Malaysia may, to a certain extent, be less
vulnerable with the revival of major construction projects which in view
of the country’s strained finances, have been shrunk to cut costs. The
Singapore economy may undergo a “shallow, technical recession” in the
third quarter.
TALK of recession has hit the region, and near home, Maybank Kim Eng Research is flagging that possibility for Singapore in the next quarter.
Export-reliant economies are hard hit by slowing growth and supply chain disruptions caused by the prolonged US-China trade and tech war.
There may be a ceasefire now in the fight between the US and China following talks between President Donald Trump and President Xi Jinping at the Group of 20 Summit in Osaka last Saturday.
Existing US tariffs on Chinese imports still remain; additional tariffs on the remaining US$300 bil worth of Chinese imports, as threatened, will not be imposed for now
However, the new timeline for truce remains elusive; the suspicion is that of a “creeping” imposition of tariffs, as “each truce is followed by new tariffs and then, another truce.”
In December last year, Trump and Xi had struck a truce following which talks broke down in May this year, and tariffs on US$200bil of Chinese imports leaped from 10% to 25%.
Will there be light out of this tunnel, with harder issues involving tech and supremacy not tackled? Smaller economies with the fiscal and monetary space may be able to cushion their economies somewhat from the downdraft on growth.
Malaysia may, to a certain extent, be less vulnerable with the revival of major construction projects which in view of the country’s strained finances, have been shrunk to cut costs.
The Bandar Malaysia and East Coast Rail Link projects to be revived, are now downsized to RM144bil and RM44bil respectively.
Works for the Light Rail Transit (LRT) 3, from Bandar Utama in Petaling Jaya to Johan Setia in Klang, will resume in the second half of the year, at a reduced cost of RM16.63bil.
Talks are said to be ongoing to revive the Mass Rapid Transit Line (MRT) 3, or MRT Circle Line round the city centre, at possibly RM22.5bil which is half the original cost.
“The timing (of the revival of these projects) has been very good for Malaysia,’’ said Pong Teng Siew, the head of research at Inter-Pacific Securities. “These projects will go on for several years and positively impact the economy over that period.’’
Domestic spending and activities will provide ‘some comfort’ to the local economy but we should ensure that any further monetary easing actually goes into the real economy to support these activities, according to Anthony Dass, head of AmBank Research.
Malaysia’s private consumption was at a record 59.5% of its nominal (calculated at current market prices) Gross Domestic Product, which hit US$88.5 bil in March, 2019, according to CEIC Data.
Benefits from trade diversion from China, the current US tariff hotspot, are offset by downward pressure on global trade where volume was flat in the first quarter, the weakest since the financial crisis.
Global semiconductor sales also declined in February and March, the first back-to-back double digit contraction since the financial crisis.
In view of this decline, the volatile global trade environment and rising geopolitical tensions, open economies “should be prepared for the unexpected,’’ said Nor Zahidi Alias, the associate director of economic research of Malaysian Rating Corp.
The Singapore economy may undergo a “shallow, technical recession” in the third quarter, said Maybank Kim Eng, pointing to possible intensification of supply chain disruptions and US export controls on more Chinese tech firms.
Following the Trump-Xi talks, the US has reversed its equipment sales ban on Huawei but will that ease fears of other similar bans down the road? Defined as two consecutive quarters of negative quarter-on-quarter growth, a recession will prompt further easing of monetary policy in Singapore.
Manufacturing in Singapore, which accounts for a fifth of the economy, fell 2.4%, with electronics dropping 10.8% in May from a year ago; output is expected to decline again in June.
Hong Kong has also been issued warnings of recession, as its economy experienced the largest contraction since 2011, declining by 0.4% in the first quarter against the previous quarter.
Thailand’s economy grew at its slowest pace in four years, in the first quarter, hitting 2.8% from 3.6% in the same period last year; exports remain weak.
Taiwan’s economy avoided contraction in the first quarter but private consumption and gross capital formation slowed significantly while government consumption declined.
In the US, a mis-calibration in interest rate policy by the Federal Reserve can cause a sharper slowdown than expected or bring on a recession.“Monetary policy affects the economy with unpredictable lags, it could be hard for the Fed to time its policy (rate cut) that can prevent a downturn this and next year,’’ said Lee Heng Guie, the executive director of Socio Economic Research Center.
Columnist Yap Leng Kuen notes the reminder to ‘expect the unexpected.’
Even though there are signs of China-US trade frictions
turning around, as the US political system will not fundamentally change
in the short term, China must remain vigilant and prepare for a
long-term trade war, in case the hawks gain the upper hand.
Good move: Lim says many people have bypassed Malaysia because the policy was not clear about digital assets
Move seen to spur growth in digital currency sector
Regulatory oversight of digital currencies and tokens, which kicks in from today, offers timely clarity and transparency to various players in the fledgling industry.
Omni Capital Partners Sdn Bhd managing director Scott Lim said everything would be above board with the regulation and governance under the Securities Commission (SC).
“Digital assets in Malaysia have been underwhelmed mostly. A lot of people have been bypassing Malaysia because the policy was not clear about it.
“Certainly, now that this is regulated by the SC, it’ll be good. We shall wait for the guidelines,” he said.
Celebrus Advisory co-founder Edmund Yong said the regulation is very much welcomed and one which is needed, as it would spur growth in the industry.
Celebrus is a compliance-first blockchain consultancy firm.
He added that the statement by the Finance Ministry was very accommodative with the intention to use tokens and the recognition of it as a fund-raising tool.
“In fact, it can be an indirect source of foreign direct investment, a borderless method to raise funds.
“But from now until March 31, there will be a twilight period. Many activities will be stopped in their tracks because they don’t know where they stand.
“Some would possibly even move offshore because of the draconian RM10mil and 10-year imprisonment punishment,” said Yong.
He said digital tokens could also be for points in computer games or reward points, and it too would be quite draconian if it is all painted with the same brush.
The Capital Markets and Services (Prescription of Securities) (Digital Currency and Digital Token) Order 2019 kicks in today and any person operating unauthorised initial coin offerings (ICOs) or digital asset exchanges faces up to a 10-year jail term and up to a RM10mil fine.
Digital currencies and digital tokens are collectively known as digital assets, which will now be prescribed as securities.
The SC is putting in place relevant regulatory requirements for the issuance of ICOs and the trading of digital assets at digital asset exchanges in the country.
This is expected to be launched by the end of the first quarter this year.
Finance Minister Lim Guan Eng said the offering of such instruments, as well as its associated activities, would require authorisation from the SC and needed to comply with relevant securities law and regulations.
“The Finance Ministry views digital assets as well as its underlying blockchain technologies as having the potential to bring about innovation in both old and new industries.
“In particular, we believe digital assets have a role to play as an alternative fund-raising avenue for entrepreneurs and new businesses, and as an alternative asset class for investors,” he said in a statement yesterday.
Any person offering an ICO or operating a digital asset exchange without the SC’s approval will face an imprisonment term not exceeding 10 years and a fine not exceeding RM10mil.
Federal Territories Minister Khalid Samad mooted the idea of the Harapan Coin last year, which would be the world’s first political fund-raising platform using blockchain and cryptocurrency technology.
In November last year, shareholders of Country Heights Holdings Bhd approved the company’s plan to conduct an ICO to issue its own cryptocurrency, called “horse currency”.
Country Heights founder and chairman Tan Sri Lee Kim Yew had said that the company would like to be the first to launch cryptocurrency in the country when the regulations are ready.
The company’s plan is to eventually issue one billion horse currencies backed by RM2bil worth of physical assets held by the holding company, with an initial 300 million open to the public for circulation.
New chip: A Kunpeng 920 chip is displayed
during an unveiling ceremony in Shenzhen. Huawei is seeking growth
avenues in cloud computing and enterprise services. — AP
https://youtu.be/IX5k_k4Q68c
HONG KONG: Huawei Technologies Co Ltd has launched a new chipset for use in servers, at a time when China is pushing to enhance its chip-making capabilities and reduce its heavy reliance on imports, especially from the United States.
Huawei, which gets the bulk of its revenue from the sale of telecommunications equipment and smartphones, is seeking growth avenues in cloud computing and enterprise services as its equipment business comes under increased scrutiny in the West amid worries about Chinese government influence over the firm.
Huawei has repeatedly denied any such influence.
Chinese firms are also seeking to minimise the impact of a trade dispute that has seen China and the United States slap tariffs on each other’s technology imports.
For Huawei, the launch of the chipset – called the Kunpeng 920 and designed by subsidiary HiSilicon – boosts its credentials as a semiconductor designer, although the company said it had no intention of becoming solely a chip firm.
“It is part of our system solution and cloud servicing for clients. We will never make our chipset business a standalone business,” said Ai Wei, who is in charge of strategic planning for Huawei’s chipsets and hardware technology.
The Shenzhen-based company already makes the Kirin series of smartphone chips used in its high-end phones, and the Ascend series of chipsets for artificial intelligence computing launched in October.
It said its latest seven nanometre, 64-core central processing unit (CPU) would provide much higher computing performance for data centres and slash power consumption.
It is based on the architecture of British chip design firm ARM – owned by Japan’s SoftBank Group Corp – which is seeking to challenge the dominance in server CPUs of US maker Intel Corp.
Huawei aims to drive the development of the ARM ecosystem, said chief marketing officer William Xu. He said the chip has “unique advantages in performance and power consumption”.
Xu also said Huawei would continue its “long-term strategic partnership” with Intel.
Huawei’s new ARM-based CPU is not a competitor to the US company’s x86 CPUs and servers, but complementary, Xu added.
Redfox Qiu, president of the intelligent computing business department at Huawei, said the company shipped 900,000 units of servers in 2018, versus 77,000 in 2012 when it started.
Huawei was seeing “good momentum for the server business in Europe and Asia Pacific” and expects the contribution from its international business to continue to rise, Qiu added.
Huawei also released its TaiShan series of servers powered by the new chipset, built for big data, distributed storage and ARM native applications.
The firm founded chip designer HiSilicon in 2004 to help reduce its reliance on imports.
In modem chips, Huawei internally sources 54% of those in its own devices, with 22% coming from Qualcomm Inc and the remainder from elsewhere, evidence presented at an antitrust trial for Qualcomm showed. — Reuters
China's Huawei Technologies launched the world's first core
chip specifically designed for 5G base stations on Thursday in Beijing,
securing its leading position for 5G deployments in spite of political
pressure.
Professor Dr. Wang
Former Executive of Halliburton
DID HUAWEI VIOLATE IRAN SANCTIONS?
No, they didn’t.
CFO Meng was arrested supposedly for “violating Iran sanction”. This has to be the most grotesque distortion of justice since the US was the country who unilaterally pulled out IN VIOLATION of an agreement they had signed with multiple nations earlier !!! In other words, the guy who broke a solemn promise made, violated the agreement, then made sanction an American domestic law is now force feeding this law arbitrarily on the rest of the world by arresting someone who refuses to violate the agreement ! Is this making any sense to anybody?
Huawei created a subsidiary to do business with Iran, and the CFO is being charged with lying about the relationship between Huawei and the subsidiary.
This seems totally ridiculous to me since when I worked at Halliburton, we did EXACTLY the same thing ! Not only was our CEO never arrested, he was invited to join the government & became Vice President Dick Cheney !!!!!!!
The moral of this story is for normal businesses to be extremely vigilant & recognise the true faces of America & Saudi! One tosses you in jail for breaking twisted laws they make up as they go along & the other goes after you with a bone saw. Both are gangsters, far worse than the Mafia, because the Mafia at least have the decency to commit crimes secretively, while the thugs in American & Saudi governments commit their crimes blatantly in the open, with complete disregard to the laws & sovereignty of another country, bullying their way through, trying to justify their actions by smearing the victims... then run publicity campaigns to sway public opinions while accusing others of crimes against human rights.. ??!!
I am sure there are nice people in USA & in Saudi & i don’t want to generalise, but i have seen time & again in the States that if ever their oversized egos feel threatened, they can turn into totally evil, nefarious subhumans capable of the most despicable deeds.
The arrest of Meng is a case in point.
I went to the States starry eyed with high hopes & expectations, ready to learn a democratic system far superior than ours. Well, after my Ph.D and a few working years, I stand corrected.
Life in the States has taught me to be proud of my people and my country. Grass is definitely NOT greener on the other side. America is very strong in “hypes”, they talk big but deliver little. China does the opposite. American government spends on military, lives in “now”, supports the rich, & works for re-election. The Chinese government spends on infrastructure, works for the people, eradicated poverty & follows 5-30 year plans. These are facts, not propaganda, not campaign promises.
I can’t tell you how happy I am to be home again. Not only is the food much better, more importantly, I can finally stop worrying myself sick... about my elderly mom getting mucked, my attractive wife getting raped...my children getting bullied, drugged or shot in schools...Having to live in constant fear everyday is the ultimate violation of my human rights.
Huawei clash shows deeper US-China battle for global influence as power coming from high-tech sector
Bail hearings proceeded this week after Meng
Wanzhou(pic), the chief financial officer of Huawei Technologies Co, was
arrested in Canada on Dec 1 because of alleged violations of US
sanctions against Iran. The case threatens to derail a trade truce
struck the same day between Donald Trump and Xi Jinping.
HONG KONG: The Trump administration has insisted the arrest of a top Huawei executive has nothing to do with trade talks. In Beijing, it’s just the latest US move to contain China’s rise as a global power.
Bail hearings proceeded this week after Meng Wanzhou, the chief financial officer of Huawei Technologies Co, was arrested in Canada on Dec 1 because of alleged violations of US sanctions against Iran. The case threatens to derail a trade truce struck the same day between Donald Trump and Xi Jinping.
Even if the two leaders manage to strike a broader deal, the arrest shows that the US-China conflict goes far beyond trade. The world’s biggest economies are now engaged in a battle for global influence that will ultimately determine whether the US remains the globe’s predominant superpower, or China rises as a viable counterweight.
“The sentiment in Washington now is not just a Trumpian mercantilism – the desire to bring back factory jobs to Wisconsin or wherever,” said Nick Bisley, a professor of international relations at La Trobe University in Melbourne who has written books on great-power politics. “It is a desire to significantly cut ties with China because of that larger perception it presents a strategic risk.”
A bipartisan consensus has emerged in Washington that China’s entry into the World Trade Organisation hollowed out US manufacturing and allowed it to grow rich. That increased economic power is now at a point where it risks eroding key American military advantages around the globe.
China insists it plays by the rules, and doesn’t challenge US dominance. Even so, three areas in particular worry American strategic planners: Technology, the dollar and the ability to project military power overseas.
A year ago, the White House identified China’s growing technological prowess as a threat to US economic and military might. American companies have long argued that China forces them to transfer intellectual property and sometimes steals trade secrets – all of which Beijing denies.
In justifying tariffs, Trump’s team has cited Beijing’s “Made in China 2025” strategy to become a global leader in state-of-the-art technologies from aerospace to robotics. So far, China has resisted those demands, arguing that doing so would crush its economic potential.
Huawei in particular epitomises the threat. Earlier this year, Trump blocked Broadcom Inc’s US$117bil hostile takeover bid for Qualcomm Inc over concerns that Huawei would end up dominating the market for computer chips and wireless technologies.
The fear is that wireless carriers may be forced to turn to Huawei or other Chinese companies for 5G technology, potentially giving Beijing access to critical communications. Those concerns have prompted the US to ban Huawei’s products for government procurement, and Australia, Japan and New Zealand have reportedly followed.
China has fought back, with foreign ministry spokesman Lu Kang saying this week that Huawei didn’t “force any enterprise to install forced backdoors.”
“The competition is really focused in the areas where future strategic and economic dominance come from,” said Michael Shoebridge, director of the defense and strategy programme at the Australian Strategic Policy Institute.
“The Huawei arrest is right in the middle of this because both America and China see their future global power as coming from the high-tech sector.”
The dominance of the dollar has allowed the US to effectively control the world’s financial system, underpinning its superpower status. Yet Trump’s increased use of sanctions to assert its foreign-policy goals has prompted a wide range of nations – from China to Russia to the European Union – to look for an alternative.
The Trump administration added nearly 1,000 entities and individuals to its sanctions list in its first year, almost 30% more than the Obama administration’s last year in office, according to law firm Gibson Dunn. The complete list now runs to more than 1,200 pages.
Sanctions are a key tool for the US to subdue potential adversaries like North Korea, but they also can affect friends and allies. The EU, which objected to reimposing sanctions on Iran, this month unveiled plans to mitigate the so-called “exorbitant privilege” of the dollar.
During a visit to China last month, Russian Prime Minister Dmitry Medvedev said the two nations were looking at ways to boost the use of their currencies through allowing the use of China’s UnionPay credit card in Russia and Russia’s Mir card in China. “No one currency should dominate the market,” he said.
“We are potentially at the beginning of a systemic shift that may take some time to play out,” said Gregory Chin, associate professor at York University in Toronto, and a political economy specialist. “The political will is building and coalescing.” — Bloomberg
On the rise: A man walks past the Employees
Provident Fund headquarters in Kuala Lumpur. Remuneration of GLC chiefs,
senior management and directors have been on the uptrend following a
transformation initiative to make them more competitive commercially.
Overpaid CEOs and social duties of GLCs set for review
The new government has clearly said that there is a need to review the role of GLCs and the remuneration paid out to their top executives
A GLANCE at one of the annual reports of the country’s government-linked companies (GLCs) reveals that its chief human resource officer earned close to a million ringgit or about RM80,000 per month, last year.
Other senior personnel were also compensated with generous remuneration, with its chief executive taking home over one and the half million ringgit in financial year 2017.
More importantly, this was at a company that had courted much controversy in recent times over allegations of mismanagement and under-performance.
Such a scenario, however, is not uncommon at GLCs, where remuneration of key executives tend to run in the millions but performances sometimes leave much to be desired.
By definition, GLCs are companies where the government has a direct majority stake via their entities such as Khazanah Nasional, Employees Provident Fund, Permodalan Nasional Bhd (PNB), the Armed Forces Fund (Lembaga Tabung Angkatan Tentera) and the Pilgrims Fund (Lembaga Tabung Haji).
In recent years, remuneration of GLC chiefs, senior management and its directors have been on the uptrend following a transformation initiative to make them more competitive commercially.
The thinking behind this is that in order to attract talent – subjective as the definition of that may be – top dollar should be paid.
Some, however, argue that GLCs should in fact prioritise national service a little more.
Universiti Malaya’s Faculty of Economics and Administration professor of political economy Edmund Terence Gomez says GLCs have social obligations.
“What this essentially means is that GLCs cannot operate in a purely commercial manner as they also have to look at the social dimension,” he says. “The GLC professionals have many times articulated that they are doing national service. Going on that alone, one can argue that they shouldn’t be paid private sector salaries,” Terence adds.
And so it is now, there is a disquiet building up among GLCs following the change in government.
The new government has clearly said that there is a need to review the role of GLCs and the remuneration paid out to their top executives and senior management.
In this regard, the Pakatan Harapan government is understood to be mulling over making drastic changes in the appointment and remuneration of key directors at GLCs which include government agencies.
It was reported recently that the Council of Eminent Persons, headed by Tun Daim Zainuddin, who was Finance Minister in the 1980s, has requested details of the salaries of some of the top executives at GLCs as part of the review.
Already, there have been a couple of GLC chief executives who have left and more of this is expected to materialise over the coming weeks.
“It appears to be a purge of Tan Sri Nor Mohamed Yakcop’s boys,” quips an industry observer, referring to the veteran politician who was instrumental in the revamp and transformation of Khazanah which started in 2005 and subsequently, driving the GLC transformation initiative.
UM’s Terence says if the new government is to appoint new individuals, it must ensure that the process is transparent.
“If you are removing these people, who are you replacing them with? More importantly how are you selecting these people?
He adds there needs to be a transparent mechanism in the appointment of this new breed of professionals that will be brought in and what must also be looked into is the kind of check and balances being put in place to ensure governance.
“There should be a debate on these things,” he says.
Economist Yeah Kim Leng believes that a review is timely and appropriate as part of a deeper institutional and structural reform.
“The broad aims are firstly, to reduce excessive payoffs which don’t commensurate with performance and secondly, to address the widening wage and benefits gap between the top and bottom rungs of the organisation,” he says.
Such rationalisation will result in a more equitable salary structure as well as raise the generally depressed wages of middle management and support staff which form the largest number of most organisations, Yeah adds.
Unfair advantage
The role of a head honcho, be it at a GLC or non-GLC, is seldom a walk in the park.
CEOs make critical operational decisions that affect everything from future business directions to the health of a company’s balance sheet and employee morale.
The job generally entails long hours and tremendous pressure to meet expectations of shareholders and stakeholders.
But again, while local GLCs have been key drivers of the economy, one key feature is that they are ultimately owned by the government.
This, some argue, give GLCs unfair advantages such as access to cheap funding and political patronage over their private counterparts.
So, is running a GLC more of a stewardship role as opposed to an entrepreneurship role?
Therein lies the issue that in turn will have a bearing on the remuneration levels of GLC heads.
Minority Shareholders Watch Group (MSWG) chief executive office Devanesan Evanson puts it this way.
“Entrepreneurs have their skin in the game in that there are often the major or substantial shareholder in a company.
“It is in their direct interest to perform as this will be translated into share price appreciation which will impact the value of their shareholdings – this is motivation to grow the entrepreneurial spirit,” he says.
On the other hand, GLC heads do not have their skin in the game save for their limited shareholding through ESOS or share grant schemes.
“If a GLC loses money, the impact on them is limited. They may be prepared to take perverse risks as the eventual loser is the government-linked investment companies or GLICs (and the minority shareholders of the GLC), which eventually are the people who are the members or subscribers of the GLICs.
“In that way, we are not comparing apple to apple and yet, we need talent to run GLCs.
“So we can conclude that, we need to pay for talent at GLCs but it should not be as much compared to what one would pay the CEO of a firm which he started,” Devanesan says, noting that remuneration of some of the GLC heads have risen too fast in recent years.
Rising remuneration is a given, others say, as the government had recruited top talent from the private sector to helm these companies.
A case in point is Axiata Group Bhd, which has done relatively well with the infusion of the “entrepreneurial spirit” under the helm of president and group CEO Tan Sri Jamaludin Ibrahim, who has helmed the Khazanah-owned telco since 2008, they point out.
Prior to that, Jamaludin was with rival Maxis Communications Bhd, a private company controlled by tycoon Ananda Krishnan.
Other GLCs which have performed consistently over recent years include banks like Malayan Banking Bhd
and CIMB Group Holdings Bhd which have expanded their operations out of Malaysia, carving a brand name for themselves regionally.
Under a 10-year transformation programme for GLCs initiated in 2005, companies were given quantitative and qualitative targets to meet as measured by key performance indicators.
Now, the 20 biggest GLCs currently make up about 40% of the local stock market’s market capitalisation.
One of the principles under the programme was also the national development agenda, which emphasised the principle of equal growth and development of the bumiputra community with the non-bumiputras.
Asian Strategy and Leadership Institute (ASLI) Centre of Public Policy Studies chairperson Tan Sri Ramon Navaratnam says the purpose of establishing GLCs to encourage bumiputras to participate in business has largely been fulfilled.
“Now that the bumiputras are on a strong footing in the corporate sector with able leaders who have wide experience, it (GLCs) could be seen as an erosion to the welfare and progress of the smaller and medium-sized industries, particularly those where other bumiputras are involved,” Ramon says.
Having said that, he says although many GLCs are doing well, they have performed well “mainly because of protective policies and monopolistic practices”.
“The time has come in this new Malaysian era for more competition and less protection.”
Benchmarking
Still, if simplistic comparisons are to be made, the CEOs of the country’s two largest GLC banks, Maybank and CIMB for instance, took home less than the CEO of the country’s third largest bank, the non-GLC Public Bank Bhd
last year.
In 2017, Public Bank’s managing director Tan Sri Tay Ah Lek took home some RM27.8mil in total remuneration while Maybank’s Datuk Abdul Farid Alias earned RM10.11mil and CIMB’s Tengku Zafrul Abdul Aziz made RM9.86mil.
Across the causeway, a survey of CEO remuneration of Singapore-listed companies by one financial portal shows that Singaporean GLC CEOs earned 31% more than their non-GLC counterparts in 2017.
Singapore’s Temasek Holdings-owned DBS Bank, which is Singapore’s largest bank, paid out S$10.3mil (RM30.36mil) to its head honcho, while in the telecommunication sector, SingTel’s remuneration to its top executive was some S$6.56mil (RM19.34mil) for the most recently concluded financial year.
By definition, Singapore GLCs are those which are 15% or more owned by the city-state’s investment arm Temasek Holdings.
UM’s Terence does not think Singapore should be a benchmark for Malaysian companies.
“Singapore is a much smaller country and the manner in which they operate in is also different ... their GLCs are deeply conditioned by their holding company, which is the Minister of Finance Incorporated,” he says.
MSWG’s Devanesan notes that determining remuneration is “not exactly science” as there are many parameters to be considered.
Some of the factors to note include whether the companies are in a monopolistic or near monopolistic position and the performance of the GLC heads over the years.
“Based on these parameters, we can instinctively know if a GLC head is over-remunerated,” he says. Over in China, state-owned Industrial and Commercial Bank of China (ICBC), the country’s largest lender by assets, paid out about 63.43 yuan or about RM39mil in total remuneration before tax for the year 2017 to its top executive.
Notably, the Beijing-based ICBC’s net profit’s was at a whopping US$45.6bil (RM182bil) in 2017.
Sources: Gurmeet Kaur and Yvonne Tan The Star
GLC singers sing a different tune
Some officials singing 'Hebat Negaraku'.
Swan song for some after 'Hebat Negaraku' post-GE14 - CEO think video to showcase musical talents
Several heads of government-linked companies (GLCs) have come together
in a heartwarming music video titled "Hebat Negaraku" (my country is
great).
The heads of government linked companies (GLC) who sang a song that later became the theme song for the Barisan Nasional’s election campaign have distanced themselves from the controversial music video.
Those who sang and played musical instruments in the music video titled “Hebat Negaraku” (my country is great) said they did not know the video or the song was going to be a political theme song.
There have been repercussions on the CEOs who appeared in the music video. They have come under scrutiny for making a song that was used as propaganda by Barisan in the last general election.
Three of the GLC bosses in the video have either retired or resigned since the new government took over.
Several more have been speculated to leave in the coming weeks or months but nothing is cast in stone. Sources said this is because most of the CEOs are not known to have campaigned openly for either Barisan or Pakatan Harapan.
“None of the CEOs had a clue it would become a political song. Do you really think the CEOs would have done it if they knew it would become political?” asked one of the CEOs who appeared in the video but declined to be named.
“We have said no to so many things, and we could have easily have said no to this if it was political.’’
Another CEO said he was approached and felt it was “more of a patriotic song and nothing more.”
“At that point in time, we did not think much (of the repercussions). Hebat Negaraku was announced as Barisan’s campaign theme long after the recording was made. We did not know that.’’
Another CEO added: “We thought it was a casual thing when we were approached as some of the CEOs have their own band.’’
It all started when several CEOs were called to be part of a music video and they thought it was to showcase the musical talents of 14 GLCs heads, plus staff members of the 20 key GLCs.
The song is about the greatness, advancement and inspiration of Malaysia. It was released on YouTube on March 22 but has since been taken down.
But fingers have been pointed at the GLCs bosses who made the music video because it became a political video.
Datuk Seri Shazalli Ramly has been said to be the main orchestrator for the group in terms of making the music video. He was also said to be the branding chief for Barisan’s elections campaign.
Barisan lost the elections held on May 9 to Pakatan, which has since formed a new government and is scrutinising all the performance, processes, remuneration and procurement of the government and GLCs.
Shazalli quit his job as group CEO of Telekom Malaysia Bhd (TM) on June 6. Malaysian Resources Corp
Bhd (MRCB) group managing director Tan Sri Mohamad Salim Fateh Din has retired as group MD last week and it was something he had planned to do. Malaysia Airports Holdings Bhd
Datuk Badlisham Ghazali did not get his contract renewed. All three were in the music video.
There is a GLC secretariat that now comes under the purview of TM, which was earlier parked under Khazanah Nasional Bhd. The secretariat organised the making of the music video, according to sources. The CEOs were called to attend a session and within a few hours it was all done with no prior rehearsals.
“When you are called, it could be difficult not to comply since it is the secretariat that called you. We have to oblige but we really did not know it was going to be a campaign slogan. This is really unfortunate that it has turned out like this.
“We were surprised when we found out it was a party slogan but it had already been done and what can we do, we are in the picture,’’ said another CEO.
Not all CEOs who were invited took part in the video. Prior engagements were the reason used for declining to appear. - By b.k. Sidhu The Star
Fed’s big balance-sheet unwind could be coming to an early end
NEW YORK: The Federal Reserve’s balance sheet may not have that much further to shrink.
An unexpected rise in overnight interest rates is pulling forward a key debate among US central bankers over how much liquidity they should keep in the financial system. The outcome will determine the ultimate size of the balance sheet, which they are slowly winding down, with key implications for US monetary policy.
One consequence was visible on Wednesday. The Fed raised the target range for its benchmark rate by a quarter point to 1.75% to 2%, but only increased the rate it pays banks on cash held with it overnight to 1.95%. The step was designed to keep the federal funds rate from rising above the target range. Previously, the Fed set the rate of interest on reserves at the top of the target range.
Shrinking the balance sheet effectively constitutes a form of policy tightening by putting upward pressure on long-term borrowing costs, just as expanding it via bond purchases during the financial crisis made financial conditions easier. Since beginning the shrinking process in October, the Fed has trimmed its bond portfolio by around US$150bil to US$4.3 trillion, while remaining vague on how small it could become.
This reticence is partly because the Fed doesn’t know how much cash banks will want to hold at the central bank, which they need to do in order to satisfy post-crisis regulatory requirements.
Officials have said that, as they drain cash from the system by shrinking the balance sheet, a rise in the federal funds rate within their target range would be an important sign that liquidity is becoming scarce.
Now that the benchmark rate is rising, there is some skepticism. The increase appears to be mainly driven by another factor: the US Treasury ramped up issuance of short-term US government bills, which drove up yields on those and other competing assets, including in the overnight market.
“We are looking carefully at that, and the truth is, we don’t know with any precision,” Fed chairman Jerome Powell told reporters on Wednesday when asked about the increase. “Really, no one does. You can’t run experiments with one effect and not the other.”
“We’re just going to have to be watching and learning. And, frankly, we don’t have to know today,” he added.
But many also see increasingly scarce cash balances as at least a partial explanation for the upward drift of the funds rate, and as a result, several analysts are pulling forward their estimates of when the balance sheet shrinkage will end.
Mark Cabana, a Bank of America rates strategist, said in a report published June 5 that Fed officials may stop draining liquidity from the system in late 2019 or early 2020, leaving US$1 trillion of cash on bank balance sheets. That compares with an average of around US$2.1 trillion held in reserves at the Fed so far this year.
Cabana, who from 2007 to 2015 worked in the New York Fed’s markets group responsible for managing the balance sheet, even sees a risk that the unwind ends this year.
One reason why people may have underestimated bank demand for cash to meet the new rules is that Fed supervisors have been quietly telling banks they need more of it, according to William Nelson, chief economist at The Clearing House Association, a banking industry group.
The requirement, known as the Liquidity Coverage Ratio, says banks must hold a certain percentage of their assets either in the form of cash deposited at the Fed or in US Treasury securities, to ensure they have enough liquidity to deal with deposit outflows.
The Fed flooded the banking system with reserves as a byproduct of its crisis-era bond-buying programs, known as quantitative easing, to stimulate the economy. The money it paid investors to buy their bonds was deposited in banks, which the banks in turn hold as cash in reserve accounts at the Fed.
In theory, the unwind of the bond portfolio, which involves the reverse swap of assets between the Fed and investors, shouldn’t affect the total amount of Treasuries and reserves available to meet the requirement. The Fed destroys reserves by unwinding the portfolio, but releases an equivalent amount of Treasuries to the market in the process.
But if Fed supervisors are telling banks to prioritise reserves, that logic no longer applies. Nelson asked Randal Quarles, the Fed’s vice-chairman for supervision, if this was the Fed’s new policy. Quarles, who was taking part in a May 4 conference at Stanford University, said he knew that message had been communicated and is “being rethought”.
If Fed officials do opt for a bigger balance sheet and decide to continue telling banks to prioritise cash over Treasuries, it may mean lower long-term interest rates, according to Seth Carpenter, the New York-based chief US economist at UBS Securities.
“If reserves are scarce right now, and if the Fed does stop unwinding its balance sheet, the market is going to react to that, a lot,” said Carpenter, a former Fed economist. “Everyone anticipates a certain amount of extra Treasury supply coming to the market, and this would tell people, ‘Nope, it’s going to be less than you thought’.” — Bloomberg
Malaysia and regional equity markets in the red
In Malaysia, the selling streak has been
ongoing for almost a month. As of June 8, the year to date outflow
stands at RM3.02bil, which is still one of the lowest among its Asean
peers. The FBM KLCI was down 1.79 points yesterday to 1,761.
PETALING JAYA: It was a sea of red for equity markets across the region after the Federal Reserve raised interest rates by a quarter percentage point to a range of 1.75% to 2% on Wednesday, and funds continued to move their money back to the US. This is the second time the Fed has raised interest rates this year.
In general, markets weren’t down by much, probably because the rate hike had mostly been anticipated. Furthermore for Asia, the withdrawal of funds has been taking place over the last 11 weeks, hence, the pace of selling was slowing.
The Nikkei 225 was down 0.99% to 22,738, the Hang Seng Index was down 0.93% to 30,440, the Shanghai Composite Index was down 0.08% to 3,047.34 while the Singapore Straits Times Index was down 1.05% to 3,356.73.
In Malaysia, the selling streak has been ongoing for almost a month. As of June 8, the year to date outflow stands at RM3.02bil, which is still one of the lowest among its Asean peers. The FBM KLCI was down 1.79 points yesterday to 1,761.
Meanwhile, the Fed is nine months into its plan to shrink its balance sheet which consists some US$4.5 trillion of bonds. The Fed has begun unwinding its balance sheet slowly by selling off US$10bil in assets a month. Eventually, it plans to increase sales to US$50bil per month.
With the economy of the United States showing it was strong enough to grow with higher borrowing costs, the Federal Reserve raised interest rates on Wednesday and signalled that two additional increases would be made this year.
Fed chairman Jerome H. Powell in a news conference on Wednesday said the economy had strengthened significantly since the 2008 financial crisis and was approaching a “normal” level that could allow the Fed to soon step back and play less of a hands-on role in encouraging economic activity.
Rate hikes basically mean higher borrowing costs for cars, home mortgages and credit cards over the years to come.
Wednesday’s rate increase was the second this year and the seventh since the end of the Great Recession and brings the Fed’s benchmark rate to a range of 1.75% to 2%. The last time the rate reached 2% was in late 2008, when the economy was contracting.
“With a slightly more aggressive plan to tighten monetary policy this year than had previously been projected by the Fed, it will narrow our closely watched gap between the yield rates of two-year and 10-year Treasury notes, which has recently been one of a strong predictor of recessions,” said Anthony Dass, chief economist in AmBank.
Dass expects the policy rate to normalise at 2.75% to 3%.
“Thus, we should potentially see the yield curve invert in the first half of 2019,” he said.
So what does higher interest rates mean for emerging markets?
It means a flight of capital back to the US, and many Asian countries will be forced to increase interest rates to defend their respective currencies.
Certainly, capital has been exiting emerging market economies. Data from the Institute of International Finance for May showed that emerging markets experienced a combined US$12.3bil of outflows from bonds and stocks last month.
With that sort of global capital outflow, countries such as India, Indonesia, the Philippines and Turkey, have hiked their domestic rates recently.
Data from Lipper, a unit of Thomson Reuters, shows that for the week ending June 6, US-based money market funds saw inflows of nearly US$34.9bil.
It makes sense for investors to be drawn to the US, where the economy is increasingly solid, coupled with higher yields and lower perceived risks.
Hong Kong for example is fighting an intense battle to fend off currency traders. Since April, Hong Kong has spent at least US$9bil defending its peg to the US dollar. Judging by the fact that two more rate hikes are on the way this year, more ammunition is going to be needed.
Hong Kong has the world’s largest per capita foreign exchange reserves – US$434bil more in firepower.
By right, the Hong Kong dollar should be surging. Nonetheless, the currency is sliding because of a massive “carry trade.”
Investors are borrowing cheaply in Hong Kong to buy higher-yielding assets in the US, where 10-year Treasury yields are near 3%.
From a contrarian’s perspective, global funds are now massively under-weighted Asia.
With Asian markets currently trading at 12.3 times forward price earnings ratio, this is a reasonable valuation at this matured stage of the market.
