Stock Market & Currency At Year Low – More Turbulence Ahead As Omicron, Taper Tantrum & Fleeing Investors Hit PM Sabri

Pin It

Dec 07 2021
Linked In

When Malaysian economy contracted by 4.5% in the third quarter of 2021, lower than Bloomberg’s estimation of -1.9% and Reuters’ -1.3%, it spoke volume about the consequences of multiple half-baked lockdowns imposed by the Muhyiddin government. Because of the two consecutive GDP contractions (1.9% in 2Q21 and 3.6% in 3Q21), the country is in technical recession.


Indeed, Malaysia becomes a laughing stock as neighbouring countries had performed better. The Philippines’s economy grew by 7.1%, Singapore by 6.5%, Indonesia by 3.5%, while Thailand’s economy slipped 0.3%. Therefore, the (former) backdoor PM Muhyiddin cannot take the easy way out by blaming Covid-19 because other countries faced the same pandemic.


Amusingly, Malaysia was the only country in the world that had declared a State of Emergency as well as locking up the Parliament under the pretext of fighting Coronavirus. Malaysia was also the only country in the world that had a long list of various types of lockdowns or movement control order – MCO, EMCO, Semi-EMCO, CMCO and RMCO.

PM Muhyiddin - Sad Face Expression

Yet, the country had one of the highest rates of Covid-19 cases and the death toll in not only Asia, but also in the world. By the time Muhyiddin was forced to resign (on August 16) due to internal backstabbing and betrayal, after 17 months under his clueless and incompetent Perikatan Nasional regime, the country saw a total of 1,424,639 cases and 12,784 deaths due to the Coronavirus.


Former Prime Minister Najib Razak conveniently blamed Muhyiddin for the disastrous economic mismanagement. But was not UMNO part of the backdoor government since March 2020? In fact, then-Senior Minister Ismail Sabri and Health Minister Adham Baba were UMNO leaders directly in charge of tackling the pandemic. So, what happens to the collective responsibility?


Therefore, the United Malays National Organization (UMNO) was equally responsible for causing the current technical recession. As one of the four powerful Senior Ministers, turtle-egg Ismail should have rejected the half-baked lockdowns. After all, he is the UMNO vice president as well as the defence minister. But he didn’t lift a finger because he was as clueless and incompetent as Muhyiddin.

Ismail Sabri Yaakob - Confused - CMCO Work From Home

Fine, let’s assume Mr Ismail was powerless against then-PM Muhyiddin. As of Monday (6 Dec), the country’s total Covid death toll was 30,614 while the total number of infections ballooned to 2,654,474 cases. It means since the new prime minister took over from Muhyiddin, new cases of Covid-19 has increased by 1,229,835 and the death toll has jumped by 17,830.


In other words, in the 100 days (107 days to be precise) of his administration, Ismail Sabri has seen cases increased by 86% and deaths due to the Coronavirus skyrocketed by 139%. That’s an average of 11,493 cases and 166 deaths “every day” since he was sworn in as the prime minister in August. Why are there still so many cases and deaths despite close to 80% vaccination rate?


Make no mistake. The country is not out of the wood yet. Even though the high vaccination rate has taken some pressure off, the emergence of Omicron variant could become a new problem if not handled properly and professionally. The biggest problem, however, is the lack of confidence in the new government. After all, Sabri Cabinet is a clone copy of the incompetent Muhyiddin Cabinet.


Worse, despite retaining the super bloated Cabinet of 73 ministers and deputy ministers from previous Muhyiddin administration, the prime minister has appointed 3 advisors – costing RM50,000 a month each. All the 73 ministers must be extremely useless for the turtle-egg man to hire 3 more advisors to advise him on religion, health, and on law and human rights.


But investors – both foreign and domestic – were clearly not impressed with the new government. The vote of no confidence could be seen in the performance of Malaysian currency and stock market. Since he was installed as the prime minister, the Ringgit has never improved above RM4.10 to the greenback. Instead, it deteriorated to RM4.249 to US$1.


The Ringgit tumbled to as low as RM4.245 on the day Muhyiddin resigned on August 16. Subsequently the local currency improved, but Ismail Sabri’s failure to inspire saw it plunged to its lowest of the year – RM4.249 to a US dollar. Essentially, it means investors were more worried about the new government than the instability caused by Muhyiddin’s resignation.

Currency Exchange - US Dollar vs Malaysia Ringgit - January - 06-December-2021

Another indicator that investors were not impressed with Ismail administration was the performance of the local stock market. On Monday (6 December), the KLCI (Kuala Lumpur Composite Index) plunged to 1,483.45 points – the lowest not only in the Ismail Sabri administration, but also the worst in the entire year. Failure to stay above support level of 1,500 is a red flag.


The Ringgit has become so worthless that DBS Group Research has ranked the Malaysian ringgit as the cheapest currency within the basket of Asian ex-Japan currencies. It means Indonesian rupiah, Philippine peso, Thai baht, and Indian rupee were more valuable than Malaysian Ringgit. It also means that both Muhyiddin Yassin and Ismail Sabri have failed to strengthen the country’s economy.


The best part is, despite its incompetence, the government remains arrogant and chooses to be in denial. For example, during an interview, Finance Minister Tengku Zafrul, who got the job due to political connection more than based on meritocracy, has bragged that Malaysia is “not concerned” about investors pulling out of the country even when the U.S. Federal Reserve starts winding down its asset purchases.

Malaysia Stock Market Performance - January 2021 - 6-December-2021

Malaysia Stock Market Performance Since PM Ismail Sabri - August - 6-December-2021

The arrogant and clueless Zafrul claimed Malaysia’s financial markets are “insulated” as the country has raised most of its debt locally, where 98% of borrowings were in Ringgit-denominated. Based on his logic, all the countries in the world would be immune to the U.S. Federal Reserve policies as long as they raised debt domestically.


In truth, as of end-June 2021, foreign investors owned RM222.9 billion worth of Malaysian government debt securities, making up 25.7% of total Malaysian debt securities. Worse, public sector debt increased to RM1.35 trillion or 89.5% of gross domestic product (GDP) as at end-June 2021, mainly due to higher federal government debt resulting from borrowings.


So, it was not entirely true to say the country is unaffected due to the so-called 98% Ringgit-denominated borrowing – giving a false perception as if the country does not need to service its external debt. In fact, debt service charges are already expected to reach RM39 billion or 17.2% of projected revenue in 2021. The interest alone is projected to reach RM43.1 billion (18.4%) of estimated government revenue of RM234 billion in 2022.

Currency Exchange - US Dollar vs Malaysia Ringgit

You cannot pay your credit card outstanding debt by charging to another credit card. Likewise, the government cannot keep on borrowing – even from domestic markets – without repaying. The fact that it has raised its statutory debt ceiling to 65% of gross domestic product (GDP), after raising it to 60% from 55% just last year, says a lot about a government that knows more about wasting than earning.


Thanks to corruption, inefficiency and incompetency, the government’s profit have been shrinking since 2 decades ago. From 2001 to 2010, the government managed to make about RM11.3 billion in profits annually. However, from 2011 to 2020, the profit dropped to merely RM1.9 billion on average annually (for example: despite RM264 billion revenue in 2019, the profit was only RM1.1 billion).


The U.S. Fed had been buying at least US$120 billion worth of bonds each month, injecting massive amount of cash into the market in order to support economic activity. Pressured to fight inflation due to a strong economy, the Fed will be forced to stop the tapering of asset purchases and raise interest rates, leading to sharp money outflows from many emerging markets.

Finance Minister Zafrul - Worst Since 198, Fitch Downgrade, FDI and GDP Drop

Unless Bank Negara (Central Bank of Malaysia) follows suit with an interest rate hike, the Ringgit will be weakened. But if the central bank raises interest rate, it will make borrowing more expensive to do business. With the sagging economy as a result of prolonging lockdowns, it would be a disaster for Bank Negara to raise interest rate now. This is the main reason the local currency is plunging.


In 2020, unemployment rate skyrocketed to 4.8%, foreign direct investments (FDI) dropped by 68%, while some 32,000 small-and-medium-businesses were forced to close down. Fitch Ratings’, on the other hand, had downgraded Malaysia’s credit rating from A- to BBB+ and the economy – GDP – plunged by 5.6%, the worst contraction since the 1998 Asian Financial Crisis.


Zafrul’s latest claim that the economy is on track to grow by between 3% and 4% this year should be taken with a pinch of salt. After all, he had earlier expected growth of between 6.5% and 7.5% for this year despite half-baked lockdowns. This is the same finance minister who claimed in 2020 that his Budget 2021 was designed to revitalise the economy as well as to restore investors and consumers’ confidence to drive the economy.

Coronavirus - Malaysia Covid-19 Record Cases and Deaths - KLCC

Despite crowing like a broken record that Malaysia’s economy remained robust despite negative outlook by international rating agencies, not to mention repetitively announced that the country was on track for a great economic recovery, the nation is now in technical recession. After failed to revive the economy this year, now the genius Zafrul said Malaysia is on track to revive its economy only next year – 2022.


Other Articles That May Interest You …

Pin It

FinanceTwitter SignOff
If you enjoyed this post, what shall you do next? Consider:

Like FinanceTwitter Tweet FinanceTwitter Subscribe Newsletter   Leave Comment Share With Others


Add your comment now.

Leave a Reply


(required)(will not be published)