Expert: U.S. is damaging itself for putting tariffs on China
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Removing additional tariffs on Chinese goods will significantly ease the pressure on companies in both China and the United States, and help the world to curb inflation, experts said on Wednesday (May 4).
Their remarks followed the Office of the United States Trade Representative, or USTR, announcement on Tuesday of the commencement of the statutory four-year review of the continuation of the US "Section 301" tariffs on Chinese products.
In the four-year review, the USTR will examine the tariff actions on Chinese-origin products from July 6, 2018 to Aug 23, 2018.
Based on this review, the US government can determine whether to maintain the tariffs, change the tariff rates, or remove the tariffs.
In the first quarter of this year, China-US trade grew 12 percent year-on-year to $185.92 billion, data from China's General Administration of Customs showed.
According to Tu Xinquan, dean of the China Institute for WTO Studies at the University of International Business and Economics in Beijing, the additional US tariffs on Chinese products have put heavy burdens on US companies and aggravated inflation levels in the country.
In the US, many businesses involved in trade have been seeking rollback of the additional tariffs on Chinese products.
Besides, many of the tariffs were levied through administrative orders rather than being based on relevant laws. This led to a series of complaints and lawsuits that challenged the authority of those orders issued by the former administration, he said.
In the two-step review process, the first step is for the USTR to offer an opportunity for US domestic industries that benefited from the tariffs to request their continuation. Legally, the tariffs are to terminate four years after their application, if no US party submits a request that they be continued.
If there are requests to continue, the tariffs are received, under the statute the following step requires the USTR to undertake a review of the effectiveness of the "Section 301" tariffs on achieving their objectives and their impact on the US economy and consumers.
Cancelling the additional tariffs on Chinese products will also help many parts of the world to curb inflation, because stable product and commodity supplies from China and the US – the world's two largest economies – will facilitate the world to build strong industrial and supply chains, said Zhang Yongjun, deputy chief economist with the China Center for International Economic Exchanges.
As the US dollar is a global currency, the increase in its supply, which far outpaced that of other global currencies like the euro, directly pushed up prices in the US, besides fueling inflation worldwide, which has been exacerbated by the Russia-Ukraine conflict, he noted.
Amid global inflation and growing pressures on the global supply chain, tariffs have become an inconvenient factor that inhibits enterprises from conducting international trade cooperation, said Zhou Mi, a senior researcher at the Chinese Academy of International Trade and Economic Cooperation in Beijing.
China and the US, he said, should not only remove additional tariffs imposed during their trade disputes, but even further reduce tariffs to make them even lower than the pre-dispute levels. That will significantly boost expectations on normal global supply chain operations, bolster market confidence and facilitate global economic recovery.
"As the world's two largest economies, healthy bilateral relations between China and the US are important not only to them but the world, as the global economy has been facing a number of uncertainties in recent years," he said.
Woody Guo, president for China unit at Herbalife Nutrition, a US-based manufacturer of nutrition products, said it is beneficial for China and the US to enhance their ties in the area of trade and economic cooperation.
"In China, consumption upgrade and domestic demand expansion will help the country to grow its consumer base under the dual-circulation development paradigm, providing huge growth potential for foreign enterprises, including Herbalife Nutrition," Guo said.
Easing restrictions: The US and Chinese flags outside a hotel in Beijing. American tariffs on hundreds of billions of dollars of Chinese imports are due to expire in July, but could be extended if enough industries ask for an extension. — AFP
WASHINGTON: The United States government should eliminate or at least reduce additional tariffs on Chinese imports imposed during the Trump administration, a US trade expert says, arguing that such trade liberalisation measures will help lower elevated inflation and stabilise inflation expectations.
“Here, we’re running a red hot economy. So anything you can do to reduce that cycle is good news,” Gary Hufbauer, non-resident senior fellow at the Peterson Institute for International Economics (PIIE), told Xinhua in a recent phone interview.
In a research published on PIIE’s website, Hufbauer and his colleagues Megan Hogan and Yilin Wang argued that “a feasible trade liberalisation package” could deliver a one-time reduction in consumer price index (CPI) inflation of around 1.3 percentage points. That would save US$797 (RM3,467) for every US household.
He said the direct effect of eliminating additional tariffs on Chinese products would be a 0.3 percentage point reduction in the CPI, but there would also be indirect effect, which will add “substantially” to the 0.3 percentage point.
“It would be a pretty big signal to US firms that they are going to face more competition and that might cause them to moderate their price increases as inflation rolls forward,” said the long time trade expert.
“We’re in a world now where inflation expectations are really quite high,” Hufbauer said, noting that US Federal Reserve’s (Fed) interest rate hikes would have some effect on inflation expectations, and trade liberalisation measures “would have an additional effect.”
Stabilising inflation expectations is important, he said, because when expectations are that inflation is going to continue, “that then feeds into wage demands and that then keeps the cycle going.”
According to the latest data from the US Labour Department, the CPI in March surged 8.5% from a year earlier, the largest 12-month increase since the period ending December 1981. That followed a 7.9% year-on-year gain in February.
US personal consumption expenditures price indexes, the Fed’s preferred inflation measure, soared by 6.6% in March over the past year, the Commerce Department reported on Friday.
In reaction to the argument that reducing the China tariffs would not lead to a meaningful reduction in prices, Hufbauer said it doesn’t completely eliminate the inflation problem, “but it’s better than doing nothing.”
“So there’s raising interest rates, there’s cutting back federal spending, there’s reducing tariffs, all of those things have some impact,” he said. “I would say it’s something where every little bit counts.”
Regarding the current political environment, Hufbauer said he thinks it will be difficult for the administration to reduce or eliminate additional tariffs on Chinese imports before the mid-term elections, but he hopes that it will do that.
The trade expert said he is “very encouraged” by a recent statement by Deputy National Security Adviser Daleep Singh, who said the Biden administration could lower tariffs on non-strategic Chinese goods such as bicycles or apparel to help curb inflation.Hufbauer noted that the Biden administration could be reluctant to remove the Trump-era tariffs, because it would have to face criticism for being “soft” on China.
International scenario likely to affect trajectory
“Hopefully we will start to see private investments gaining traction, but this depends very much also on what is going on in the international front, especially in terms of the Russia-ukraine war and global inflation.” Carmelo Ferlito
Despite being on a recovery path, the country’s economic growth trajectory could be affected by uncertainties on the global front.
PMalaysia’s gradual and controlled easing of Covid-19 restrictions as it transitions into edemicity is set to give the country’s economy a much needed boost.
Despite being on the recovery path, economists have however cautioned that Malaysia’ economic growth trajectory could still be affected by uncertainties on the global front.
Malaysia University of Science and Technology professor Geoffrey Williams said the ongoing Russia-ukraine war, China’s lockdowns and likely austerity in the United States and Europe are key factors that could have an impact on Malaysia’s gross domestic product (GDP) growth.
“The expected negative outlook of the international economic scenario will determine the outcome of Malaysia’s second quarter GDP, not Covid-19 and borders reopening, which we expect to play a marginal role in this phase,” he told Starbiz.
In a base case scenario (which refers to a set of basic assumptions where the results would lead to the most realistic outcome), Williams said Malaysia’s second quarter GDP is forecast to increase 1.3% quarter-on-quarter and 2.6% year-on-year.
“This scenario implies that the GDP will be flat over the first half of 2022. This is in contrast to the consensus view of a rampant recovery with a yearly growth figure close to 5.5% and 6%. In our base scenario, we think that a 3.5% year growth is more likely.”
Malaysia
University of Science and Technology professor Geoffrey Williams said
the ongoing Russia-Ukraine war, China’s lockdowns and likely austerity
in the United States and Europe are key factors that could have an
impact on Malaysia’s gross domestic product (GDP) growth.
In a risk scenario, Williams said he foresees Malaysia’s GDP “going into slightly negative territory”.
“In our base scenario, we expect to see a systematic and progressive recovery, consistent with the potential rate of growth of the economy only in the second half of 2022.
“The contribution of the external demand is expected to be close to zero, reflecting the international cyclical weakness we are already observing in the US, European Union and China,” he said.
Malaysia, which has been gradually easing its Covid-19-related standard operating procedures since late last year, finally reopened its borders to international travellers from April 1.
Last week, Health Minister Khairy Jamaluddin announced a slew of relaxations to Malaysia’s Covid-19 restrictions.
Centre for Market Education chief executive officer Carmelo Ferlito said the relaxation measures announced recently would be a good incentive for the tourism industry.
However, he said the impact of the relaxations would likely be better reflected in the third quarter of this year, rather than in the current (second) quarter.
“We can still expect a good momentum for export, pulled by a weaker currency (which is temporarily good for export but harmful for the economy in general).
“Hopefully we will start to see private investments gaining traction, but this depends very much also on what is going on in the international front, especially in terms of the Russiaukraine war and global inflation.”
Malaysia’s GDP expanded 3.1% in 2021, after posting a 3.6% year-on-year growth in the fourth quarter of last year.
In a base case scenario, HELP University economist Dr Paolo Casadio said Malaysia’s first quarter 2022 GDP is projected to shrink 1.5% quarter-on-quarter and contract 0.7% year-on-year.
Centre
for Market Education chief executive officer Carmelo Ferlito said the
relaxation measures announced recently would be a good incentive for the
tourism industry.
“This would be due to contraction in investments, negative net external demand and stagnation in private consumption.
“We do not see a clear pattern in private consumption and investments, which would be consistent with a positive transition of the economy toward a systematic and sustained recovery.”
Casadio added that the current phase of recovery is “a delicate transition”.
“There are plenty of weaknesses and risks of a new recessionary phase, although the risk of a recession is only around 25%. Disposable income and wealth among households are not recovering due to weak real wages growth, slow increase in employment and continuing withdrawals from the Employees’ Provident Fund to finance current expenditure, even among the middle-income population.”
Ferlito, meanwhile, said he was “not a big fan of GDP forecasts” when asked about his projections for Malaysia’s economic performance for the first quarter of 2022.
“It’s because they fail to ignore how an eventual growth or decline is built. For example, GDP grew in 2021 by 3.1%, but that growth was mainly driven by government spending and private consumption.
“This means that growth is resting on very unstable pillars, being basically financed by household and government debt and inflation.”
Ferlito emphasised that private investments remained “quite stagnant” in 2021.
“The key drivers of a sustainable growth path are savings, which are not measured by GDP and private investments. “I think that beyond the GDP figure, which in itself is pretty useless, we should look at the microfoundations behind it. We will be on the right path if private investments grow, while a closer look should also be devoted to the savings dynamics, which is not captured by the GDP.”Ferlito noted that Bank Negara foresees a good rebound in private investments for 2022.
“This is what we need to hope for, although I believe that a lot of elements of uncertainty are still weighing on that, in particular for the first quarter of 2022.”
Ferlito said the political situation in Malaysia could also have an impact on the country’s GDP performance.
“Hopefully we will have elections with the emergence of a strong majority supported by a reformist agenda. Then there is the big issue of China, which in 2021 accounted for 15.5% of Malaysian exports. China is Malaysia’s first trade partner and therefore their utopic approach to Covid-19 will surely have an impact on our economy.”
Ferlito added that geopolitical uncertainties in Europe could also have an impact on Malaysia’s economic performance.
“Europe accounts for around 7% of the international trade of Malaysia, both in terms of import and export. Troubles there will lead to repercussions here.”
Williams said the focus at the moment should be on price stability and maintaining expansionary credit conditions.
“The government has managed the containment of inflation well up to now, through the control of petrol and other prices. But it was an error to allow the hike of the electric tariffs for the non-residential users in March. This is adding perhaps 0.5% to the outlook of inflation in a very critical phase.”
Williams said this hike should be reversed to guarantee a low level of inflation, which is necessary to support the purchasing power of salaries.
“This would be possible by redistributing the gains and costs of the increase in oil and gas that the different government-linked companies are experiencing and avoids penalising firms and households.”
Casadio meanwhile said he expects Bank Negara to maintain the current expansionary conditions and not revise the official interest rate of the monetary policy until the second half of 2022.
With its stock market jumping, the dollar strengthening, and global capital flowing in, the US is again reaping profits but bringing financial shockwaves to foreign countries, whether they are what it claims are rivals, like China, or allies, like the EU, by tightening its monetary policy, experts observed.
As the Fed policy tightening accelerates, analysts said that the US is increasingly turning into a world "damager" instead of "protector" when the country finds its global responsibilities clash with its own national interests, and the world is paying the price for the US' domestic problems, like surging inflation.
In recent days, the side effects of US monetary policy, particularly the Fed's hawkish push for raising interest rates, have spread to multiple regions of the world and multiple financial areas.
The US Dollar Index is turning up sharply, at one point touching a ceiling of 100.19 on Friday, the highest level since May 2020. Accompanied by the rise is the weakening of global currencies including the yen, the euro and the yuan.
Global stock and bond markets are also sliding. The 10-year US Treasury yield topped its Chinese equivalent on Monday for the first time in 12 years.
The benchmark Shanghai Composite Index slipped by 2.61 percent on Monday, the Hong Kong-based Hang Seng Index dropped by more than 3 percent, and the Japanese Nikkei 225 was down 1.81 percent on Tuesday.
Contractions on global financial markets are generally considered to be a result of the Fed's move to increase interest rates recently, the first time in more than three years. Investors are betting on more aggressive rate hikes in the coming months after Federal Reserve Chair Jerome Powell vowed tough action to rein in inflation during a recent speech at the National Association for Business Economics.
The US government has stepped on the gas to drive up interest rates to contain inflation. The US Consumer Price Index jumped by 8.5 percent on a yearly basis in March, touching a 40-year-high due to rising oil, food and housing costs. The growth beat market expectations of 8.4 percent.
However, Chinese experts criticized the US for shifting the burden of its own economic problems to global markets.
"The US is letting global markets pay the price for its own crisis of inflation, depending on the dominant role of the US dollar and the integration of the global economy," Li Haidong, a professor from the China Foreign Affairs University, told the Global Times.
According to Li, the countries holding massive US dollar assets will feel the pinch from Fed's tightening, but the blow will be even more vital for countries that have a vulnerable social system, as the US action might bring havoc to social stability there.
He also said that when the US government sees a clash between its global responsibility and its own interests, it does not feel guilt in choosing the latter.
"The US' role in the world is turning from that of a protector to a kind of damager, as it thinks that globalization is bad for its own interests," Li said.
Even countries that are in the same league as the US won't escape the US' profit-seeking moves, experts said.
Xi Junyang, a professor at the Shanghai University of Finance and Economics, told the Global Times that the US is adding fuel to the flames of the Ukraine crisis, in order to strengthen its position in the so-called Western alliance, as well as further enhance the role of the greenback after investors saw Europe was not secure.
A direct consequence of this strategy is a weaker EU, both businesswise and politically, as the region's independence is undermined, while the military chaos also hurts the region's energy supplies and the euro's attraction to international investors.
Xi said that US monetary policy shifts will put pressure on the Chinese mainland's financial markets, especially as the mainland expands connections with the Hong Kong stock market, which is more vulnerable to US financial volatility.
However, Xi stressed that the impact on the mainland markets won't be severe because of capital flow restrictions, and China's independent monetary policy will not be swayed by external factors like the US Fed's decisions.
Then there are newer and more interesting physical and luxury items that isn’t part of the financial markets which appeared to hold the value
very well. Minted limited edition Lego sets, select Hermes and Chanel handbags as well as tier-one luxury watch brands such as Patek Philippe, Audemars Piguet and Rolex are such examples.
The challenge is finding a suitable asset class that is palatable to one’s risk tolerance, investment horizon and financial capability. This is why there are many varieties of asset classes in the financial markets that serve different purposes. `
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IF you have savings of RM100,000 or Rm1mil, how would you utilise this amount of money to preserve your wealth? `
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It is a legitimate question but increasingly pressing as globally, countries around the world are facing inflationary pressure due to the effects of loose monetary policies for the past two years. `
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While not everyone is passionate about the financial markets or macroeconomics, most would be concern if they were to know the value of their money or hard-earned savings are increasingly eroded daily through no fault of theirs. `
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The common method adopted by most would be to assess how much ringgit is worth against foreign currencies like US dollar, Singapore dollar, British pound and the likes. Another would be the actual purchasing power of your money. Combining both, it becomes the formula of purchasing power parity. `
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I have written an article in this column last year using the Big Mac Index to illustrate inflationary effects. Today, as inflation is already here, I prefer to dwell into how individuals can protect their savings from inflation itself. `
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Some would argue, they live in solitary and would hardly be impacted even if the ringgit weakened substantially. However, even one who does not travel abroad and lives entirely within the domestic ecosystem cannot run away from the impact of inflation. `
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As the world economy is a huge interlinked web, connected via global trades, inflationary pressure can be imported through the transaction of goods or the fact that our country has foreign debts. There is no absolute way of shielding in entirety. `
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Ceiling price for necessities and list of controlled items are what government of the day do to ensure some level of protection for the citizens but if market forces react otherwise, government intervention in itself is not sufficient to push back. This is proven even in the strictest communist or socialist regime around the world, such as North Korea. `
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The only way to hedge against inflation is to engage in some form of investment. In the past, real estate has always been recognised as one of the best asset classes to preserve wealth and hedge against inflation. This ageold wisdom has survived through thousands of years and civilisations. `
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New asset class
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As the society evolves and modern economy takes shape, there is now the creation of new asset class which in the past either simply do not exist or wouldn’t make sense to invest substantially. The more common form of investments are the likes of bonds, gold, fixed deposits and equities.
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Then came mutual funds and index-linked funds. Exchange-traded funds in recent years became wildly popular, especially when active investment returns did not provide the same kind of returns it once did.
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This gained traction for those who are mostly passive investors or do not have the time to do individual stock picking. Yet, despite all the asset classes mentioned above, these are all considered relatively acceptable to most people.
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With the millennials and Gen-z being in the workforce, technology have taken centrestage in every part of our lives even when it comes to asset classes. Cryptocurrency, non-fungible tokens (NFTS) and digital assets have made its way into mainstream financial markets where investment banks, which traditionally scoffs at such assets, have now become a part of the frenzy. `
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Advocates of cryptocurrency, for instance, goes as far as calling it a hedge against inflation or hedge against “fiat currency” or the “new gold”. `
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Traditional asset classes highlighted above are seen as out-of-date by the new crop of investors, whoever they are and wherever they may come from. I do not wish to debate the utility and viability of cryptocurrency, NFTS or digital assets. However, the big question to me though is, what truly constitutes a hedge against inflation? `
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For an asset class to constitute a hedge against inflation, the more fundamental aspect is for the asset class to consistently outperform annual inflationary pressure. For example, if the inflation rate is 4% per annum over 10 years, the asset class that one invest in must outperform 4% per annum consistently across the same period. `
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This asset class will then effectively hedge and protect the value of your money over a substantial duration of time. `
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The challenge is finding a suitable asset class that is palatable to one’s risk tolerance, investment horizon and financial capability. This is why there are many varieties of asset classes in the financial markets that serve different purposes. ` `
Bonds and gold are good for those with low-risk appetite but do not expect spectacular returns from these asset class. In fact, many have questioned whether bonds and gold can still preserve value although this has been proven in the past during wars and turbulent times.
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Luxury items `
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Then there are newer and more interesting physical and luxury items that isn’t part of the financial markets which appeared to hold the value very well. Minted limited edition Lego sets, select Hermes and Chanel handbags as well as tier-one luxury watch brands such as Patek Philippe, Audemars Piguet and Rolex are such examples. `
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An unopened Lego set delivers an average annual return of 11%. A Hermes Birkin has seen an average annual increase in price of 14% from 1980 to 2015. This is in comparison to the returns of gold at -2.1% and S&P 500 at 11.7% over the same period. `
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For the Chanel Classic Medium Flap bag, the price has increased over the past 31 years, from US$1,150 (RM4,817) in 1990 to US$8,800 (RM36,858) in 2021. This gives an average annual return of 21.4% and a compound annual growth rate of 6.8% throughout the period. `
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If we look at watches, the retail price of stainless steel sports watches have gone crazy in recent years. A Phillipe Patek Nautilus, which retailed at US$3,100 (RM12,985) in 1976 when it was first introduced, is retailing at today US$35,000 (RM146,485) `
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What is more frightening is the secondary market or grey market pricing for these luxury goods due to the sheer difficulty of getting one at retail price. `
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A standard Hermes Birkin sized 25 retails at around US$10,000 (RM41,885) but in the secondary market, it can fetch as high as US$25,000 (RM104,713). The Patek Nautilus in a grey market commands close to US$175,000 (RM733,000). The classic Rolex Submariner date steel, which retails at US$10,800 (RM45,236), commands a huge premium in the grey market at around US$20,000 (RM83,770). `>
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Some may argue that these are the tactical strategy by the ultra-luxury brands to restrict supply and cause a demand shortage in order to drive up the price, making it a highly desirable product.
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However, the counter argument is the fact that these top range luxury brands are handcrafted and requires the hours to produce the finish product. The limited resources coupled with the need to ensure quality also limits supply.
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In the face of a rising affluent class and burgeoning upper-middle class globally, naturally these luxury brands become highly sought after. Once the second-hand market is able to preserve the value, it becomes a hedge against inflation.
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My biggest takeaway though is not which asset class would be the best hedge against inflation. Rather, even within each asset class, it requires homework, due diligence and careful selection in terms of investment to preserve wealth. Making the right decision to purchase or invest needs time and effort `
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Not all that glitters are gold and in this case, selected steel watches may be worth more than a pure gold watch. So, choose the asset class that you can best understand and would be happy to hold over time in the face of inflation.
NG ZHU HANN
Ng Zhu Hann is the author of “Once Upon A Time In Bursa”. He is a lawyer
and former chief strategist of a Fortune 500 Corp. The views expressed
here are the writer’s own.
Many Malaysian are EPF contributors and have FDs as well. "You will never understand how bad the feeling is when you have to break your fixed deposit to cover your living expenses."
ONE of the top financial concerns of retirees is running out of money.
Whether you were an executive earning a reasonable income, or if you are making top dollars as a businessman, the fear is still valid.
For example, Tommy, who left the working world soon after selling his factory to a European multinational corporation. Tommy shared during one of our meetings that he was golfing every week and globe trotting almost every other month.
However, there was a problem that greatly bothered him. He found that he was dipping into his fixed deposit every now and then just to maintain his interesting lifestyle.
“Yap, you will never understand how bad the feeling is when you have to break your fixed deposit to cover your living expenses, ” he said.Combing through all of his finances, we discovered that Tommy’s lackadaisical attitude was to be blamed. He has not been paying enough attention to invest and generate income from the RM12mil nest egg that he had painstakingly accumulated. His investment portfolio was a mess.
Over the years, he invested in a few properties but never really bothered to oversee them. When tenants left, he didn’t make an effort to secure new tenants. In fact, some properties were even sitting vacant and idle. His excuse? He was too busy running the business.
Yap Ming HuiYap Ming Hui
Tommy has also invested in some shares and unit trusts but he seldom monitors and reviews their performances. Imagine his surprise when he went looking for some extra cash but discovered that most of the investments were not making money. Prior to meeting me, he couldn’t decide whether to sell or to keep those underperforming investments.
Consequently, the bulk of Tommy’s wealth is in fixed deposit. The trouble is the interest income from fixed deposit barely covers the impact of inflation. As such, if Tommy continues to spend on his interest income, he will risk having the principal depleted.
Asset rich, income poor
Tommy’s problem is a typical case of “Asset Rich, Income Poor.” His situation is definitely not unique. In fact, I find most self-made millionaires or business owners, typically strong at creating wealth from their business or professional career, but poor at generating income and gain from the created wealth.
For one, all the time spent ensuring their businesses succeed also takes them away from making sure that the wealth created is optimised.Let’s examine Tommy’s assets and see how it measures up (see chart).
The RM6mil in fixed deposit generate approximately 2% interest income. However, notice that the 2% of interest is not sufficient to offset the 4% inflation provision. As a result, there is negative net income coming from Tommy’s fixed deposit asset.
Tommy’s properties are worth RM3mil and only generates RM50,000 in rental income per annum. Nevertheless, this can be considered a net income because inflation will be hedged by capital appreciation (at least 4% per annum) of the properties.
The RM1mil in shares gives a total return of 5%. Factoring 4% inflation, the actual income received from share investment is RM10,000.
Unfortunately, the RM2mil unit trust investments didn’t offer any returns. After inflation provision, his unit trust investment has a net income of RM80,000.
The reality is if nothing is done now, Tommy’s wealth will continue to shrink by RM140,000 a year once inflation is factored to the equation. How does this play out for Tommy? The fact that he needs RM360,000 a year to maintain his current lifestyle will not augur well for him.
So, how can you prevent from ending up in Tommy’s situation?
The optimisation measures
> Remember to review the performance of each of your investment asset classes. In order to generate more income and gains, be proactive in getting rid of poor quality and poor performing investments. Look at each investment and ask yourself, should you keep it or should you sell?
> Consider moving fixed deposit into higher return investment.
Any gains from your fixed deposit would probably be eroded by inflation, especially given the current low interest, which will probably persist for quite some time. After calculating and providing for your emergency fund cash reserves, the balance of your fixed deposit should be invested into other investments that can generate higher return and income to hedge against inflation.
> Diversify the source of retirement income
Even if one investment asset can give you a good income and hedge against inflation, it does not mean that you must bet all or the majority of your wealth in it. For example, property investing. Some investors have found success in it. They were able to generate good capital appreciation and rental income.
As a result, they put a majority, if not all, of their wealth into properties. It may sound logical at first but rental income is not sustainable in the long run. It is subjected to changes, some of which cannot be controlled. Therefore, the best practice is still to diversify your retirement income across different asset classes, like share dividends and capital gains, unit trust gains, bond investment gains, retirement income products and others, so that it is not badly affected by any one impact.
The ability to grow your wealth during retirement years is important. Just because you have stopped working, it does not mean your money should stop working too. The idea behind wealth optimisation is to ensure that you can upkeep your retirement lifestyle and protect your wealth from inflation.
Ideally, one should get a plan done a few years prior to retirement to see how your retirement income would play out. After all, you wouldn’t want to have any unpleasant surprise, like in Tommy’s case. When you have time on your side, you can improve your investing skills and adjust your retirement plan accordingly while still in your active income earning years.
Yap Ming Hui is a licensed financial planner. The views expressed here are the author’s. Any reliance you place on the information https://www.thestar.com.my/business/business-news/2021/01/09/generating-sustainable-retirement-incomeshared is therefore strictly at your own risk.
Click to enlarge: http://clips.thestar.com.my.s3.amazonaws.com/clips/business/Business%20Pg6-0305.pdf
The economy continues to chug along just fine even as it recorded the first inflation of the year in March. The consumer price index (CPI) rose 0.2% in March 2019 from the previous year.
The recovery away from a deflation in the previous two months was driven by the transport and the food & non-alcoholic beverages components of the CPI.
MIDF Research said in its report that the country's consumer inflation is likely to stay low following the lower capped prices of RON95 and Diesel at RM2.08 and RM2.18 per litre respectively.
Nevertheless, it said that the demand-push factor remains firm amid stable job market and steady wage growth.
Meanwhile, labour force growth has maintained at 2.1% year-on-year (yoy) in Feb 2019 while employment growth inched down to 2.1% yoy while jobs added in the economy was recorded at 34,000.
It noted that the number of unemployed people officially increased by 1.6% yoy.
But it noted also that growth in both the labour force and employment continued to outpace unemployment growth for the last 24 months since Mar 2017.
"The stable job market reflects healthy development of Malaysia’s economy and provides solid support to domestic demand," the research house said.
Meanwhile, exports dropped 5.3% yoy in Feb 2019, the lowest in more than two years mainly due to a short calendar month on top of the long Chinese New Year (CNY) holidays.
Imports also fell and it declined more than exports at 9.4% yoy.
During the CNY holidays, all Chinese factories were shut down with most of them closed one or two weeks prior to the festive holidays. As the celebration put a halt to mass production, it disrupted the global supply chain resulting in a weak trade performance.
All sectors recorded a negative exports growth: agriculture (-13.7% yoy), manufacturing (-4.3% yoy) and mining (-5.5% yoy).
Despite the poor exports and imports figures, trade surplus maintained at above RM11bil in Feb 2019.
When compared with the previous month, both exports and imports contracted by 22% and 24.8%
respectively.
The story is the same everywhere – the rising cost of living has not been accompanied by an increase in wages.
HERE we go again – another set of impressive growth figures. Bank Negara has announced Malaysia’s latest economic growth at a commendable 6.2% in the third quarter of 2017.
The pace of economic growth for the three months up to September was faster than the 5.8% registered in the second quarter of the year.
This growth rate was the fastest since June 2014.
On a quarter-on-quarter seasonally adjusted basis, the Malaysian economy posted a growth of 1.8% against 1.3% in the preceding quarter, according to the Statistics Department.
Malaysia’s robust economic growth has been attributed to private-sector spending and a continued strong performance in exports.
To quote Bank Negara governor Tan Sri Muhammad Ibrahim last Friday: “Expansion was seen across all economic sectors.”
But try explaining this impressive economic growth rate to the average salaried worker struggling to pay his monthly household bills.
Stretching the ringgit is especially great for those living in urban areas, and Malaysia is increasingly becoming urbanised.
The story is the same everywhere – the rising cost of living has not been accompanied by an increase in wages.
Compounding matters is the depreciation of the ringgit, reducing the purchasing power of the ordinary folk. They can’t buy the same amount of food as they used to previously.
Employers are being forced to cut operating costs to match declining profits.
Job security is becoming paramount. Many are fearful of losing their jobs, as companies cut cost to cope with the challenging business landscape.
And the reality is that many companies are not hiring, as evident from the unemployment rate of 3.4%.
The Malaysian Employers Federation (MEF) has cautioned that more people would be out of a job this year due to the current economic challenges.
Apart from the challenging landscape, technology has disrupted several brick-and-mortar businesses, forcing them to change their way of doing business.
According to MEF executive director Datuk Shamsuddin Bardan, economic challenges will compel bosses to review their workers’ requirements.
While official statistics show that the economy is charting a strong growth path, the trickle-down effect is not being felt.
Why is the sentiment on the ground different from what the politicians and officials are telling us? Why is there a disconnect in the economy?
Are the figures released by the government officials more accurate and authoritative compared with the loud grumblings on the ground that are anecdotical in nature devoid of proper findings?
We hear reports of supermarkets and hypermarkets closing down, but could that be because their business model no longer works as more Malaysians turn to online shopping, with e-commerce companies announcing huge jumps in traffic?
It is the same with the malls – retail outlets are reporting lower sales and this is compounded by the fact that there is an oversupply of malls.
International restaurant chains such as Hong Kong’s dim sum outlet Tim Ho Wan and South Korean bakery Tous Les Jours and South Korean barbeque restaurant Bulgogi Brothers have ceased operations.
But then again, it could be that their offerings and prices had failed to compete effectively against the local choices.
According to the central bank, demand is anchored in private-sector spending.
“On the supply side, the services and manufacturing sectors remain the key drivers of growth,” Muhammad said.
Looking ahead, the governor said that the economy this year is poised to register strong growth and likely to hit the upper end of the official target of 5.2%-5.7%.
The trickle-down effect is not being felt simply because there is uneven growth in the various sectors of the economy.
The property sector, which provides the biggest multiplier effect, continues to be in the doldrums.
The weak ringgit has had a big impact on the price of food, especially processed food and beverages that make up 74.3% of Malaysian household spending.
It was reported that Malaysia had imported a whopping RM38bil worth of food between January and October last year.
In recent weeks, the ringgit has strengthened to about RM4.16 against the US dollar. But it is still far from RM3.80 to the dollar and the outlook of the currency remains uncertain.
We can’t even hold our heads up against the Thai baht and Indonesian rupiah – two currencies that have appreciated against the ringgit.
The headline economic numbers are showing good growth, but Malaysians’ purchasing power has dropped and our living standards have eroded. That is the bottom line. We are living in denial if we do not admit this.
This column first appeared in StarBiz Premium.
Source: On the beat by Wong Chun Hai, TheStaronline
THE biggest concern among Malaysians, as we head towards the general election, is the cost of living. It’s as simple as that.
There have been plenty of political and religious side shows, but for many Malaysians, regardless of race, settling the many bills each month is what worries them the most.
Although Malaysia remains one of the cheapest countries to live in, its citizens have been spoilt for too long.
We are so used to having so many food items subsidised, including sugar, at one time, to the point that some of us have had difficulties adjusting ourselves.
Our neighbours still come to Malaysia to buy petrol, because ours is still cheaper than theirs.
But, as in any elections, politicians will always promise the heavens to get our votes. One of the promises, we have already heard, is the abolishment of the Goods and Services Tax.
No doubt that doing away with GST would appeal to voters, but seriously, even the opposition politicians calling for this are aware that it is a counter-productive move.
In the words of Tan Sri Mohd Sheriff Mohd Kassim, a highly-respected retired government servant, “it is too much of a fairy tale.”
The danger, of course, is that populist electoral pledges are always appealing, even if they are not rational.
Malaysia cannot depend on just about two million tax payers to foot the bill in a country of over 30 million people. It is unfair and unsustainable.
Taxing consumption gives more stability to revenue because income tax is regarded as highly volatile, as it depends very much on the ups and downs of businesses, according to Mohd Sheriff. When the market is soft, revenue collection always sees a dip.
For the government, which has already been criticised for having such a huge civil service, without GST, it could even mean its workers may not get paid when there is a downturn in the economy.
In the case of Malaysia, we have lost a substantial amount of revenue following the drop in oil price.
So, when politicians make promises, claiming plugging leakages is sufficient to end GST, it is really far-fetched and irresponsible.
The Malaysian tax system needs to continue to be more consumption-oriented to make it recession-proof, and, more importantly, the tax net just has to be widened. The bottom line is that, it is grossly unfair for two million people to shoulder the burden.
The government has done the right thing by widening the tax base and narrowing the fiscal deficit. The move to implement GST, introduced in 2014, has been proven right.
GST is needed to provide a strong substitute as a tax consumption capable of off-setting revenue loss from personal and corporate tax.
Beginning next month, India will join nearly 160 countries, including Malaysia, in introducing GST. Like Malaysia, when GST was first introduced, plenty of loud grumblings and doubts have rolled out.
Unlike Malaysia’s flat 6% across the board, India is introducing a more complicated four-tier GST tax structure of 5%, 12%, 18% and 28%, with lower rates for essential items and highest for luxury and demerits goods that would also attract additional cess.
In Singapore, GST was introduced on April 1, 1994, at 3%. The rate was increased to 4% in 2003, then 5% in 2004. It was raised to 7% on July 1, 2007.
Some politicians came under fire recently for purportedly calling for the abolishment of GST, however, some others clarified that they had merely called for a reduction in the tax’s percentage.
Another top opposition politician has come out as the strongest opponent of GST, reportedly saying the claim that Malaysia needs GST is false.
Some other politicians have described GST as regressive, but have not come out with clear ideas on how it should be tackled.
Nonetheless, the ruling party should not make light of these electoral promises.
For many in the urban middle class, they feel the squeeze the most.
They have struggled against the rising cost of living, paying house and car loans, and earning deep levels of debt, as one report aptly put.
The middle class, consisting of over 40% of Malaysians, is also in the income tax bracket, it must be noted.
Last year, an economist was quoted saying that 2016 was a year of a shrinking urban middle class and a happy upper class.
Shankar Chelliah, an associate professor at Universiti Sains Malaysia, said that the Malaysian middle class shrank in metropolitan centres across the country, and that most of its members would end the year almost 40% poorer than they were in 2015.
He said this would be due to the withdrawal of cooking oil and sugar subsidies, depreciation of the ringgit, decrease in foreign inflows and increase in outflows, among other factors.
For many in this middle class range who do not qualify for BR1M handouts, the government clearly has to come up with a range of programmes which can relieve them of these burdens.
It isn’t race or religious issues that will appeal to voters – they want to know how they can lead better lives, and if the opposition thinks contentious issues will translate into votes, they will be in for a surprise.
It is true that the heartland will continue to deliver the crucial votes, and the ruling party will benefit from this, but Malaysia has also become more urban and more connected.
At the end of the day, it is the bread and butter issues that matter most. Let’s hear some solid ideas and programmes which will reduce the burden of Malaysians.
By Wong Chun Wai On the beat, The Star
Wong Chun Wai began his career as a journalist in Penang, and has served The Star for over 27 years in various capacities and roles. He is now the group's managing director/chief executive officer and formerly the group chief editor.
On The Beat made its debut on Feb 23 1997 and Chun Wai has penned the column weekly without a break, except for the occasional press holiday when the paper was not published. In May 2011, a compilation of selected articles of On The Beat was published as a book and launched in conjunction with his 50th birthday. Chun Wai also comments on current issues in The Star.
