U Mobile – the wild card

AS a relatively young telco, U Mobile Sdn Bhd has developed a reputation as a wild card in the local mobile landscape which has long been dominated by three operators.
The orange-hued telco’s actions as the smallest of the four mobile carriers are creating ripples throughout the industry, both in terms of pricing and product offerings.
The full-fledged telco has partly triggered a price war in the industry and is showing no signs of stopping. At the rate it is going, U Mobile is bound to shake up the multi-billion-ringgit industry. “We’re still No. 4. We are still the smallest of the lot,” chief executive officer Wong Heang Tuck tells StarBizWeek.
U Mobile, he says, has been generating “positive growth” and currently boasts a subscriber base of four million, of which 70% are smartphone users.
“We pride ourselves on offering innovative products and value-added services for our customers. We are relevant to the market,” Wong says.
The bright spot for U Mobile has been the traction in its products and packages. Its offerings such as U MicroCredit, Wong says, have been well-received as it understands the market. “We understand that a particular segment aspires to own an iPhone and we cater to the segment by bundling it with micro credit,” he says.
Being a data-centric telco, Wong says U Mobile appeals to the younger generation, mainly those aged 35 and below.
Without providing its net adds and average revenue per user (arpu) in the last quarter, Wong says its subscriber base has been growing and U Mobile is now getting more quality subscribers.
“Our ARPU is lower compared to the other three telcos. Our blended arpu is still low but growing,” Wong adds.
Financially, U Mobile is still loss-making despite the growing number of subscribers and arpu.
“Our revenue is growing but we are still losing money. However, our losses are narrowing. Our revenue is seeing double-digit growth,” Wong discloses.
In 2011, U Mobile’s earnings before interest, taxes, depreciation and amortisation (EBITDA) loss stood at RM380mil, RM340mil in 2012 and RM200mil in 2013. Its EBITDA loss has narrowed to RM80mil in 2014.
A search in the Companies Commission of Malaysia showed that U Mobile registered a net loss of RM191.8mil in the financial year ended Dec 31, 2014 (FY14) compared with RM363.2mil in FY13. Its revenue grew to RM1.26bil in FY14 from RM919.17mil previously.
Wong, who is also the walking ambassador of U Mobile as he is clad in the brand’s bright colour, says the company is unlikely to turn EBITDA-positive this year and will likely take two years to do so.
By then, he says U Mobile will be ready to go for a listing, as it will be able to exhibit sustainable growth.
Wong says the listing plan is still in the pipeline, as the telco needs to tap into the capital markets to raise funds as the telco business requires “constant investment”. This is because there will bound to be new and upcoming technology, among others.
“We hope to list the company in two to three years’ time. We need to show sustainable earnings growth and a track record. We can go for a listing right now, but I don’t think we will derive an optimal value at this stage,” he explains.
While the industry is pointing fingers at U Mobile for the price war, given that it has a low price point, Wong says the other telcos should not be too concerned.
“We are still quite far away. They (telcos) should not be too concerned with us,” Wong says.
He, however, says that U Mobile does not intend to stay at No. 4 all the time.
Wong believes in offering the best value plans – giving the best bundles that meet the needs of its customers. Using a shopping trip as an analogy, he says, consumers will choose the best meat or vegetables that stores can offer.
“If you look at our latest advertisement, we say that we are the telco for the rakyat and that cannot be truer because U Mobile really does strive to provide the best value and customer experience to our customers.
“We are the first telco in Asia to provide micro financing for mobile phone purchase and the first telco in Malaysia to give free 50MB Internet roaming in selected Asia-Pacific countries to both prepaid and postpaid customers,” Wong claims.
Despite having a low price point, Wong dislikes U Mobile being labelled as cheap. He says it is the value proposition that the brand is offering.
He is also unperturbed by the competition from mobile virtual network operators and stresses that U Mobile is a full-fledged telco.
Admittedly, Wong says one of the challenges is to create customer awareness.
“When we started, customers had bad experiences and stayed away. But in the last few years, we have improved a lot. It takes time. There is a lot of ‘demonstration’ to convince customers. The perception has changed and a lot of people are porting in to U Mobile. It is very positive,” he says.
U Mobile will continue to be skirmish against the big three. All operating cellular and wireless players are currently on expansion mode.
“At the end of the day, we want to build our own network. We will be investing RM3bil to RM4bil in the next four to five years to grow our network, putting an additional 5,000 new 3G/4G Long-Term Evolution (LTE) network sites,” Wong reveals.
He notes that rolling out a network is not an overnight endeavour.
Nonetheless, Wong says its network coverage is “the same as the other three”. “We’re on par with them on the west coast. We are rolling out more coverage on the east coast,” he says, adding that more work needs to be done in Sabah and Sarawak.
U Mobile currently has a 10-year deal with Maxis Bhd to share its 3G radio access network (RAN), making it the country’s first landmark network sharing and alliance agreement.
RAN-sharing is aimed at taking the costliest portions of an operator’s network - the cell sites and towers, base station equipment and the transmission network - and sharing these infrastructure with competitors, hence generating savings from reduced duplication of network assets.
“This agreement has given us time to roll out our own network. There’s no way you can roll out your network nationwide instantly. Therefore, this is a good strategy as it gives us plenty of time to roll out our network,” Wong professes.
U Mobile will have 1,300 4G LTE sites by the end of this year and 5,000 3G sites by year-end.
“We have the best (network), although the other three (telcos) may not like it,” Wong notes.
U Mobile has been relatively quiet despite all the noise in the market on which telco boasts the best 4G coverage. The telco has chosen to remain on the sidelines.
As the country is just embracing 4G, U Mobile has announced its partnership with ZTE Corp, the leading global provider of telecommunications, equipment and network solutions, to drive the development of pre-5G and the future implementation of 5G mobile network technologies locally.
With the collaboration, U Mobile aims to be the first telco in the country to enter into 5G network development.
Wong says it is not too early to look at the development of 5G that is supposed to be rolled out in 2020, although the standards have not been fixed yet.
He notes that one of its challenges is to keep abreast of the changes in technology.
With 5G, the speed is beyond what the current 4G can offer and U Mobile is working to get itself ready for the rollout.
Moving forward, Wong says data will continue to be its growth driver and expects 2016 to bring more stability to the industry.
“It has been a challenging 2015 for the industry and there were some distractions like the implementation of the goods and services tax. We expect consumer spending to come back next year,” Wong says.
Sunday, November 22, 2015
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Grooving all the way to the bank

PATRICK Grove (caricature) , the 40-year old co-founder, group chief executive officer and chairman of the Catcha group of companies, a Kuala Lumpur-based private investment firm, must surely feel vindicated that his RM900,000 bet on a little-known property portal back in 2007 has paid off big time.

REA Group Ltd, an Australian digital-advertising company, has offered to take the Sydney-listed property portal, now known as iProperty Group Ltd, private for A$4 per share. Shareholders have also been given the option of cash and shares, at A$1.20-a-share and 0.7 shares, in a private company that will have an indirect interest in iProperty.

How things have changed. After Grove bought the property portal from a Malaysian couple, he went around looking for investors and was rejected 74 times before getting an investor willing to pump in A$2mil into the nascent site for a 10% stake. iProperty is also the first of four companies that he has taken through the initial public offering (IPO) route, listing it in 2009 at 25 Australian cents. 

Based on the A$4 offer by REA, which has a 22.67% stake in the property portal, iProperty is valued at a total of A$750.8mil. The cost to REA to acquire all the shares it does not own will come to A$578mil. If Grove and his business partners, who together own a 16.70% stake in iProperty through Catcha Group Pte Ltd, is to take the all-cash offer, they will make a cool A$128mil.

Not bad for a guy who was on the brink of bankruptcy 15 years ago after he and his partners aborted the listing of Catcha.com on the Singapore Stock Exchange in the wake of the dotcom bubble. Grove made it to the Business Review Weekly’s Rich 200 list earier this year with an estimated wealth of A$286mil. He was previously on the Young Rich List with an estimated wealth of A$250mil.

The serial tech entrepreneur, an Australian born in Singapore with Malaysian permanent residency, has always had faith in the growth potential of South-East Asia, moving back to Singapore in the late 1990s after a two-and-a-half-year stint with Arthur Andersen. He now divides his time between Australia, Malaysia and Singapore.

The other companies that Grove has taken public include Ensogo Ltd (previously known as iBuy Group Ltd, a e-commerce site headquartered in Singapore, December 2013 Australian listing), iCar Asia Ltd (regional network of auto portals headquartered in Kuala Lumpur, September 2012 Australian listing) and Rev Asia Bhd (previously known as Catcha Media Bhd, online, publishing and events company headquartered in Kuala Lumpur, July 2011 listing).

Although cashing out must look tempting, he and his partners have decided to take the mix of cash and shares option in the private company, as they, like the Murdochs, Rupert and Lachlan, who control REA through New York City-based News Corp Ltd, both know the potential of digital ventures, especially in South-East Asia, with its population of 600 million.

In essence, since Catcha Group has elected to take the mix of shares and cash, it will hold a stake in a special purpose company called RollCo, which will then hold a minority interest in BidCo, the company in which iProperty shares will go into after the deal goes through. 

RollCo and REA will then enter into a shareholders’ agreement as shareholders in BidCo. Those iProperty shareholders who decide to take the mix of cash and shares will hold from 10.7% to not more than 20% of the issued shares of BidCo via RollCo.

Baillieu Holst Ltd analyst Nick Caley considers the cash offer as fair given that it capitalises the company at around A$750mil in comparison to its financial year ending Dec 31, 2015 guidance for revenue and earnings before interest, taxes, depreciation and amortisation (Ebitda) of A$32.5mil to A$36mil and Ebitda of A$3mil to A$6mil.

He says in a Nov 5 report that investors who take cash are looking at the valuation (offer represents a 22% premium to the discounted cash flow valuation of A$3.28, implying a 22% to 41% growth in iProperty’s revenue and Ebitda over the next decade) and removes risks of property cooling measures and other political risks related to governments in the region. 

Those who take the cash-and-shares option are looking at the potential for further valuation upside beyond the A$4 per share (RollCo shareholders have a put option over their shares as an exit mechanism up until mid-2018), aligning interests with REA that may accelerate iProperty’s existing business’ growth and providing a vehicle to further participate in corporate activity in the region.
REA owns realestate.com.au, and the deal will give it a presence in the growing South-East Asia market, where iProperty is considered one of the more successful property portals. Digital News Asia founder and CEO Karamjit Singh, who spoke to Grove earlier following the announcement of the takeover offer, tells StarBizWeek that the offer puts the region in focus as the digital space continues to grow on the heels of smartphone penetration.

“It clearly tells us that Rupert and his senior executives see value and growth potential in the region and the fact that the iProperty team will continue to run the operations says that whatever Patrick is doing, he is doing it right,” he says.

Karamjit, whose portal tracks news and trends in the digital sphere, says those who invest into digital startups in the region are not looking into the present but are looking 20 to 30 years down the road. “This is about dominating the market years down the road, the move by REA will make the region more visible and show that South-East Asia is definitely a hotspot for digital startups,” he points out.
Karamjit says the offer attracted by iProperty also says a lot about how Malaysia continues to be “the best place for digital startups” as the market is a good mix of middle- and lower-income earners. “Its a good bridge for the region unlike Singapore, which is a strange animal in this region because its already a developed market,” he adds. 

Although listed in Australia, iProperty is the market leader among Asian property portals, not just in its home region of South- East Asia but also in Hong Kong/Macau. Morgans Financial Ltd senior analyst Ivor Ries says in a report dated Augt 24 that online markets are at an early stage of development in the countries (Malaysia, Indonesia, Thailand, Hong Kong/Macau and Singapore) that iProperty is present. Malaysia contributes 62% of revenue.

Ries says this means that short-term volatility for revenue and earnings is unavoidable although three (Malaysia, Thailand and Hong Kong/Macau) of the five countries that the portal operates in is now profitable. 

Ries believes that given the roll-out of higher-margin products just commencing, the foundations of several years of strong earnings growth have been laid.

iProperty shares ended the week marginally higher at A$3.85 a share, from the A$3.84 close on Monday. Its shares highest close was on March 19 last year, at A$3.94

-The Star Business
Wednesday, November 11, 2015
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News Corp property website to buy out iProperty for $414m to gain Asia presence

SYDNEY: News Corp's Australian real estate website company REA Group Ltd said it plans to buy out smaller rival iProperty Group Ltd for A$580 million ($414 million), seizing on the target company's footprint in Southeast Asia.

 The deal would give News Corp exposure to property markets of Thailand, Indonesia, Malaysia and Hong Kong just as Australian real estate advertisers like REA brace for a downturn at home following several years of double-digit growth.

 In a statement on Monday, REA Group said it plans to pay A$4 per share for the 77.3 percent of iProperty that it does not already own, giving the target company a market capitalisation of A$751 million. iProperty would recommend the deal in the absence of a better offer.

 iProperty shares jumped as much as 11 percent in a weaker overall market to A$3.90, their highest since March 2014. REA shares rose 1.3 percent. Douglas Loh, a portfolio manager at Acorn Capital, iProperty's third largest shareholder with 4.7 percent, said the offer was below the target company's share price 20 months ago and that the acquisition would benefit REA by giving access to new growing markets.

 "If you believe in the growing Asia story and high adoption of mobile and Internet platforms and so on, there's significant potential being able to integrate the two together," Loh said, adding that he will rely an independent expert report to decide whether to accept the offer. REA said it was advised by Citigroup Global Markets Pty Ltd on the deal, which will be put for a shareholder vote in January.

 - Reuters
Tuesday, November 10, 2015
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Alibaba to pay about US$3.7 billion for Youku Todou 'China's YouTube'

(Nov 6): Alibaba Group Holding Ltd agreed to buy Youku Tudou Inc — popularly known as "China's YouTube" — for about US$3.7 billion, slightly more than it had offered in October.

The deal announced on Friday will give the e-commerce giant access to more than half a billion online video users, accelerating its push into the Chinese digital media market.

It is also a vote of confidence in China's economy by Alibaba Chairman Jack Ma, who has said investors should not overreact to his country's slowing growth. Youku Tudou's American Depositary Shares rose 10% to US$26.80 in premarket trading on Friday, below Alibaba's offer of US$27.60 per ADS. Alibaba held 18.3% of Youku Tudou as of Oct 16, when it made its initial offer of US$26.60 per ADS. The new offer values the rest of Youku Tudou at about US$4.8 billion. The new offer represents a premium of 35.1% over Youku Tudou's closing price on Oct 15.

Any deal would include the US$1.1 billion of cash held by Youku Tudou, Alibaba's chief financial officer, Maggie Wu, said in October. Based on this, Alibaba will end up paying about US$3.7 billion under its revised offer.

Unprofitable Youku Todou needed the partnership with Alibaba, Summit Research analyst Henry Guo said. Youku Tudou Chief Executive Victor Koo, a Bain & Co alumnus who owns about 18% of Youku Tudou, will remain CEO of Youku Tudou after the deal closes in the first quarter of 2016.
"With Alibaba's support, Youku Tudou's future as the leading multi-screen entertainment and media platform in China has been firmly secured," Koo said in a statement. Formerly bitter rivals, Youku — which means "what's best and what's cool" in Chinese — merged with Tudou ("potato") in a deal worth over US$1 billion in 2012. Alibaba has made a number of sizeable investments in digital media in China in the past couple of years.

In March 2014, it agreed to buy a controlling stake in ChinaVision Media Group Ltd for US$804 million to get access to TV and movie content. The company is now known as Alibaba Pictures.
A month later, Alibaba said it would pay about US$1 billion for a 20% stake in Wasu Media Holding Co Ltd.

In March 2015, TV program producer Beijing Enlight Media Co Ltd said Alibaba had invested US$383 million.

Morgan Stanley Asia Ltd advised Alibaba, while J.P. Morgan Securities (Asia Pacific) Ltd advised Youku Tudou's special committee.

-Reuters November 6, 2015
Sunday, November 08, 2015
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The (Sh)ringgit dilemma

  By Cindy Yeap, Yen Ne Foo and Esther Lee / digitaledge Weekly   | September 14, 2015 : 7:00 PM

IT would seem that Malaysia’s luck hasn’t run out just yet. Barely a fortnight after the world began talking about the possibility of crude oil prices dropping to US$30 a barrel, Brent prices jumped by the most in 6½ years last Thursday and went on to reach US$48.45 before settling at the US$47 level for the week.

The 14.7% surge to that intra-week high, from its lowest in almost seven years of US$42.23 intraday on Aug 24, helped Malaysia’s bellwether FBM KLCI stock index gain 5.3% over four days to end the week at 1,612.74 points.

While Wall Street’s rally on renewed optimism of a US economic recovery also lifted spirits across global stock markets last week, those gains on Bursa Malaysia took some by surprise, as it came ahead of the Aug 29 and 30 Bersih 4 street rally calling for transparency and electoral reforms. The gains also came even as ratings agency Moody’s Investors Service says “clouds are gathering on Malaysia’s positive [sovereign ratings] outlook”.

Depending on whom one asks, there are people who reckon Prime Minister Datuk Seri Najib Razak last week won some brownie points by bringing critics and old guard alongside academics and corporate chieftains on board his 10-man special economic committee to minimise the impact of “any arising economic issues”.

The members include former second finance minister Tan Sri Nor Mohamed Yakcop — who in 1998 helped former prime minister Tun Dr Mahathir Mohamad put in place the since rescinded ringgit peg and capital controls — and CIMB Group chairman Datuk Seri Nazir Razak, who has been openly critical of the current administration. “Will speak [the] truth to [those in] power & hope it will help [the] government to steer economy through this turmoil and lessen the pain,” Nazir said on his Instagram account last Thursday, after the surprise appointment.

“I hope the new economic committee will take the bull by the horns and introduce radical reforms rather than adopt superficial measures. We are coming from a position of weakness because of the current policy framework, and politics is a sign of that weakness. Too much politics is bad for economics and progress,” says Tan Sri Ramon Navaratnam, chairman of ASLI’s Centre for Public Policy Studies.

Others, however, point out that Malaysia already has respected policymakers like Bank Negara Malaysia Governor Tan Sri Zeti Akhtar Aziz, who was not selected to join the committee, whose chairman, Datuk Seri Abdul Wahid Omar, is minister in the Prime Minister’s Department in charge of the Economic Planning Unit. They also reckon the ringgit’s precipitous fall in recent weeks was more than a mere reflection of wavering confidence.

INCEIF emeritus professor Datuk Mohamed Ariff, for one, says the country needs to act fast to regain confidence and credibility, and that there are “clear writings on the wall” that Malaysia’s economic fundamentals “have weakened considerably in recent times”.

“It appears that the country is in denial mode … The sharp fall in commodity prices, rapidly shrinking ringgit, ballooning external debt, ailing stock market and falling central bank reserves are all taking a heavy toll on the Malaysian economy. And yet, we keep hearing that the fundamentals are still strong. Such talk only serves to dampen investor sentiment further, as these give rise to the impression that the government cannot even recognise or understand that there is a problem in the first place, let alone fix it,” he says, adding that Malaysia cannot blame all its woes on external factors.
“The crisis the country currently faces is largely home-grown. It smacks of poor governance and mismanagement. The ongoing financial scandals speak volumes. The poor handling of the issues with no straight answers and the absence of checks and balances have affected the country’s image in the global arena … The economy is bogged down in a crisis of confidence and credibility. To put the economy back on track, we must restore confidence and credibility, which can only come with increased transparency, disclosures and accountability.”

That Malaysia’s public debt has ballooned considerably on the back of 18 straight years of budget deficits limits policy manoeuvres when the country needs to weather global economic headwinds. While the headline debt-to-gross domestic product ratio is below the 55% self-imposed ceiling, public debt is north of 66% if quasi-government guarantees were to be included, experts say.
“Stock market volatility, commodity market selldown and economic slowdown in China, not to mention the eurozone malaise, are all symptomatic of an impending global deflation,” says Ariff, without providing a timeframe.

As he sees it, Malaysia is “most vulnerable” to happenings in the Chinese economy, as China is currently the number one destination for Malaysia’s exports and number one source of Malaysia’s imports.

“Obviously, we are less prepared now than we were in the mid-Nineties for such eventualities. In the mid-Nineties, we had five consecutive years of budget surplus (1993-1997), our short-term external debts accounted for less than a third of the total. Now, we are inflicted with budget deficits year after year since 1998, while foreigners hold roughly half of government bonds,” says Ariff.

With at least 25% of government revenue still coming from oil and gas (although down from 39.6% in 2008), experts like him doubt higher tax receipts, including those from the newly implemented Goods and Services Tax, can fully make up for smaller oil-related receipts, thus there is limited room for fiscal stimulus.

A new normal for oil prices, at US$30 to US$40, should it happen, “will likely imply a significantly higher fiscal deficit (exceeding 4% of GDP) and a structurally lower current account surplus,” says Chua Hak Bin, head of emerging Asia economics at Bank of America Merrill Lynch (BaML).

“It will also mean that the government can no longer rely on Petronas (Petroliam Nasional Bhd) as a lender and banker of last resort in times of crisis,” he says. Already, the national oil company, when announcing a 47% drop in its second-quarter net profit on Aug 14, said it needed to draw on its reserves and “persevere with more austerity measures” as its operating cash was not enough to cover both its capital expenditure and the RM26 billion dividend committed to the government this year.

“Policy options are becoming more limited. Governor Zeti and Prime Minister Najib have ruled out capital controls. Forex intervention will have to be conducted more sparingly, given the rapid depletion of Bank Negara’s foreign exchange reserves,” Chua says, adding that US$8.8 billion was spent defending the ringgit in July and another US$2.2 billion in the first two weeks of August.

Bank Negara will release its end-August reserves figures on Sept 4. As at mid-August, the central bank’s reserves stood at US$94.5 billion (RM356.4 billion), down 33.2% from the recent peak of US$141.43 billion in May 2013.

While the reserves are still adequate to finance 7.5 times retained imports and are one times short-term external debt, RHB Research Institute executive chairman and chief economist Lim Chee Sing says the latter “is a weakness and a concern should there be a more significant erosion in foreign investor confidence, causing them to sell down their holdings of financial assets in the country and/or withdraw whatever deposits they have placed with the Malaysian banking system”.

While local institutions, such as the Employees Provident Fund — whose total investment assets stood at RM667.21 billion as at end-June 2015 — insurance companies and sovereign wealth funds, have sufficient liquidity to absorb foreign selling, Lim says “price will have to give if there is continuous foreign selling”.

That foreign investors still hold 47.84% of the RM345.84 billion outstanding Malaysian Government Securities means there will be pressure on the ringgit and Bank Negara reserves if redemptions accelerate the way they did on the local equity market where foreign holdings are estimated at around 23% in August. Foreigners have pulled RM11.8 billion out of the local bourse year to date, surpassing the RM6.9 billion net outflow for the whole of 2014.

Between March 2013 and June 2015, the balance of payments saw RM29.1 billion net outflow, largely because the RM129.2 billion net outflow from the financial account exceeded the RM100.4 billion net inflow in the current account, where a surplus position has dropped to RM7.58 billion in June 2015 from nearly RM40 billion in September 2008 as Malaysia’s exports to the world fell faster than its imports. A negative balance of payments erodes Bank Negara’s reserves position.

“The impending US Federal Reserve interest rate hike, under current market conditions, will only worsen the sell-off in the ringgit,” BaML’s Chua says, pointing out that the market currently expects 50% chance of a rate hike happening by year-end and only 16% in September.

“Our [ringgit-US dollar] forecast of 4.28 is for end-2016 and is now close to being breached. We will review the forecast, pending our assessment on the Fed rate decision, given current market developments,” he adds.

The US Federal Market Open Committee is scheduled to meet in mid-September, late-October and mid-December this year. Bank Negara’s monetary policy committee will meet three days earlier, on Sept 11, when it is expected to keep the key interest rate unchanged, at 3.25%.

Citi Research economist Kit Wei Zheng, in a recent note, says the 100 to 150 basis point rate hike that “most thought” is needed to defend the ringgit “is unpalatable, given softening growth and limited evidence of imported inflation”.

“Drastic rate hikes will also be counter-productive as softer domestic demand and knock-on impact from non-oil fiscal revenues could give speculators another reason to short the ringgit,” he adds.
Malaysia’s high household debt, at 87.8% of GDP — among the highest in the region — also raises the odds of savers being taxed with negative real (inflation-adjusted) returns.

Deutsche Bank economist Diana Del-Rosario is more sanguine about Bank Negara’s reserves building up again, pointing out that Malaysia recorded a surplus in the balance of payments in the second quarter, driven by a turnaround of other investments like loans and forex deposits to net inflows.

“We do not know the reason behind these inflows, but we suspect they could be due to the weaker ringgit or a result of a government/Bank Negara initiative to contain the decline in reserves. If so, then it is likely these inflows could continue for the rest of the year,” she says, adding that the current account surplus “could also widen as exports slightly improve and imports soften because of weak demand prospects”.

She also reckons the government could “make modest adjustments to its foreign exchange administration policies” such as cutting the time limit for the repatriation of export proceeds to less than six months.

According to Citi’s economists, a sizeable difference between trade data reported by Malaysia and its trading partners “suggested that a chunk of export earnings were kept offshore, notwithstanding Bank Negara regulations that export proceeds have to be repatriated within six months”.

Still, they also told clients that the government’s appeal to repatriate liquid foreign assets had hitherto had only limited effects as some government-linked investment companies claimed that such decisions “would have to be made primarily on commercial grounds, given the need to hit target returns”. “An easier option would be the conversion of about US$30 billion of foreign currency deposits with onshore banks,” the Aug 24 note reads.

Yet the impact of such moves would be fleeting, should there be high selling pressure, experts admit.
“Whether the market has been overly bearish and if there is more weakness to come will depend largely on whether the major world economies can do more to hold up growth, if need be, or whether more policy missteps — such as China’s heavy intervention in the equity markets and renminbi devaluation that derailed confidence — are being taken to cause the global growth cycle to turn down earlier than expected.

“Whether Malaysia has enough policy options to weather the storm also depends on the extent of the storm, and whether it is global in nature, although there is room for the country to take appropriate measures to mitigate it,” RHB’s Lim says.

Over the longer term, he says Malaysia — which is stuck in the middle-income trap — needs a stronger ringgit to encourage industries to gradually advance up the value chain to restore competitiveness. “Emphasis on the quality of products and services with good branding is what we need as the country evolves into a developed country by 2020.”

That means Malaysia needs to get its act together quickly for the ringgit to strengthen again.

This article first appeared in digitaledge Weekly, on August 31 - September 6, 2015.
Monday, September 14, 2015
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