AWO’s bullish thoughts on Moody’s high rated Malaysian economy

We received this brief ten hours ago from Chartered Accountant-turned-Minister in-charge of EPU Dato’ Seri Abdul Wahid Omar on the recent Moody’s bullish rating on the Malaysian economy and what Malaysian business could do to help sustain:

As Malaysians enjoy lower RON95 petrol price of RM1.70 per litre effective 1 February, some may have missed credit rating agency Moody’s announcement  on 30 January 2015 that affirmed Malaysia’s A3 rating & Positive outlook.

An “A” rating is considered upper-medium grade & is subject to low credit risk. Positive outlook refers to a likely rating upgrade over the medium term (12-18 months).

Here’s my 1-2-3 take on Malaysia’s rating.

1)There are 3 global rating agencies ; Moody’s, Standard & Poor’s and Fitch . Moody’s and S&P are the two main agencies reatained by most global issuers. All three rating agencies have rated Malaysia at A3/A- but with different rating outlook. Moody’s is Positive, S&P Stable and Fitch Negative. At A3/A-, Malaysia has the 2nd highest credit rating in ASEAN after Singapore (AAA), and one notch above Thailand (BAA1), two notches above Philippines (BAA2) and three notches above Indonesia (BAA3). Brunei is not rated. Other ASEAN countries are below BAA3 (minimum level considered to be investment grade).
2) Moody’s is generally positive on Malaysia due to the Govt’s commitment to fiscal deficit reduction & reforms and Malaysia’s fundamental credit strengths – notably macroeconomics stability, domestic capital market depth and favourable Govt debt structure. This provides resistance to a more adverse external economic environment, lower oil prices & global financial market volatility. Moody’s acknowledged they have seen ongoing fiscal deficit reduction & actual implementation of significant reform. This includes, among others, the managed float system for petrol & diesel in Dec 2014 that effectively eliminated subsidies, reduced Govt reliance on oil revenues to 30% in 2014 and implementation of GST come 1 April 2015 which will broaden our revenue base. Meaning Malaysia has been doing the right things & potentially could have been upgraded if not for the recent sudden drop in global oil prices & market volatility. On economic fundamentals, Moody’s expects Malaysia to continue to exhibit faster growth, lower inflation & a more robust external payments (current account in Balance of Payments) position than other A rated countries. Other strengths include favourable demographics, resurgence of private investment since ETP, macroenonomic stability anchored by credibility of BNM & Govt’s favourable debt structure & depth of onshore capital markets. Only 3% of Govt debt is denominated in foreign currency.
3) What are Moody’s concerns?
First is the high level of household debt which is mitigated by low unemployment & high level of household financial assets. Second is the external payments position but Moody’s believes that Malaysia is likely to sustain a structural current account surplus & that foreign currency reserve adequacy will remain in line with other A rated countries. Third on clarity of off-budget financing entities to analyse contingent risks to Govt.

Notwithstanding the concerns, the Posiitive outlook reflects confidence that fiscal consolidation will be sustained despite prolonged low commodity prices. What could move the rating up?

Continued track record in fiscal deficit reduction and stability in the affordability & refinancing of Govt debt.

What could move the rating down? Worsening of fiscal deficit or crystallisation of large contingent liabilities.

What can Malaysian businesses/corporates do to help? Well, there are many things businesses/corporates can do to help the country / economy.

Top three;

1) Help grow the economy. Optimise your expenditure. Please spend domestically if you can afford it. Invest domestically.
2) Be generous to your employees. If you make more profit, share it with them. They can do a better job in stimulating private consumption out of the bonus paid.
3) Be a responsible corporate citizen. Dont evade tax, dont bribe to get contracts, embrace inclusiveness & sustainability.

Let us all do our respective parts to navigate through 2015 & beyond Thank you & with best regards.

AWO.

Published in: on February 3, 2015 at 09:30  Comments (13)  

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13 CommentsLeave a comment

  1. Careful Awo … do not try too much to appease rating agencies

  2. AFP, Bloomberg report: “Probe into Moody’s pre-crisis securities ratings”.

    “The United States authorities are investigating the credit rating agency Moody’s over its glowing assessments of mortgage deals in the run-up to the 2008 financial crisis, according to The Wall Street Journal…

    “It was not yet clear if the probe would result in a lawsuit.

    “If the investigation is confirmed, Moody’s would become the second major US credit rating firm in the Justice Department’s crosshairs, after a case against Standard & Poor’s (S&P).

    “S&P is expected to within days agree to pay US$1.37 billion to settle lawsuits over its rosy grading of mortgage bonds in the financial crisis, sources told Agence France-Presse…” (Singapore Straits Times, February 3, 2015).

    Also see New York Times report “S&P settles case with US Justice Department by backing down”.

    “The Justice Department’s lawsuit, filed two years ago, accused S&P of fraud. Saying that S&P falsely claimed that its ratings “were objective, independent, uninfluenced by any conflicts of interest”, the lawsuit argued that S&P actually inflated its ratings of mortgage securities to appease the Wall Street banks that had devised the investments. A conflict of interest – the banks paid S&P to rate the deals – “improperly influenced” the ratings criteria, the Justice Department said.

    “S&P, a unit of McGraw Hill Financial, fought back, saying that its claims of objectivity were mere “puffery”, akin to corporate marketing, and could not be taken seriously. The rating agency, which called the Justice Department’s lawsuit “meritless” and vowed to fight it “vigorously”, hired at least five law firms to handle the case…..” (Singapore Business Times, February 3, 2015).

    That is what should raise eyebrows, at the very least – that a well-known and respected rating agency should say that “its claims of objectivity were mere “puffery”, akin to corporate marketing, and could not be taken seriously”.

    • And that’s your opinion, dude? Or that could be some others’ opinions which you took to be yours, too? Spore Business Times opinion?

      What beef you got in projecting that opinion? You’d benefit in some way if those hiring 4,5,6 law firms win their case?

      And you didn’t say whether they have reached the highest court of the land? Which means that the matter has not been resolved.

      If you are questioning Moody’s rating, who are you, pray tell. Yeah, yeah, yeah, freedom to dispute and what not, but give some reliable and verifiable economic facts and figures, will ya? Not just what NY Times and Spore Business Times say on legal disputes in the US.

      You Singaporean? Jealous of Moody’s rating on Malaysia, eh?

      • Well, Fitch is negative on Malaysia. As you well know. Where’s the critique about their methodology? Did AWO come out to rebut Fitch’s opinion?

        It is a reported fact that S&P paid US$1.37 billion to settle a bunch of US government lawsuits. You can Google that, if you are so inclined.

        US Attorney-General Eric Holder commenting on the S&P settlement: “In reality, the ratings were affected by significant conflicts of interest, and S&P was driven by its desire for increased profits and market share to favour the interests of issuers over investors” (as reported in the New York Times).

        It is also a fact that the “ratings oligopoly” of S&P, Moody’s and Fitch still dominate the market.

        Would foreign investors still buy Malaysian government debt without a rating of that debt by the “big 3”?

        Since you have mentioned Singapore, which appears to be your bête noire, you should question why the “big 3” have all given “triple-A” ratings to the city-state. Too unpalatable for you to mention that, eh?

      • “economic facts and figures” on Malaysia, stu. You are a good spinner and twister but not good in responding to peoples’ comments against you, eh?

        Or you pretend not to understand that what people meant was facts and figures on Malaysia, but you still talk about US and S&P.

        And still glorifying Singapore, eh? Without even answering whether you are Sporean. What’s it with you? Scared of being called a Spore running dog?

        Tell lah, runny, so that we understand your motive.

    • Is the Arithmetic guy the same fler who appeared in another name before, always glorifying Singapore and belittling Malaysia?

      Got banned – if I remember well – because often not sounding innocent expression of views but having an agenda of being nasty at Malaysia and the Malaysia government, heavy on stinking opinions but thin on facts and figures on the economy of this country.

      How to read much into what he puts out in here? As been pointed out, others’ opinions are always better than his or theirs. Note that AWO has been a practising Chartered Accountant and then in charge of the economic planning of the country – EPU.

    • Now, let’s see how shallow-minded and evil-intentioned this Rheumatist whatever-the-name bloke is –

      Big Dog’s post talks about what AWO said, Malaysia’s credit rating by Moody, the factors, the concerns, and AWO’s advice on what Malaysians should do.

      And all this bloke does is to discredit Moody. And in so doing, discredit Malaysia. By quoting the N.Y Times, the Singapore Business Times, etc. And he laboured on those. Bent on making readers not place much faith on what Moody says. Not one bit on the factors, the concerns and the advice. Now, what kind of a bloke is that?

      My answer is in the name I use – meant against him.

  3. I dislike DS Najib’s wanting to rush to advanced nation status at what appears to be the expense of the rights and interests of the Malays and the Bumipiteras of Sabah and Sarawak who have a Special Position enshrined in the Constitution of this country.

    In that context, I have reservations on claims regarding the economy of the country.

    But I fully support what AWO says on what Malaysians should do. And those responsible – bring the prices of goods down, for goodness sake. Petrol prices have gone down, d’ya hear.

    • Saya sokong apa Dato Ismail Sabri kata berkenaan menurunkan harga barang barang.

      Saya harap mereka yang di panggil untuk memeri keterangan menagap harga barangan tak turun akan membawa kapada penurunan harga barangan.

  4. What can Malaysians do to help? Plenty. Including echoing AWO’s message, like we are doing here. But the problem is business blokes like those in control of prices of goods are not showing any sense of responsibility. So, we must continuously drum into their heads that they must do so.

    These are the ultra kiasu, gullible kind of blokes. Dog eat dogs, some of them. Like those profiteering at the end of the Vietnam war, the communists already entering Saigon, food was scarce, the bastards demanded gold for payment of rice etc before they boarded the tongkang fleeing to Malaysia etc. And stories abounded, including those reported on in the papers, of many of the “Vietnamese” refugees bringing a lot of gold and valuables with them at the “half-way” houses built for them in Cheras etc.

    No sense of loyalty and patriotism to country among this kind of blokes. What is yours is mine, what is mine is mine kind of attitude. Never heard or bothered about JF Kennedy’s words, “Ask not what your country can do for you, ask what you can do for your country”. Many do not even think that this is their country, the DAP kind claiming they are 2nd Class citizens, some having their bags ready to scoot off whence their migration papers are ready. So those in control of prices, even of just vegetables, will not bother about lowering even a sen.

    AWO pointed out the “Top3” that Malaysian businesses can do. Meaning there are scores of others. And the major issue now is the lowering of prices. Yes, DS Ismail Sabri is right. I also support what he says fully.

    • Now we are hearing some sense –

      “Liow: MCA ready to cooperate on goods price hike control

      KUALA LUMPUR: MCA is prepared to cooperate with any parties, including the Domestic Trade, Co-operatives and Consumerism Ministry (KPDNKK) to ensure traders do not raise prices of goods indiscriminately.”

      Note that MCA is part and parcel of the Government. No such thing as “ready to cooperate”, because that’s a given, a matter of course. We now want to hear such things as “MCA has started talking with business groups on the lowering of prices … and making good progress”

      Don’t expect anything from the ultra kiasu DAP. Because they thrive on, and it’s their bread and butter, to protect and promote the ultra kiasus. And ultra kiasus will just keep mum on the price lowering issue.

      So long as we have ultra kiasu DAP in the country, problems will always arise and exacerbate. They will turn almost anything into issues and issues into problems. Damn.

  5. All these risks and credit rating agencies are just cock and bull entities who represent the interests of economic neoliberals global economic agenda. These agencies have themselves said that their assessments are purely their opinion and nations dont have to follow them. It is about credit rating that shows whether a nation qualify or not to borrow from international financial institution. Nations yang kaki pinjam dan suka underwrite loans of course want to toe the line of these rating crap even at the expense of belt tightening and stranggling the domestic economies and their peoples. That’s where the evil side of credit ratings in terms of the implications on ordinary people. A nation’s financial health is not for the govt of the day to tinker with as if it is its private money. Think carefully before embarking on major projects that involve public funds. Think, think , think.

    • And why should the govt bother so much about household debts in Malaysia, when the govt itself underwrite loans? So, the govt can, but households cannot? Households borrow to spend which helps create domestic demand. Households borrow to finance kids education, purchase houses, and even to help cover mandatory monthly expenditure shortfall due to high cost of living and other tough fiscal burden placed on the shoulders of the rakyat. So to listen to what Moody thinks is actually a betrayal of the trusts placed by the rakyat on the govt of the day.


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