thai Parliament was involved in a case.

The MP’s brother was found dead. Police investigators claimed he had shot himself but she carried out an independent investigation and found that it was impossible for him to have shot himself and backed it up with her scientific findings.

“For me, I don’t care about politics or sensitive issues. I just try to help the victims find the truth,” she said.

The forensic science institute she now leads was established seven years ago, she said, to give “a choice for the people to come in and ask for help in investigation” when the main door for justice through the police had slammed in their faces.

She related that anyone can walk in to CIFS from the street and request their help for a second opinion.

Dr Pornthip explained that CIFS aimed to boost the standard of investigation practices in Thailand, to make it more accountable and transparent.

Dr Pornthip suspects people dismiss her because of her looks.

The work they do is a combination of forensic science, which deals with death investigations, and forensic medicine, which deals with living patients, she added.

“We are trying to train crime scene investigators to be specialists,” she summarised.

Currently, the CIFS is manned by 300 people, with 85 per cent made out of scientists who hold great knowledge but little field work experience.

It gets five cases a week involving unnatural death where foul play is suspected. Thirty per cent of their investigations confirm those suspicions.

But mainly CIFS is kept busy with work in rural areas to help identify anonymous bodies. This amounts to 1,000 missing people reported a year.

Those jobs, though, she delegates to the rest of the staff. For now, she has thrown herself into investigating a series of “organised crime” in southern Thailand, which has been put under martial law.

Leading her 15-man team — few of her colleagues want to head south to work and she doesn’t want to force them — Dr Pornthip collaborates with the local military force to collect evidence and trains the soldiers on how to conserve, collect, secure and handle crime scene investigations.

That consumes most of her time and energy. She related that the serial killings are highly organised hate crimes and take many forms, from beheadings, which are the most difficult to piece together — because the heads are often missing from the crime scene — to bombs.

Dr Pornthip noted with concern that the use of explosives was on the rise and foresees a trend for them in strife-torn regions across Asia.

Smiling brightly, she added that Malaysia was lucky to be spared such forms of terrorism.

So,in this second Teoh Beng Hock autopsy, will it confirm Portips's contention? Time will tell.

Meanwhile,let us now wait for the new findings on the Teoh Beng Hock case.

Malaysia: Smaller Contraction in Q2

KUALA LUMPUR, Nov 20 — Malaysia is still inching its way out of recession as the economy experienced a smaller contraction of 1.2 per cent from 3.9 per cent in the second quarter this year due to stronger domestic demand and “stabilisation of external demand.”

But while the country appeared to be heading out of recession, foreign direct investments in the third quarter fell to RM6.2 billion from RM9.1 billion in the previous quarter.

Bank Negara Governor Tan Sri Dr. Zeti Akhtar Aziz said today that the increase in domestic demand is due to stronger private consumption and higher public sector spending.

All of the country’s economic sectors also recorded an improved performance except for agriculture.

“The service sector expanded further by 3.4 per cent supported mainly by improvements in the wholesale and retail trade, finance and insurance, and real estate and business services sub sectors,” she told reporters when announcing the GDP figures today.

The growth in the construction sector was higher at 7.9 per cent from 4.9 per cent due to the implementation of construction projects under the stimulus packages while the manufacturing sector declined “at a slower pace” of 8.6 per cent.

The inflation rate has also declined by 2.3 per cent.

“Headline inflation rate, as measured by the change in the Consumer Price Index (CPI) declined by 2.3 per cent on an annual basis in the third quarter. The decline in consumer prices was largely due to the effect of the cumulative downward adjustment to retail fuel prices since the June 2008 price increase,” she explained.

The country’s trade surplus remained at RM26.7 billion as both gross exports and imports contracted.

“Gross exports declined by 22.3 per cent. A gradual recovery in demand from manufactured products and increased exports of LNG contributed to a smaller decline in commodity exports.

“A smaller decline in gross imports of 18.3 per cent was contributed by slower contraction in imports of intermediate and consumer goods which were in line with the improved manufactured exports and higher private consumption spending,” she said.

But there was some sobering news on the foreign direct investment (FDI) front.

The gross inflows of foreign direct investment (FDI) has decreased to RM6.2 billion from RM9.1 billion in the second quarter while the net FDI amounted to RM2.1 billion from RM6.5 billion.

“The bulk of the FDIs was directed mainly into the manufacturing and services sectors. Overseas investment by Malaysian companies recorded a large net outflow of RM3.4 billion mostly for investment in the services sector.

“Meanwhile, portfolio investment registered a net inflow of RM8.8 billion due largely to the proceeds of bonds issued abroad by a non-financial public enterprise in the oil and gas sector during the quarter to finance its future capital expenditure,” she said.

Zeti was confident that the economy is set to register positive growth due to the improvements in international economic and financial conditions.

“Economy activity in the advanced economies continued to stabilise while several regional economies have recorded positive growth in the third quarter.

This positive trend is expected to continue into 2010,” she said.

However Zeti still remained cautious because she believes that the global economic recovery is “likely to be gradual and uneven and the outlook remains uncertain.”