Hello Financial gurus, sifus, teachers, newbies,

Can some experts verify the accuracy of the report by UBS Securities Asia Limited?

Hope it is absolute nonsense. Else we are in trouble!

http://freemalaysiatoday.com/english/?p=6839



Money leaving Malaysia in massive amounts and bizarre fashion
Wed, Jan 13, 2010
National

SHAH ALAM: Malaysia’s once strong foreign exchange reserve is bordering on collapse, according to a UBS Securities Asia Limited report. It says that in 2009, Malaysia experienced the biggest foreign exchange reserve losses among Asian countries.

It says official reserves fell by more than one-quarter on a valuation-adjusted basis.

Describing the situation as bizarre, it notes that Malaysia used to have the largest current account surplus in Asia–at around 17% of GDP.

“Over the past 12 months, Malaysian reserves nearly collapsed” while neighbours like Thailand, Singapore, Taiwan, Hong Kong and China “have seen sizeable increases,” it says.

It says foreign capital outflows from Malaysia in the last year was nearly 50 percent of its GDP.

“When we measure implied net flows using the same rough methodology as in used on Russia, the numbers are simply stunning. [Malaysia showed] peak outflows of nearly 50% of GDP,” it says, noting that the outflow was larger than anything witnessed in the world of emerging markets (EM).

The report also says Malaysia over the past 12 months recorded one of the biggest base money contractions in the entire EM world.

It asserts that recent outflows were “far, far bigger than those Malaysia experienced in the 1997-98 Asian financial crisis.”

The full report follows:

Malaysia–Another Bizarre Story

Confusion is a word we have invented for an order which is not understood. — Henry Miller



What it means
After last year’s series of notes on EM countries with “bizarre” money and credit behavior (Chile, Kazakhstan and Vietnam, see Tales of the Bizarre, EM Daily, 4-6 November 2009), we need to add one more to the list: the very strange case of Malaysia.
Question: which Asian country had the biggest FX reserve losses in 2009? The answer is Malaysia, and by a very wide margin; we estimate that official reserves fell by well more than one-quarter on a valuation-adjusted basis. Why is this bizarre? Well, in the first place because Malaysia runs a current account surplus – and not just a mild surplus but rather the largest in Asia, around 17% of GDP. Other structural surplus neighbors like China, Hong Kong, Singapore, Taiwan and Thailand have all seen sizeable increases in FX reserves over the past 12 months … and yet Malaysian reserves nearly collapsed.

How did this happen? In short, Malaysia must have seen massive foreign capital outflows – and sure enough, when we measure implied net flows using the same rough methodology as in our note on Russia earlier in the week (Watching Money in Russia, EM Daily, 5 January 2010), the numbers are simply stunning: peak outflows of nearly 50% of GDP, i.e., more than twice as large as in the “capital flight” case of Russia and many orders of magnitude larger than anything witnessed in the average EM country (Chart 2).1 In fact, the
recent outflows are far, far bigger than those Malaysia experienced in the 1997-98 Asian financial crisis (Chart 3).



It gets stranger. Unlike Russia, Ukraine, the Gulf states or other recent EM capital flight economies, Malaysia didn’t see any net external inflows in the run-up to the current crisis. Indeed, Malaysia has not recorded a year of positive net capital inflows since 1997, i.e., there wasn’t exactly a large pool of “hot” money parked onshore waiting to leave. Nonetheless, as shown in the above charts, capital is apparently still leaving Malaysia in large quantities as of the latest data points – long after most other emerging countries began to see net inflows again.

1 Implied capital flows in Chart 2 are defined as the difference between valuation-adjusted FX reserve accumulation and the current account balance. Flows in Chart 3 are defined as the difference between the overall balance of payments and the current account balance.

Nor, in contrast to all the above-named economies (and in contrast to Eastern Europe in general), did Malaysia have any noticeable increase in domestic leverage – both broad money M2 and bank credit actually declined as a share of GDP since the beginning of the decade.

So where on earth did the outflows come from?

Certainly not local deposits. Unlike Russia, Ukraine or other CIS economies, there was no outflow from the domestic deposit base; M2 growth in Malaysia is still very comfortably positive, in sharp contrast to the Russian figures we published a few days ago (Chart 4).

And this despite a massive, unprecedented decline in high-powered “base” money, as shown in Chart 4. Indeed, over the past 12 months Malaysia recorded one of the biggest base money contractions in the entire EM world, matched only by the Baltic states (Chart 5). This is in part because the Malaysian central bank responded with a sharp drop in reserve requirements to keep banks liquid … but still, we can’t help but note that the domestic financial system seems uniquely unaffected by apparent capital outflows.



In fact, perhaps the most surprising feature of the economy is that interest rates have fallen steadily. In 1997-98, with much lower ex-post outflow pressures, Malaysian short-term interest rates skyrocketed into the high teens; last year the same thing happened in some other countries with strong outflows pressures. Meanwhile, during 2009 Malaysian rates settled in comfortably at around 2% per annum and show no signs of rising substantially any time soon. What is going on? How do we square this circle? To be honest, we’re not really sure – but we strongly suggest the interested reader turn to ASEAN economist Ed Teather for further answers. For additional information on Malaysia, Ed Teather can be reached at edward.teather@ubs.com.

Analyst Certification
Each research analyst primarily responsible for the content of this research report, in whole or in part, certifies that with respect to each security or issuer that the analyst covered in this report: (1) all of the views expressed accurately reflect his or her personal views about those securities or issuers; and (2) no part of his or her compensation was, is, or will be, directly or indirectly, related to the specific recommendations or views expressed by that research analyst in the research report.

Required Disclosures

This report has been prepared by UBS Securities Asia Limited, an affiliate of UBS AG. UBS AG, its subsidiaries,branches and affiliates are referred to herein as UBS. For information on the ways in which UBS manages conflicts and maintains independence of its research product; historical performance information; and certain additional disclosures concerning UBS research recommendations, please visit www.ubs.com/disclosures. The figures contained in performance charts refer to the past; past performance is not a reliable indicator of future results. Additional information will be made available upon request.

Company Disclosures

Issuer Name
Chile
China (Peoples Republic of)
Kazakhstan
Malaysia
Russia
Singapore
Taiwan
Thailand (Kingdom of)
Ukraine
Vietnam4
Source: UBS; as of 08 Jan 2010.

4. Within the past 12 months, UBS AG, its affiliates or subsidiaries has received compensation for investment banking services from this company/entity.

If what they say is true, for those who know it in advanced better use up all your money to assets so that when inflation comes, your asset values will follow to go up.

In the mean time, enjoy the leading to CNY for chinese and a long holiday for non-chinese.

Well, it's UBS. The very well-known Swiss Bank catering mainly for the ultra high net worth few. So whatever they report should be quite credible.

I believe that my money must work smart & it must seek the best returns if possible, no pain no gain
and 'the grass is always greener on the other side', but i do not recall myself, withdraw billions of my own funds
above is a snapshot, that needs no explanation & u should get the drift of how u wan ur monies to work for u
looking at the activity in the klse thread, it seems u no need to worry anyway, good luck

Bobby C,

This is OLD news... People that CHOOSE to see know this for at least one or two years. Why do you think that we have so many ASxx last 2 years??

Dreamer

Errrmmm....Our govt. keep taking our money, via ASxx, den dunno do wat. So why keep giving to them? KLSE half controlled by the same folks. Everywhere you go, your money get suck out. Might as well take it out of the country and invest elsewhere

I'm sure if there is a "collapse" of any sort happening, there will be other (reputable) news sources regarding this matter.

Forget about UBS. The real question is: who is freemalaysiatoday.com, and is this news being reported anywhere else?

This post has been edited by howszat: Jan 14 2010, 09:39 PM

howszat,

If you are interested, you could ALWAYS check the number at Bank Negara web site.

http://www.bnm.gov.my/index.php?ch=12

Ditto, if you google around, you will find that this was reported else where too.

Dreamer

Anything you believe in must be nonsense then. Case closed.

This report released by UBS was also published in other reputable websites. In fact, i first read this report on Monday. Believe freemalaysiatoday.com simply copy and paste it on their own website.

The article did not reveal the true and exact situation as you need a lot of details to conclude something concrete and exact situation we are in.

To be fair, Malaysia does accumulated up significant foreign currency reserves in this 10 years time.

I don't understand how the article say "Malaysia reserves is collapsing", as BNM statistics on foreign currency reserves still hold up at around USD90 billion. For those more freely movement countries like HK and Taiwan, I can assure foreign currency reserves surely will ramp up because due to equities recovery, there are lot of hot money move around the region, aka a lot of money inflow to invest/speculate or whatever, while Malaysia no longer a major target since after the 1998 capital control in place + RM is not a freely traded currency as compared prior 1997.

Currently BNM foreign currency reserves is around USD 90+ billion as compared to USD 20-30 billion prior before 1997 crisis, which actually showing improvement over the decade.

Malaysia has high current account surplus mainly come from trade surplus ie. export > import.

While do remember, there are a lot of MNC (particular in E&E industry) that are contributed the trade surplus. E&E contributed more than 1/3 or nearly half of the export, while E&E are mostly owned by FDI or MNC.
Those payment or money from the export doesn't necessary want to come back to Malaysia, while we also relied heavily on foreign workers to support the export industry (we have no less than 2-3 millions foreign workers) that are essential and contributed the export industry, which those wages received by them are often remitted out from Malaysia to their home countries.

In the meantimes, Malaysia corporate are going out to look for growth after saturated domestic market, typical example would be banking industry, almost every local bank has expanded their operation to overseas or regional area through overseas acquisition which also resulted in money outflow. It is same for plantation company which venture to regional to expand their landbanks and business operation. In this kind of situation, we can't conclude it is bad or not good, Malaysia corporate manage or ability to expand elsewhere is a good sign, so can't say not good, although it will result in money outflow.

While we are having less and less FDI coming in. So more corporate are going out instead of going in.

while for equities and investment area, since after 1998 capital control in place, and RM no longer being freely traded international, fund, hedge fund or foreign funds are showing little interest to come to Malaysia which there is no significant inflow in term of investment fund. So Malaysia registered low net inflow in this area.

So we have lot of conditions need to be analysed before we conclude it is unhealthy or not. As long as the foreign currency reserves is in healthy situation to support external debt, and trade balance in healthy condition, then country face no real threat of economy meltdown.

If merely look at surface figure of current account situation, the one people should worry is US. If not USD is the world currency and they can print freely, the situation is much much more complicated.

The main and immediate worry of Malaysia situation is about gov budget deficit, not current account situation.

Just my 2 cents.

Wonder whether UBS refers to our local ultra high group that transfer money out? Foreign capital outflow ... incl. locals too?

Before March 08, many ultra high already saw tsunami coming so transfer their fund out. Our hero Robert Kuok the latest I suppose.

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Added on January 15, 2010, 4:08 pmASxx = ASN?

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Added on January 15, 2010, 4:20 pmThks cherroy for sharing more balance view.

Wonder what is our foreign debts compare to foreign reserves?

Also wonder why local corporation going out while we are having less and less FDI coming in? When talk to local corporation guess we also refer to GLC eg Maybank etc. If GLC losing money or not performing as what it suppose to in own country what's the point of venturing out?


This post has been edited by Bobby C: Jan 15 2010, 04:20 PM

http://en.wikipedia.org/wiki/Economy_of_Malaysia (Look at the side table)

http://en.wikipedia.org/wiki/Current_account

Remember somewhat that foreign debt used to be much lower, could be wrong, memory hazy.

If market saturated then you go out to find new market what.

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Added on January 15, 2010, 5:22 pmMaybe I don't really understand economics and what was stated in the article, but I also feel suspicious with intent of article. They talk about Malaysia's Forex being the worst in Asia... almost collapsing... bizarre... but fail to mention the restrictions Malaysia had placed on Forex trading, obviously that's gonna play a role.

This post has been edited by cic.lemur: Jan 15 2010, 05:22 PM

Here is the figure
http://www.bnm.gov.my/index.php?ch=111

Again, the focus point has been put on the wrong place, current accout balance is ok, foreign currency reserves is ok, it is the gov budget deficit that is not ok currently, which lead to gov debt become more and more.
The reason why we have inflation due to removal of subsidies (like sugar price, petrol price need to be hiked) is because with high gov budget deficit, gov no longer able to sustain the subsidies to supress the inflation.
If really want to focus on negative point, then this is the one poses the severe risk.

Positive about the debt is that gov is seeking domestic fund to fund the deficit instead external or foreigner through foreign currency.

Due to populatoin constraint, some industry need to go out for business expansion, which is not a bad thing, in fact, it is positive move.
Typical example would be handphone market, which is almost saturated. With penetration rate of more than 100%, aka HP subscription amount is more than population amount, then the only growth they can look for is overseas which has high population, typically would be India, whereby Maxis and Axiata(or Celcom) are venturing into that area.

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Added on January 15, 2010, 5:44 pmIn current situation, the one currency that is collapsing is USD.
Now near at par with AUD (0.93 currently).

This post has been edited by cherroy: Jan 15 2010, 05:46 PM

Market saturation? What is market saturation if u monopoly the market but still cant perform? Like proton / maybank?

In Maybank's defense, their Malaysian operation is actually profitable. Besides, they did report a huge net profit in the 3rd quarter of 2009. The huge losses reported in the 2nd quarter of 2009 was mainly because of Bank Internasional Indonesia (BII). They should release the financial statement for the 4th quarter of 2009 very soon. Stay tuned.

Proton I know lah, how does Maybank monopoly?

Just to say, I have no idea if Maybank's domestic market is saturated or not, if it is: even with monopoly it's not gonna grow anymore... how to, market already saturated. Only option is to grow somewhere else or become high dividend yielding stock.

As to your earlier question why going out while less FDI coming in... because different market. You can't ask Maybank, Tenaga or TM to become hardisk manufactures, and the FDIs the government trying to woo are not directly in the banking, power or telecommunication provider industry.

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Added on January 15, 2010, 11:29 pmThanks for the link, realized I know next to nothing about economics, some people throw a bit of jargon and I get suspense. So I went out and bought a book, Economic Literacy bu Jacob De Rooy. Written for noobs and an enjoyable read. Now I know what GDP is all about, I find the BNM list you provided very interesting. Government Debt topic is on page 325 tho, so it's gonna take a while before I figure that out.

Oh no, so there's where all my dividend from my PNB funds will be going.

This post has been edited by cic.lemur: Jan 15 2010, 11:29 PM

I get tired of saying look at the source. What makes anyone think it's from UBS?