GEORGE TOWN: Two more popular financial schemes in Penang have been red-flagged by Bank Negara Malaysia (BNM).
A check on the financial consumer alert list yesterday showed MBI International Sdn Bhd and Mface International Sdn Bhd to be the latest additions.
Both are subsidiaries of MBI Group International, a company with investors worldwide, many of them from China.
To date, 302 companies have been listed under the BNM financial consumer alert list, for suspicion of not adhering to relevant laws and regulations administered by BNM in their operations.
Under the Financial Services Act 2013, individuals or businesses involved in illegal financial activities can be fined up to RM50mil and jailed for 10 years.
When contacted by a Chinese daily, MBI International chairman Tedy Teow’s special assistant Alfa said he did not think that the company would face any problem.
“And it is unnecessary for us to hold a press conference to explain the situation to our investors.
“We are always doing our work and we believe that our investors can see how we are performing so far,” he told Sin Chew Daily.
An investor, H.L. Teoh, said he put in RM22,500 early this year and was given 10,000 game redemption credits.
“Actually, I can start selling it every six months, but I was advised to wait for it to grow bigger in three years.
“When you have lots of credit, it is like having a lot of virtual shares.
“Now, I will have to wait for further instructions from the company before my next course of action,” he said.
Members are allowed to spend their loyalty points, which are converted from virtual money or coins, in exchange for goods and services at affiliated companies, including a supermarket, restaurants, a gym and even a durian stall.
Meanwhile, a press conference called by a branch representative of another controversial financial scheme operator, JJPTR, was cancelled at the last minute.
Press members in Penang had received an invitation from a man known only as Lim at 8.30am yesterday.
However, no reason was given for the cancellation.
JJPTR has been grabbing headlines in the past few weeks since its founder Johnson Lee claimed that the company had lost US$400mil (RM1.738bil) due to a purported “hacking job”.
Lee and two of his top aides have been detained by the police to facilitate investigations following several police reports lodged against JJPTR.
In another case, 19 Chinese nationals lodged police reports in Kuala Lumpur against another multi-level marketing company, claiming that they had lost hundreds of thousands of ringgit.
They claimed to have lost between 100,000 yuan (RM62,536) and 700,000 yuan (RM437,754) since investing in the scheme by Monspace last year.
Founded in 2014, Monspace is listed as a multi-level marketing company, according to the Companies Commission of Malaysia.
In an immediate response, Monspace said it would take legal action against any group or individual making defamatory statements against it.
The company said in a statement to the media that it was functioning professionally and had engaged a law firm to keep track of statements made about it.
Unemployment in Malaysia is rising, the latest data released by the Statistics Department show.
The obvious correlation to the rise in the jobless rate, which in Malaysia is counted as those who are unemployed but remain actively looking for a job, is the slower pace of economic growth.
The economy, up until the second quarter ended June 30, has slowed for five quarters in a row with weak exports the main drag on growth.
Although private consumption and investments supported the economy in the second quarter, economists are not very confident that this will drive growth in the coming quarters without supportive government policies and improvement in overseas consumer demand.
This will have implications for jobs and the economy.
There could be reason for short-term cheer with data exceeding expectations, as August trade data released yesterday show but there are indications that downside risks remain.
Positive sentiments as reflected in the Malaysian Institute of Economic Research’s (Mier) business conditions index, which is now above the 100-point threshold, indicating that businesses’ confidence levels are up, can just as easily dissipate.
Consumers do not share the same sentiments as businesses, as the Mier’s consumer sentiments index show.
Although rising steadily since the beginning of the year, the index is still below the 100-point threshold, largely reflecting benign inflation and the fading impact of the goods and services tax implemented last year.
Standard Chartered plc Asean economic research head Edward Lee says private consumption growth momentum will not be sustainable because of the weak labour-market conditions.
Besides the higher unemployment rate, weak wage- and job-growth together with the slowdown in the property market and financial-market volatility to also affect spending sentiment.
Lee, who expects the economy to grow 3.8% this year compared to the official estimates of 4% to 4.5%, adds that the weakening labour market will be a drag on economic growth.
“Private consumption will be key to achieving this target, and we think it may come in weaker than the central bank expects due to weaker labour-market conditions.
“We will therefore monitor consumption metrics closely over the next few months,” he says.
Cautious consumer sentiment largely reflects the state of the job market and high household debt.
Different views: Consumers do not share the same sentiments as businesses, as Mier’s consumer sentiments index shows.
Data from Bank Negara and the Nikkei Malaysia manufacturing purchasing managers index (PMI) compiled by IHS Markit Ltd paint a bleaker picture.
While the September Nikkei Malaysia manufacturing PMI, which was released at the end of last month saw an improvement from August, it is still below the 50-point threshold, indicating that the manufacturing sector is still contracting.
But what is interesting is the press statement following the release of the August data, in which IHS Markit economist Amy Brownbill says the Malaysian manufacturing sector saw a sharper deterioration in operating conditions underpinned by quicker declines in output, new orders and employment with the rate of job shedding the fastest in over three years.
The August PMI report noted that firms cut back on payroll numbers as part of efforts to make cost savings.
Bank Negara report
A Bank Negara report also showed that labour market conditions have become challenging, with the recent high unemployment rates coinciding with lower job vacancies available per active job seekers.
AllianceDBS Research chief economist Manokaran Mottain said in a report released last week that while the manufacturing sector was shedding jobs, selected services subsectors has added headcount and could be cushioning job losses in the manufacturing sector.
More than half of the workforce are employed in the services sector with the manufacturing sector employing about 16%.
Further evidence of the deteriorating conditions in the job market comes from the Employees’ Provident Fund (EPF).
Manokaran says the monthly contribution value growth rate from the EPF’s members have moderated, signalling weak wage growth in recent years.
This also mirrors the slowdown in the economy over the past few quarters as businesses will not give higher increments or pay out bonuses.
Manokaran says based on trend-growth estimates, seasonally and inflation adjusted monthly EPF contribution growth has tapered to 2.7% in February on a year-on-year basis before the voluntary employees contribution rate reduction effective in March, down from around 10% growth in 2011.
He noted that while average household income grew 9.6% per annum between 2012 and 2014 in inflation adjusted terms based on the Statistics Department’s household income survey, this was largely propped up by government cash transfers (Bantuan Rakyat 1Malaysia payments) to the bottom 40% of earners.
“On average, given that 65% of household income is from paid employment, signs of wages growth moderation could weigh on household income growth going forward,” Manokaran says.
He adds that the state of labour market and income growth are among the key underlying factors in assessing the state of economic growth outlook.
Earlier this week, the World Bank slashed its growth forecast for Malaysia from 2016 to 2018 on the weak exports and commodity-price outlook. Its chief economist for the East Asia and Pacific Region, Sudhir Shetty, says despite the region’s favourable prospects, growth is vulnerable to a sharp global financial tightening, a further slowdown in world growth or a faster-than-anticipated slowdown in China.
Emerging economies in a dilemma on whether to follow suit or cut rates
“Specifically, we expect rate cuts in India, Indonesia, South Korea, Taiwan and Thailand in 2016. We also project a further 75bps of rate cuts and a 200bps reduction in RRR in China'. - Credit Suisse
THE big question is what happens next?
The much anticipated hike in US interest rates on Thursday meant that for the first time in almost a decade, US interest rates are on the way up. The 25 basis point (bps) rise in US interest rates by The Federal Open Market Committee (FOMC) to between 0.25% and 0.5% was made as the US economy showed tangible signs of improvement.
Such gains in the US economy through lower unemployment and higher forecast inflation has meant that the target for interest rates by the end of 2016 has been pegged at 1.5%, meaning that rates are expected to rise by 25 basis points every quarter until the end of next year.
The implications of what the US FOMC does reverberates throughout the world. Conventional thinking of the past is that higher rates in the US does put pressure on central banks elsewhere to follow suit.
But times have changed. Countries today have their own domestic economies and issues to manage and that has taken precedence over what the US does with its monetary policy.
It is clear that the de-coupling has taken place a long time ago. The European Union and Japan are still engaged in quantitative easing and are keeping rates near zero or in the case of the EU, in negative territory.
For Malaysia, the thinking is that with the difference between domestic and US interest rates still having a nice cushion, the focus of Bank Negara will be on the Malaysian economy.
Rate pressure: Should the path of the US rate cycle starts to steepen, economists say it will put pressure on Bank Negara as the ringgit may be pressured by inaction. – Reuters
Countries such as China cut its interest rates in October to 4.35% as it grapples with a slowing economy. Different priorities call for different action.
But analysts feel the move by the US does create a bit of a dilemma for policy makers. Raising rates does cool an economy, which is already shifting to a lower gear given the tangible cooling of major economic indicators.
Trimming interest rates further, while will help the economy, will put more pressure on the flow of capital. Analysts feel that might not be what the central bank will want to do at the moment considering the weakness of the ringgit not only against the US dollar this year but also against the currencies of its major trading partners.
“Our rate is accommodative for economic growth and Bank Negara can raise rates when the economy is slowing down,” says an economist with a local brokerage.
To each its own
The United States has been the traditional locomotive of growth for the world for much of recent history. But the emergence of China has changed that equation. Trade of the emerging world increases with China as the second largest economy of the world grows, its influence on Malaysia and the rest of Asia has become more affixed.
It is for that reason that some are speculating that emerging economies, such as Malaysia, will keep its eyes focused on what the People’s Bank of China does while having the US action in its periphery vision.
“We argue that Asian central banks’ monetary policy stance next year will be more influenced by economic and monetary policy cycles in China than in the past, and will diverge from the US. Unlike the previous US Fed hiking cycle when virtually all Asian central banks tightened their policies, we think this time Asian policy rates will stay lower for longer,” says Credit Suisse in a report.
“Specifically, we expect rate cuts in India, Indonesia, South Korea, Taiwan and Thailand in 2016. We also project a further 75bps of rate cuts and a 200bps reduction in RRR in China.
“Given the challenging environment for exports, we expect growth in trade-dependent economies including Hong Kong, Malaysia, Singapore, and Thailand to surprise the consensus on the downside. Meanwhile, more domestic-oriented economies with policy catalysts, including Indonesia and the Philippines, could outperform expectations considerably,” it says.
For Malaysia, the FOMC decision was keenly watched. Any time US interest rates move, Bank Negara pays close attention to it.
Is it the key determinant for the direction of domestic interest rates?
No, say economists. “Local conditions override what the US does,” says an economist.
For Malaysia, economists believe that the current overnight policy rate of 3.25% is appropriate to support growth. But they do too acknowledge that Malaysia is in a dicey situation depending on what happens next.
The general view is that the US will continue to push rates upwards. Just how rapidly will be important and as US rates goes up, the differential with Malaysia will narrow.
“If the local economy does as it is predicted, then there is a possibility of a small hike next year but there is no urgency to do that,” says an economist.
The question is what happens after next year should the path of the US rate cycle starts to steepen?
Economists say that will put pressure on Bank Negara as the ringgit might be pressured by inaction. As it is, the drop in crude oil prices is the most pressing issue affecting the value of the ringgit.
The effect on emerging currencies
Emerging markets have had a series of bad press over the past year. With sentiment souring and the outlook in the US getting brighter, it was no coincidence that the US dollar surged, gaining about 40% on average against emerging market currencies since May 2013.
But is it time for things to change?
Schroders thinks that might happen.
“It is difficult to argue that the Fed has been the sole factor in emerging market debt weakness. China hard landing fears, plummeting commodity prices, Brazilian political disarray, Russian policy concerns and general weakening of growth across all regions created a near perfect-storm for emerging market debt investors.
“However, a more predictable and less fraught path going forward for the Fed should help steady investor nerves and risk appetite. If developed market bond yields remain very low – as seems likely with a very slow hiking path, set out with some confidence – emerging market dollar yields may remain one of the few places to look for meaningful income generation for years to come,” it says.
Schroders says the move by the US Federal Reserve comes at a time when emerging market dollar debt seems particularly attractive.
“Yields in the primary sovereign dollar index are at highs not seen since 2010, when Treasury yields were much higher than today. Yield spreads over Treasuries for investment grade sovereign debt are just under 300 basis points, and remain at elevated levels that were last seen consistently during the European crisis of 2011. High yield sovereign debt currently has a yield to maturity of 8.5%.
“The divergence between developed market monetary policies has driven the dollar nearly 20% higher on a trade-weighted basis since July 2014. Emerging market currencies have fallen in lock step.
“With the European Central Bank now charting a path towards a steady dose of quantitative easing as growth in Europe stabilises, Fed predictability should help curb that dollar appreciation. Emerging market currencies should then likely steady at attractive levels, boosting sentiment towards the asset class. Even a modest virtuous cycle led by these factors could make emerging markets one of the strongest global fixed income performers next year, given today’s generous yield levels.”
New interest rate framework expected to be more linked to funding cost
BANK Negara is moving
ahead with the times by replacing the outdated base lending rate (BLR)
with a more relevant interest rate benchmark.
“The BLR has become
less meaningful as a basis for the pricing of loans, as the retail
lending rates on new loans being offered by the industry are at a
substantial discount to the BLR,’’ The Star reported, quoting governor Tan Sri Dr Zeti Akhtar Aziz.
For the third quarter this year, the average lending rate (AVL) was
5.4% compared with the BLR of 6.53% and fixed deposit (FD) rate of 3.15%
for 12 months.
For the corresponding quarter last yer, the AVL
was 5.55% while the BLR was still at 6.53% while the FD rate for 12
months was 3.16%.
The current BLR reflects other costs such as overhead costs.
The new framework will be more related to funding cost, especially
marginal funding cost, which is actually how banks are pricing their
loans, Zeti said.
While work is underway to come up with a new
BLR, the intervention rate under the current BLR framework is expected
to nudge upwards, said Nazlee Khalifah, the chief corporate strategist of Affin Bank.
Under the current BLR regime, the intervention rate of 3% is expected to increase 25 basis points by next June, said Nazlee.
The upcoming BLR is being discussed with a concept paper expected next month.
‘“They have to think of how to prevent capital flight as interest rates
in the United States may rise and attract capital back to the
country,’’ said Nazlee.
Beginning next January, the Fed announced it would start pulling back its bond buying from US$85bil per month to US$75bil.
Instead, it will provide forward guidance on interest rates which are
expected to remain low, in view of US unemployment being above 6.5% and
inflation kept low.
The US$1 trillion stimulus programme has been a huge success but this is the journey back to fundamentals.
The world economy is being weaned of easy money and every player has to play his part in ensuring recovery and sustainability.
It is not enough for just the regulators to be keeping an eagle eye on
miscreants but the participants themselves have to know their limits.
In a landmark ruling, a Hong Kong court has ordered Du Jun to pay 297 investors almost HK$24mil for the money he earned from his illegal dealing in 2007, said the South China Morning Post (SCMP).
Last year, 7,700 investors who bought shares of Hontex International
were paid back after a court ordered the sport fabric maker to pay
HK$1.03bil to small shareholders for allegedly misleading information in
its listing prospectus, said the SCMP.
There have been many
instances of insider trading but the punishment has become more severe
in view of the trend towards investor protection and reimbursement
worldwide.
Contributed by Columnist Yap Leng Kuen applauds the tapering off of the era of easy money.
HSBC, Standard Chartered and
DBS were among 20 banks at which 133 traders tried to manipulate the
Singapore interbank offered rate (Sibor). Photo: Bloomberg
HSBC,
Standard Chartered, JP Morgan Chase, Barclays and DBS were among 20
banks at which 133 traders tried to manipulate the Singapore interbank
offered rate (Sibor), swap offered rates and currency benchmarks in the
city state, [the Monetary Authority of Singapore] said.
BANKING scandals are surfacing in Asia, this time in the form of a US$250mil (RM799mil) fine on Mitsubishi UFJ Financial Group Inc on claims that it had transferred money to countries facing US sanctions.
According to the South China Morning Post, The Bank of Tokyo-Mitsubishi UFJ Ltd,
the main lending unit of Japan's biggest bank by market value, moved an
estimated US$100bil through the state for government and privately
owned entities on the Specially Designated Nationals list.
This
list was issued by the US Treasury Department's Office of Foreign Assets
Control between 2002 and 2007, the New York State Department of
Financial Services and New York Governor Andrew Cuomo said in a statement recently.
Just
about two weeks earlier, the Monetary Authority of Singapore (MAS) had
cracked down on the rigging of the Singapore Interbank Offered Rate or
Sibor.
HSBC, Standard Chartered,
JP Morgan Chase, Barclays and DBS were among 20 banks at which 133
traders had tried to manipulate the Sibor, swap offered rates and
currency benchmarks in the city-state, MAS said in a statement recently.
Greedy
These incidents within Asian banks are significant, as the European and US banks have been bearing the brunt of criticism.
The major UK banks have been fined for the Libor (the London equivalent of Sibor) rigging and the mis-selling of products.
Due
to their role in the churning of derivatives, these banks in the West
have been described as greedy, careless and manipulative.
The
recent scandals seem to involve only a few Asian banks, but it remains
to be seen how many more names will surface and what sort of rules have
been flouted.
In view of their important role in the economic
growth of Asia, they will be closely watched in terms of risk exposure
and ethical banking practices.
So, Asian banks, some of which have become very profitable, beware on all fronts.
In
Europe, overnight talks aimed at ensuring shareholders and bond holders
bear the brunt of bank failures collapsed after almost 20 hours of
discussion, reports The Telegraph.
After investors, the
proposals would impose losses on savers with more than 100,000 euros in
their account, but France and non-eurozone countries want the ability to
tailor the rules, the report says.
Discussing possible bank
failures may not be the most urgent agenda, although extreme stress
testing and estimation of potential bank losses should be conducted.
This is tied to the capital position of the bank.
However,
there should be a constructive approach to boosting capital buffer and
ensuring that the bank does not fail rather than what to do if it fails.
It is like pointing a gun at a man's head even before the crime is committed.
Bond bubble
There
is said to be a “bond crisis” out there, where the bond bubble is about
to burst, with investors looking for other asset classes to invest in.
With
the impending halt to the US quantitive easing programme of additional
liquidity, this search for other asset classes has become more urgent.
Nevertheless,
'We see improving US gross domestic product as a positive support to
risk' assets such as shares, but would expect liquidity reductions to
remove some of the froth' from current valuations, including in
corporate bonds.
“Where we have the biggest concern is some of the riskier banks.
'Even
five years on from the financial crisis, we cannot with any confidence
say we are happy with the quality of their balance sheets; this is where
risks of capital losses are highest,'' says Chris Bowie, manager of
Ignis fund management.
Such is the reality of investing. It involves constant assessment of risk, changes in the markets and valuations.
Micromanagement is usually discouraged but may be useful in this case.