Malaysia’s Errant Swing Swagger
Malaysian stocks slipped further after a soft 2014 as Prime Minster Najib’s popularity crumpled with an overseas golf outing during record flooding at home and his budget deficit aim of 3 percent of GDP was endangered by the price slump in hydrocarbons providing one-third of revenue. Splinter wings in the ruling UNMO party continued to urge his departure, but were briefly mollified by an appeals court decision upholding another jail sentence for opposition leader Anwar for alleged personal offenses despite international outcry. The saga of state development board 1MDB has also drawn criticism after $12 billion in debt was accumulated for land and power acquisitions and repayments were missed. Najib is on its board in his Finance Minister capacity and the government guaranteed obligations while representatives engaged in questionable transactions such as the purchase of luxury New York apartments. The growth forecast was trimmed to 4 percent this year as the current account may move to deficit. Short-term external borrowing is equal to $110 billion in reserves, household debt is 85 percent of output, and non-residents hold 40 percent of local debt. The central bank has paused with the ringitt down 10 percent in recent months, as lower inflation may offer relief to overextended consumers who have begun to feel food and fuel subsidy reductions. The banking sector tie-up between two dominant players has been shelved which would have consolidated their Islamic finance strength. From a valuation perspective analysts argue correction was overdue with the p/e ratio at 15 above the emerging market average, but the available float is limited with official and family ownership. The airline was once a heavyweight but has been fully nationalized after last year’s jet disappearance which was finally labeled an accident for legal reasons with no signs of the wreckage.
Thailand on the other hand has extended a double-digit gain despite the junta’s prosecution of former Prime Minister Yingluck for reported abuses in the rice support scheme and indefinite postponement of new elections. Her brother Thaksin will continue his Dubai exile as the military shows no hint of a compromise return and the crown prince was sidelined as an ally amid family squabbles and member implication in shady dealings. The King has been too sick to reconcile the sides as in the past, and growth remains marginal with poor business and consumer sentiment despite a slight last quarter manufacturing uptick. Rubber exports have slumped and tourism now struggles with baht firming against the dollar virtually alone in the region. Infrastructure stimulus amounting to 1 percent of GDP will assist domestic demand as Japanese carmakers continue to ponder alternative locations as the political deadlock persists. Commercial bank credit advanced at only a 5 percent pace in 2014, off two thirds from the previous annual norm as the personal portion of NPLs reached one-third with coup plotters besieged by forgiveness pleas they may no longer sink with the worsening public mood.
