Malaysia’s Chronic Credibility Flight
Malaysian Airlines was battered along with other stocks as the investigation into a Beijing-destined flight’s disappearance dragged on for weeks before debris finds signaled no survivors, with affected families accusing the government of a muddled and heavy-handed response critics cite in general political and economic conduct. The jet apparently crashed the day after opposition party leader Ibrahim was again sentenced for alleged personal misconduct after a previous trial found him innocent, and its pilot was reported as a backer of his anti-corruption and greater democracy campaign. Prime Minister Najib after narrowly winning re-election last year had been under fire within the ruling UMNO coalition before the botched series of announcements surrounding the tragedy, and relations with minority Chinese further deteriorated as they were the majority of passengers. Longtime post-independence chief Mahathir has questioned his technocrat style, and popular anger has risen on subsidy cuts to tackle the 55 percent of GDP public debt with inflation at a multi-year high 3 percent. Business supporters in turn have been upset at the Trans-Pacific Partnership push with the US, which may undercut pro-Malay affirmative action policies and open official procurement to international competitive bidding. Domestic demand has sputtered in recent months as banks impose stricter standards with a 10 basis point hike in lending rates, while in external accounts tech and commodity exports have held up but capital flow trends became negative with reserves down $15 billion to $135 billion. Foreign fixed-income appetite at a former annual $10 billion clip has waned, and domestic institutional investors have steered allocation abroad, noticeably to sukuk instruments in Asia and the Middle East. Although global volume dipped 15 percent to $120 billion in 2013 according to rating agencies, the bank and corporate portion is slated to jump this year with the onset of new capital standards and diversification of funding channels which should still position Kuala Lumpur as a main hub.
Philippine shares in contrast have rallied as post-typhoon rebuilding should again foster ASEAN-leading 6.5 percent GDP growth, although remittance-aided private construction may slow after a property price surge. The peso has weakened around 10 percent versus the dollar but the 4 percent of GDP current account surplus offers a cushion and the central bank after switching rules for special deposit accounts has indicated tighter monetary policy ahead in response to the US Fed’s trajectory. However P/E ratios above 15 have prompted traditional investors to look to neighbors, especially Vietnam where they are barely in double-digits and greater foreign access and an IPO wave are forecast. The state airline and textile exporter are to list and 60 percent overseas ownership may soon be allowed in designated sectors. It is an MSCI frontier outperformer through Q1 and attracted attention with the opening of the first McDonald’s restaurant despite regular unfilled orders for fiscal and banking system correction.
