Monday, April 29, 2013

Escaping The Middle-Income Trap

OVERCOMING LIMITATIONS: Transformation plan created to help Malaysia reach high-income nation status.

THE Middle Income Trap Hypothesis (henceforth, the MITH) has been the core ideology behind the attempted transformation of Malaysia's economy in recent times, and is considered by some to be one of the biggest problems of global economic development. 
At its heart is the question of why some countries reach developed status while others do not. Malaysia's national transformation plan is aimed squarely at overcoming the limitations and constraints identified with the MITH paradigm.

Yet surprisingly, there is little convincing research support in the economics literature for the MITH. In theory, economic growth and development is initially driven by increasing population, capital accumulation and a rising technological level. 

When growth in these "factors of production" slow, as they inevitably do as incomes rise, the only way countries can continue to grow is through improving the way these factors are combined to produce goods and services, or what's called "total factor productivity", or TFP. When a middle income country is unable to overcome this dilemma, this is termed the middle income trap.

For Malaysia, the evidence that the country is in a MITH appears compelling - growth in the last decade has been slower than in the 1990s while investment and population growth have been sharply down as well.

Other factors, like a workforce skewed towards low wage labour intensive industries, low value-added in manufacturing and a purported "Brain Drain", are also suggestive of an economy that hasn't been able to make the leap forward needed. 

Hence, the importance of the economic transformation.

Yet, other evidence suggests that there is more to this story than that. On a per capita basis, growth hasn't slowed as much as suggested by overall growth, which means slowing population growth has been a bigger factor than productivity. 

Living standards have continued to converge towards high income status almost without pause since the the 1997-98 crisis. Productivity growth, whichever measure one cares to use, hasn't dropped significantly either. 

Taking a longer term view, the growth takeoff of the 1990s appears to have been the period outside the norm, and the period of slower growth that has followed is in reality a return to normalcy.

Recent research at the International Monetary Fund suggests that a MITH-driven growth stagnation in Malaysia really only occurred in two distinct periods - the early 1980s, and the late 1990s. Both these periods encompassed deep and damaging recessions that put back economic progress for six years to eight years. 

Otherwise, Malaysia's drive towards developed status has been unhindered. In other words, Malaysia is not in a middle income trap.

Be that as it may, the transformation plan remains relevant even as we make progress towards high income status. Improving the structure and efficiency of the economy is hardly harmful, and could help sustain growth even if we run into another crisis. The historical record is replete with cautionary tales of countries poised for prosperity but due to one circumstance or another, fail to advance or even fall back. 

Even if the MITH is truly a myth, taking national development seriously still requires constant vigilance and flexibility.

The writer is vice-president of Economic Research with the Malaysian Rating Corporation Berhad (MARC). The article represents the author’s personal views and opinions and do not necessarily represent those of MARC.


Saturday, April 27, 2013

KLCI: Post Election Rally

In my previous coverage: Nov 2012: Worse Yet To Come, I mention that index will have potential to hit 1500 points. But this was not materialized as the buying support looks strong at 1600! This points level was hitting 7 times from Sep/2012 - Mar/2013. Seem a good sign that market will be charging more upside for the rest of the year. My target of 2000 points mention in 2011: Marching Towards 2000 looks promising now. 

Well it was really a long long roller coaster ride since Oct/2010 from 1500 to reach 2000 target. I would say KLCI is non performing well during this period and our market is crawling and struggling! Can KLCI hit 2000 by Oct/2013 (3 years time) or by year end? Looking forward in post election, I foresee there will be more synergy for the market to run up as there should be more changes going to happen towards a better Malaysia. Let us see how is going to play up in coming months and this will be interesting!
Above is my optimistic view. How about some pessimistic side? Hmmm... There will not be that severe if I would say. The important now is look at support 1620 - 1650 possible can retest. If this level can hold up well there will not much to worry about. The time we need to cautions or ready to jump out is when 1600 support broken and violated. Than my 1500 target will eventually come true! But I still believe and hopefully this will not happen!

Lets looks at some of counters: TAKASO still in accumulating phase, as long as can break out from 25cts will be a good sign to hit my old target of 65cts ~ 80cts, do beware of possible dive to 15cts. PERDANA still doing well and already hitting my 1st target of RM1.50. Now looking for next target which is RM2.00, better to collect below 1.30 if possible. INCKEN look for major support at 0.88/0.90. Target 1.40-1.50 still looks promising. ALAM still prefer to goyang here and there, may correct to reach 0.85-0.90. Target 1.50 still looks promising. IRMGRP got potential to reach double top at 0.40 which was hit on Feb/2013. TEBRAU time to accumulate some as well look at important support RM1.00 with target of RM2.00 . ITRONIC be patient, time will come and target is RM1.35.

Happy Trading and Cheers!

Wednesday, April 24, 2013

Malaysia’s Developed Nation Target On Track

KUALA LUMPUR: Malaysia is on its way to achieving developed nation status by 2020, just like what Barisan Nasional chairman Datuk Seri Najib Razak had set out, said London School of Economics' professor of economics Danny Quah.

“I think provided Malaysia kept on the path of continued market liberalisation, engaged with the rest of the world in sensible guided streams of globalisation, and investments remained healthy, there would be no mechanical obstacle for Malaysia to achieve its aspirations,” he told StarBiz after delivering a lecture entitled, “Nobody's world, everybody's problem? Who's afraid of a little global hegemony?” organised by the University of London.

He said that people should be well taken care of and recognised, as well as being provided with continued opportunity to keep rising up the economic ladder.

On the upcoming general election, he said it would be a difficult question to answer, as both the ruling coalition and opposition had their own manifestos.

“Malaysians have to work through these and decide, but it's clear that the ruling coalition has a track record in economic management and expertise built up over the years,” Quah noted.

He said most people would be supportive of the transformation programmes, and Malaysia as a whole needed to keep a perspective of what it wanted to achieve, i.e, to be a developed nation by 2020, and economic prosperity for everyone, inclusive of the bottom 40% of society.

“The middle-income trap is being faced by many Asian economies, including Malaysia, and many other regional countries. The trap refers to the possibility that when a country reaches a certain level of income, it would be unable to keep growing after that,” he explained.

He said things looked pretty grim according to what the World Bank had documented.

“The World Bank has documented the growth of about 200 developing countries, and in the last 30 years only 13 of them have been able to evade the mechanics of the middle-income trap. That's bad news. The other piece of bad news is that one of them is actually Cyprus and other not-so-performing European countries at this point,” he said.

In his lecture, Quah projected the shift of the economic centre of gravity over the decades to the East by 2049.

“The axis is already near Kuwait and would move to the East soon enough. Malaysia would be near the centre of the world economy, and there would be greater attention paid to different economic opportunities.

“The country would see more inflow of capital and ideas, and much more entrepreneurial economic activities. Malaysia needs to stand ready to face East,” he said.

However, despite the economic centre of gravity moving over to the East, he said the centre of political power would still remain in the West, causing economic and political fractures in its course of shifting.

“This is not something we cannot fix, but is something we have to look at thoroughly in every system of decision-making, and re-examine affirmative actions and programmes.

“What matters more than just processes and mechanisms is the delivery of results, like China delivering its economic reforms, despite not having a political structure like the West,” Quah said.


Saturday, April 20, 2013

GE13: Historical Moment In The Making?

DAP’s symbol woes rockets PAS moon’s popularity in GE13, say analysts

KUALA LUMPUR, April 20 — The DAP’s willingness to use the PAS moon symbol in Election 2013 over a legal wrinkle could make the Islamist party have a wider appeal to non-Malays who have long feared its conservatism, say analysts.

The DAP’s move is seen as audacious and historic as both broke an earlier pact more than a decade ago over strict implementation of Islamic law in Terengganu which later led to the socialist party’s worst showing in both the 1999 and 2004 elections when the Chinese community punished it for its alliance with PAS.

But in a sign of the times, the party will know by 10am today if it can use its iconic Rocket symbol or opt for allies PKR and PAS symbols in east and Peninsular Malaysia respectively when its candidates file their nomination papers for the May 5 election campaign.

While the impact of the DAP’s decision has yet to be felt on the ground, analysts say the move is pushing the three parties’ loose coalition unwittingly into getting an identifiable common symbol against the ruling Barisan Nasional (BN) government.

“The decision cuts both ways. On the one hand the possibility that it might scare potential voters away from the DAP.

“But on the other hand there is also the possibility that the symbol of the moon becomes an empty signifier, that it stands for more than one party,” political scientist and lecturer Dr Farish A. Noor told The Malaysian Insider.

The three parties — the DAP, PAS and PKR — formed Pakatan Rakyat (PR) after the last general election in 2008 when they agreed not to contest each other. The pact has yet to be formalised and does not have a common symbol despite their close co-operation.

The DAP is contesting in 51 federal and 103 state seats across the country while its allies take the remaining share of the 222 federal and 505 state seats up for contest from today.

The decision on symbols for the election came over 48 hours before Nomination Day today when the Registrar of Societies (RoS) wrote to the DAP, saying it won’t recognise the current leadership due to complaints of irregularities in a party election last December. Party officials then concluded it had no power to authorise candidates to use its registered symbol in Election 2013.

“If that is the case, the Pakatan Rakyat now has a symbol to stand for the whole because the symbol doesn’t just stand for PAS but also for its allies,” Farish said, referring to the PAS moon symbol being used in Peninsular Malaysia.

“The moon is now equal to the dacing (weighing scales),” he added, referring to BN’s ubiquitous symbol. The BN is made up of 13 component parties led by chairman Datuk Seri Najib Razak’s Umno party.

Monash University Malaysia’s Professor James Chin said the RoS move will led to a “massive sympathy vote for the DAP”, adding that voters will see it as harassment.

He acknowledged that there were pockets of Chinese voters who might refuse to cast their ballots for the PAS moon as it symbolised strict Islamic laws and social limits but said they have changed their mind over the past decade.

“So now the DAP can say it has landed on the moon and this is the group that will support the coalition, not symbols,” Chin said, adding the analysis that old Chinese voters will not support PAS is “no longer valid”.

He also noted that PAS was playing the Islamic state card in 1999 and 2004 that alienated a number of voters but has now gone to the stump on an Islamic welfare state model that was attractive to a wider audience.

“The real danger is in post-election if the candidate using the moon logo wins big. Then officially PAS has the larger bloc of seats compared to PKR to decide the pact’s leadership,” said Chin.

Yesterday, PAS spiritual leader Datuk Nik Aziz Nik Mat hailed the DAP’s move to use the PAS logo as a “great blessing” for his party, saying the move would lead to the death of Islamophobia in Malaysia.

“Be confident that this historic decision will be remembered throughout the ages. This is the moment when the rocket lands on the moon,” he said, referring to the DAP’s rocket symbol and PAS’s moon.

Some DAP members have also indicated the move could help the predominantly ethnic-Chinese party pick up more votes among the majority ethnic-Malay population.

“This will be a game-changer,” the DAP’s chief election strategist Ong Kian Ming was quoted as saying in the Wall Street Journal, adding: “We expect non-Malays to see through BN’s move to deny us a right to our party symbol. Campaigning under the PAS flag could help us secure more Malay votes.”

A total of 13.3 million voters, including 5,200 registered to vote from abroad, are eligible to cast their ballots for the 13th general election that is said to be the tightest since 1969.


Friday, April 19, 2013

GE13: Free Charity Dinner Ever!

Today is my lucky day? Well, when I was on the way to have my dinner at Chai Leng Park, Prai, Penang. I spotted some big crowds at the Restaurant Wellesley with lots of 1Malaysia flag. Looks like it is free dinner? So I decided to join the crowds and would like to have some feel of the election fever excitement. Ha ha ha... :-) Indeed it is free dinner and real excitement seeing a lot of people collecting free 1Malaysia t-shirts and long queuing at food stalls. Luckily the dinner not yet start and 10 minutes to go waiting for 7:30pm. When times up people are grabbing foods for themselves and it is fast and all in orderly manner. This is great! I only need 10 minutes to get my free foods. Looking for sitting is bit troublesome but still able to find my sit after all. I manage to eat claypot chicken rice, some rojak and koay chap. I did not attend the ceramah, night show and lucky draw functions cause it will be till late night! Here is some pictures. :-) 

Happy GE13 Fever and Happy Trading! Cheers!

Thursday, April 18, 2013

Healthy Market, Stronger Ringgit And Brighter Future

PETALING JAYA: The local stock market continued its stellar performance, with the FTSE Bursa Malaysia KL Composite Index (FBM KLCI) scaling another new high, ending the day up 10.44 points at 1,710.97.

The ringgit had also strengthened against the greenback in recent weeks on a combination of clarity on the general election date as well as institutional buying of Malaysian Government Securities.

Furthermore, analysts have pointed out that outside of domestic factors, a brighter outlook for the developed economies usually spurred investors to make riskier bets on emerging market currencies.

And while yesterday's stock market close was attributed by dealers to situational plays led by Tenaga Nasional Bhd and IOI Corp Bhd, commentators reiterated the fact that government policies such as the Economic Transformation Pro-gramme (ETP) had had a positive impact on the equity market.

Aberdeen Asset Management Sdn Bhd managing director Gerald Ambrose said foreign investors had deemed the ETP as particularly successful, as reflected by the surge in private investments over time.

“Notwithstanding the nosedive of the economy in 2011 following the eurozone financial crisis, the Malaysian economy has picked up significantly due to the ETP, fuelling investment opportunities for the private sector,” Ambrose told StarBiz.

He also pointed out that the ETP was more effective compared with some of the previous policies due to its transparency, as seen through the setting up of an independent audit.

“The plan is also being carried out according to the timeline and (the committee) has even identified what the shortfalls are,” he said, adding that all these yardsticks had provided measurable effectiveness of the programme.

He further said that the Government's pro-business policies like liberalisation had enabled foreign players to enter the Malaysian financial market.

CIMB Investment Bank Bhd economic research head Lee Heng Guie said: “The most visible ETP impact was the 24.8% jump in nominal private investments to RM139.5bil (14.9% of gross domestic product), exceeding the target by 9.1%.”

He added that the slew of strategic reform initiatives rolled out under the ETP from time to time had also enhanced and sustained Malaysia's competitiveness.

Other notable efforts to improve the country's competitiveness included the enforcement of the Competition Act in January 2012 to remove anti-competitive agreements and the abuse of dominant positions; the full liberalisation of 15 out of 17 service sub-sectors, where up to 100% foreign equity participation was now permitted, in healthcare, education, professional services (accounting and legal) as well as other services; and the streamlining of the public service delivery to ease the cost of doing business, he elaborated.

Areca Capital chief executive officer Danny Wong, meanwhile, concurred that the ETP had had a direct positive impact on the country's economy.

“After the financial crises like the one that happened in 2008, exports had been affected. Through the recovery period, countries can no longer rely solely on exports for economic growth.

“The ETP, which has led to higher domestic consumption, has been deemed as an important element in driving the country's economy. For the past two years, the economy has grown and this is reflected in the growing composite index,” he said.

He also said that not only did the ETP-related projects spur domestic spending, but they had also boosted private investments through efforts like private-public partnerships.

The ETP initiatives were also the main drivers of private consumption that had a multiplying effect on auxiliary businesses, he told StarBiz.

Meanwhile, Datuk Seri Najib Tun Razak told Bloomberg in an interview that stocks and the ringgit would plunge if he lost next month's general election, contrasting his Government's pursuit of stable change with the upheaval that has engulfed the Middle East.

“It's better for us to manage change, rather than a change that is unleashed in an uncontrolled manner,” Najib said in the interview in Putrajaya.

“In the countries that have been involved in the so-called Arab Spring, many people are calling it the Arab Winter now.

“We are strong believers in the democratic process and it's the will of the people that decides,” he said. “Whatever the outcome, we have to respect the choice of the people.”

Najib said he wanted a mandate to complete the Government and economic transformation programmes he started three years ago, overseen by Datuk Seri Idris Jala, a former Malaysian Airline System Bhd chief executive officer, the Bloomberg report stated.

Private investments had since tripled, rising 25% last year to RM139.5bil (US$46.06bil), according to government data.

“The market, the currency, would take a very sharp decline” if the opposition won, he said.


Tuesday, April 16, 2013

GE13 - Historical Election Fever Ever!

Yes, it's time for election fever! The most historical general election chapter for Malaysia ever! Since the announcement of parliament dissolution, everyday I am enjoying reading news about BN or PR popping out in the internet or newspaper. Today will be announcement of full BN candidates list and I expect more fight going on in coming weeks and I am really eager and interested to see how each of the the political candidates box each other to gain votes and influence an ordinary Rakyat like me. :-)

Well, Penang has been flooded by a lot of free goodies, foods, lucky draws and some heard got receiving Ang Pow and even have international concert for this coming Saturday featuring American hip-hop, HK artistes and local artistes. Personally I did not have chances to attend any of such free food event/functions as it definitely crowded. Have few of my friend been there and eat for free. I only attend few ceramah here and there and most of the facts can be found in the internet. This time round I can feel the differences, the people power seem stronger than ever. Every Kopitiam I go also heard people talk about election! :-)   

The election fever will go wild next week after the nomination day. It will be getting more interesting and intensify when the polling day draw closer. I am observing the playing field for states like Kedah, Penang, Perak, Selangor, Johor and Sabah. Can BN retain as government or PR forming a new government? We shall see on 505!

So, how about our local mart? Indeed it performing very well. I would say it is better to accumulate now (if the stock have uptrend sign) and not to be influence by fears of the pre or post election syndrome. If the stock is on uptrend, the downside risk will be minimal and of cause we need to execute a tight cut-loss or trailing stop should the trend really violated.

Personally I see more upside for some of small cap/lower liner stocks which I had covered or trade previously. ITRONIC I hold since Feb does not move much and I just leave it there, TAKASO seem coming back (H9N7 bird flu?), PERDANA got a good run up which I miss it - Thumbs Up!, ALAM looks upside and seem like playing goyang flushing?, INCKEN looks steady, IRMGRP looks interesting and TEBRAU worth to follow. 

Lets all we wait after post election and I foresee more interesting speculative play in our local mart going forward and KLCI have potential to push even more higher! Always Be Confident and Stay positive! :-)

Cheers and Happy Trading!