SAM'S MONEY SENSE

Economy 64

1) What is TPPA and who is behind it?

The Trans-Pacific Partnership agreement started as Trans-Pacific Strategic Economic Partnership agreement between Brunei, Chile, Singapore and New Zealand that came into force on May 1, 2006.

In 2008, the United States expressed interest in entering into talks with the four countries to liberalise trade in financial services and Australia, Vietnam and Peru followed suit. Malaysia joined in 2010, and Canada and Mexico joined in 2012. 

Japan was the last to join the talks last year, making it the 12th country to enter the TPP talks. Recently, South Korea has also officially expressed interest to join the talks.

2) Malaysia is a member of the World Trade Organisation and has signed many free trade agreements. How is the TPP different?

Malaysia has signed free trade agreements with many countries and trade blocs, including TPP members Japan, New Zealand and Australia. However, these free trade agreements are usually limited to agreements between countries to lower their tariffs for certain goods and services.

The TPP has 29 chapters and covers issues that are beyond most free trade agreements. The new rules that are negotiated will determine how TPP member countries approach competition, labour, environment, government procurement and intellectual property rights.Many of these rules have been discussed in the World Trade Organisation but consensus among its 159 members has been elusive.

3) Why are there so many protests against the TPP?

Critics of the agreement are mainly against the secrecy involved in the negotiations, proposed clauses that favour perceived corporate profit over public interest, and the likely removal of measures designed to protect local industries.

The negotiating text was out of bounds for the general public and even lawmakers of all TPP member countries.

In the US, “cleared trade advisors” to the US Trade Representative’s office has access to TPP’s negotiating text but not members of Congress. In Malaysia, members of a Parliamentary Caucus are regularly briefed on the progress of the negotiations but the negotiating text was released only to the Unit Peneraju Agenda Bumiputera (Teraju) and Institute of Strategic and International Studies (Isis) for separate cost-benefit analysis.

Even then, drafts of two most controversial chapters – on investment and intellectual property rights – have been leaked, leading to outrage over proposed investor-state dispute settlement (ISDS) clauses and extensions of patents and copyrights for medicines and books.

4) Why can’t we have access to the negotiating text when the TPP affects us too? 

The Malaysian International Trade and Industry Ministry offered this explanation:

“A level of confidentiality is required for two main reasons: (a) regulations and the evolving process of negotiations and rules surrounding the TPPA oblige negotiators to maintain confidentiality of the negotiating texts and (b) negotiators advancing the interests of Malaysia strategically do not want to publicly disclose their bargaining positions to ensure the best outcome during the negotiations.”

5) How does the TPP push up medicine prices and allow companies to sue our government for protecting its citizens?

A recent leaked draft of the intellectual property rights chapter suggests that a proposal has been tabled to compel TPP countries to compensate patent applicants with patent extensions for “unnecessary delays” in the granting of the patent.

This could delay Malaysia’s access to cheaper generic drugs as generic manufacturers could not produce and market the drugs before these patents expire.

Investor-state dispute settlement clauses that are being negotiated could allow foreign investors or corporations to take governments to international tribunals for actions that are deemed to hurt profits or violate their rights to be treated “fairly”, even though the actions are taken in the interest of public health or environment.

6) If the TPPA is so bad for us, why does the Malaysian government want a part in it?

With the TPP agreement, Malaysia will theoretically gain access to a market of 800 million people with a combined GDP of US$27.5 trillion. The Peterson Institute of Economics says Malaysia stands to gain over US$41.7 bil (RM133.9 bil) increase in exports and US$26.3 bil in income gains by 2025 if it stays on the TPP track.

As Malaysia is an open economy that is heavily reliant on international trade, the Malaysian government believes the TPP will open doors to many markets – including the US – after the Malaysia-US FTA talks fell through.

Malaysian negotiators are currently pursuing more access for Malaysian textiles to the US market and plywood to the Japanese market

7) What do we stand to lose if we walk away?

In a recent media briefing, Malaysian Minister of International Trade and Industry Datuk Seri Mustapa Mohamed said Malaysia will miss out on the opportunity to write the rules for future trade in the TPP if it backs out at this stage of the negotiations.

Malaysia may also face significantly higher tariffs for some of its products that are exported to Canada as she will graduate from the Canadian Generalised System of Preferences programme in January 2015.

Under the GSP, developed countries grant preferential treatment to eligible products imported from developing countries so that the products would be competitive in the developed markets.

8) What are Malaysia’s known positions in the TPP negotiations?

Malaysia is seeking a total carve-out of tobacco from the TPP negotiations and adequate safeguards to allow sufficient policy space for governments to regulate without being exposed to frivolous legal challenges through the ISDS.

Malaysia negotiators are also seeking for Malaysian state-owned enterprises to be excluded from TPP demands. They have not agreed to provisions that allow patents to be extended beyond existing timeframes.

9) What do other negotiating countries think about this whole deal?

There has been mixed views in almost all negotiating countries as industry players welcome the opportunity for greater market access amidst growing concern by non-governmental organisations and interest groups about the agreement’s public health, labour rights, the environment and the survival of local industries.

In Malaysia, the Federation of Malaysian Manufacturers and Malaysian Textile Manufacturers Association have openly supported the negotiations while a coalition of NGOs called Bantah TPPA have been voicing their concerns through engagements with TPP negotiators, the media and people on the street.

The Malaysian civil society is mainly concerned about the impact of the TPP on medicine prices, local small and medium enterprises and the Malaysian government’s sovereign rights to regulate within the country. There are also groups that are concerned about the TPP’s impact on bumiputera rights.

10) Is Malaysia prepared to walk away from the agreement if the risks outweigh benefits?

Several ministers, including MITI minister Datuk Seri Mustapa Mohamed and Prime Minister Dato’ Sri Najib Razak have made statements that Malaysia would not sign the TPP if it does not benefit Malaysia.

While trade agreements in the past are not required to be tabled in the Parliament, the TPP is an exception. Mustapa has reassured that the finalised TPP text will be tabled in the Parliament for debate before Malaysia signs the agreement.

Economy 63

Standard Chartered said Malaysian exports could have risen 5.8% on year in August compared to the 3.5% growth in July as the weaker ringgit spurred sales of crucial products to major importers.

In July, Standard Chartered said in its global research report today that Malaysian exports to the US and China had picked up strongly.

"Exports in volume terms have been positive on a year-on year (y-o-y) basis recently. By product, electronics exports rose strongly in June and July, while commodity exports were the main drag on export performance.

""We think Malaysian ringgit (MYR) weakness against the USD also helped export performance in July, with trade data being reported in MYR terms. Imports likely rose 2.2% y-o-y as improving electronics exports likely required more intermediate-goods imports," Standard Chartered said.

Based on the August export-import forecast, Standard Chartered said Malaysia's trade surplus could have increased to RM6.2 billion from RM2.4 billion in July.

Standard Chartered's note came ahead of Malaysia's August external trade data announcement this Wednesday.

The ringgit has depreciated amid US interest rate hike expectation this year, cheaper crude oil and state-owned 1Malaysia Development Bhd investigations.

On 5th Oct 2015, the ringgit changed hands at 4.4003 against the US dollar. Over the last one year, the ringgit has weakened to current levels from the strongest point at 3.2330.

Investing 55

The recent selloff in emerging-market assets, including Mexico and Malaysia’s currencies, has opened up investment opportunities not seen for decades, according to Franklin Templeton’s Michael Hasenstab, who’s well known for making contrarian bets.

“On a valuation basis, this is not a once-a-decade, this is a multi-decade opportunity to be buying very cheap assets,” Hasenstab, who oversees 30 funds with US$143 billion in assets, said in an interview posted on YouTube Monday. “We are not buying everything,” but “there are a handful that have been caught up in the turmoil that we think are diamonds in the rough,” he said.

The San Mateo, California-based money manager said he’s buying the Mexican peso, Malaysian ringgit and Indonesian rupiah, while avoiding assets in Turkey, South Africa and Russia. He’s also betting on an increase in US Treasury yields and sees the dollar strengthening against the euro, yen and the Australian currency.

Hasenstab, an avid mountaineer who climbed Mount Everest, is doubling down on emerging markets after a slowdown in China’s growth rate, a slump in commodities and after the prospect for an increase in US interest rates roiled markets from Brazil to Malaysia. Emerging markets are set to record the first net capital outflow since 1988, the Institute of International Finance estimated last week.

Big Bets

The Mexican peso has fallen 12% this year and reached record lows, while the ringgit tumbled 20% to levels last seen during the 1997–1998 Asian financial crisis.

During his 20 years at Franklin Templeton, Hasenstab has established his reputation as a bond manager by placing large bets on assets when they were plunging. He made billions of dollars by scooping up Irish debt in July 2011, eight months after the country entered an international bailout.

His reputation was tarnished after an investment in Ukraine turned sour as the conflict-torn country defaulted on its bonds. A Templeton-led creditor committee holding about half of the country’s US$18 billion Eurobonds reached a restructuring deal with the Ukraine government in August.

Hasenstab’s Templeton Global Bond Fund, which manages US$61 billion, has lost 6.1% this year, trailing 85% of its competitors, as some of its wagers on emerging markets flopped, according to Morningstar Inc. It returned 7.1% annually over the past decade, beating 99% of its peers.

Fortress, Dalio

At the end of June, the fund had invested about 14% of its assets in South Korea, according to the company’s Website. Mexico accounted for 9%, while Malaysia made up about 7%, ranking as the second- and third-largest holdings. Franklin Templeton funds were the largest owner of Malaysian government local-currency bonds due in the next 30 months among funds that disclosed their holdings, Bloomberg reported in August.

Hasenstab’s view on emerging markets stand in contrast with some of the biggest hedge funds. Fortress Investment Group LLC told investors last month that emerging markets are at the beginning of a bear market that could rival the Asian financial crisis of 1997. Ray Dalio’s Bridgewater Associates has said the impact of emerging-market losses is likely to be more widespread than in the crises of the 1980s and 1990s because investors have more money invested in developing markets.

Hasenstab said the biggest risk for global investors over the next few years is rising US Treasury yields, partly because the Federal Reserve is at risk of losing “credibility” in fighting inflation.

“While over the last 30 years, I wanted to make money by declining rates, we think over the next five years, you want to make money by rising rates,” he said.

Economy 62

Pacific trade ministers have reached a deal on the most sweeping trade liberalization pact in a generation that will cut trade barriers and set common standards for 12 countries, an official familiar with the talks said yesterday.

A Bloomberg report says the 12-nation Pacific trade deal cements President Barack Obama’s strategic pivot toward Asia and challenges China to accept US-backed rules for doing business.

A trading bloc stretching from Chile to Japan, with the US at the economic center, bolsters Obama’s effort to counter growing Chinese military and economic influence in the Pacific.

More than that, the deal means the US now has closer trading partners — and closer friends — in the region. That may force China to live up to the deal’s standards or else be cut from some of the resulting economic growth.

If ratified, the Trans-Pacific Partnership (TPP) would be the largest pact governing international commerce in more than two decades, encompassing 40% of the world’s economic output. The deal would set new precedents for breaking down subtle, politically entrenched barriers to trade and would reinvigorate an expansion of global commerce.

The trade pact would eliminate more than 18,000 taxes on US products and includes enforceable labour and environmental standards, Obama said in a statement.

“When more than 95% of our potential customers live outside our borders, we can’t let countries like China write the rules of the global economy,” Obama said.

“The US is back in the driver’s seat with trade in a way that it hasn’t been for more than two decades. It really does reassert a strong US role in the trading system,” said Edward Alden, a senior fellow at the Council on Foreign Relations in Washington.

China remains the world’s second-largest economy and its role as Asia’s dominant commercial force will not diminish, despite a slowdown in growth that has roiled its financial markets this year.

President Xi Jinping has moved to enhance his nation’s economic influence, including by establishing the Asian Infrastructure Investment Bank, which has attracted participation from more than 50 countries.

While China is not a party to the TPP, the participation of so many of its trading partners and neighbours — including Japan, Malaysia and Vietnam — raises pressure on Xi and his government to accept its standards.

Chinese studying

“The Chinese are studying very carefully the pros and cons of participation in TPP,” said Jeffrey Schott, senior fellow at the Peterson Institute for International Economics and a former US trade negotiator.

A shift in US strategic focus toward Asia has been a centrepiece of Obama’s foreign policy. His administration considered the TPP trade pact critical to that strategy; Defence Secretary Ashton Carter even said he would prefer the agreement over another aircraft carrier in the Pacific.

China visit

Negotiations on the pact were completed just more than a week after Xi travelled to the White House for a state visit that underscored points of contention between the world’s two largest economies. The US and China have found themselves increasingly at odds over cyberespionage, territorial disputes in the South China Sea, currency manipulation and labour practices.

The influence of the new trade bloc may grow as other Pacific Rim nations seek to join, with South Korea likely among the first.

Invest 54

Over the past century, the market has gone through distinct “bull” and “bear” phases. These last, on average, 10-25 years each. Specifically:

A 29-year bull market from 1900-1929

A ~20-year bear market from 1930-1950

A  ~15-year bull market from 1951-1966

A ~15 year bear market from 1967-1982

An ~18 year bull market from 1982-2000

A ~? year bear market from 2000-?

Some people think the latest “bear” phase ended in 2009. They also think we’re in the middle of a glorious “bull” phase again.

But based on valuation — stock prices relative to the fundamentals of the underlying companies — we unfortunately appear to still be in the middle of the latest “bear” phase.

Don’t believe it?

Let’s go to the charts.

The bulls look at this chart and point out that we moved sideways for 10 years after 2000, say that was plenty, and predict that stocks will now forge ever higher for years as the new bull market continues:

Bears, meanwhile, look at the chart and see a temporary, Fed-fueled spike in the middle of a long bear market that they believe will see at least one more big downtrend and correction (likely lasting years) before it is done.

So who’s more likely to be right?

Well, let’s add more information to that chart.

Throughout history, stock prices have loosely gravitated around the “fundamentals” of the underlying companies — namely, earnings. Specifically, stocks have traded in a range of 5X cyclically adjusted earnings (at bear-market lows) to 44X earnings (at the peak of the biggest bull market in history — the one that ended in 2000). The “average” P/E ratio over this period, meanwhile, has been about 15X.

When you add P/E ratios to the charts above, you quickly notice a pattern:

Sustained bear-market periods have begun when the P/E is very high (~25X+).

Sustained bull-market periods, meanwhile, have begun when the P/E is very low (5X to 9X)

So, what does all this tell us?

Nothing conclusive, unfortunately. No one knows the future.

But let’s make a couple of observations about our current situation:

First, even after the recent market wobble,  stocks are still more expensive than they have been at any time in the past century with the exception of 2000 and 1929. And we know what happened after those years. For the “new bull market” to continue indefinitely, the market’s P/E would have to continue to keep rising toward the P/E at the historic 2000 market peak — which, it is worth noting, was followed by a devastating crash. That’s possible, but frightening.

Second, if we are indeed in the middle of a new bull market, the bear-market “workout period” following the 2000 peak would have been one of the shortest in history. And we were starting from the highest valuation in history, by a mile.

Unless something has changed that makes the past 115 years of market history irrelevant (always possible, but probably not likely), it would not be surprising if the biggest bull-market peak in market history was followed by one of the biggest bear-market workouts in history — one that, perhaps, might last as long or longer than any major workout period to date.

As a long-term investor, I thankfully don’t have to make short-term market calls. I have also learned (the hard and expensive way) to limit my stock exposure enough so as not to get freaked out by crashes. I own stocks, so if we’re in the middle of a new bull market, great. I also own cash and bonds, so if we’re still in the middle of a long bear market, fine. If stocks tank from here, I’ll trade some of that cash for stocks and hope that the world doesn’t end.

Invest 53

The small and medium enterprise (SME) sector has performed remarkably well in the past one decade, recording growth exceeding the country's gross domestic product (GDP).

SME Corporation Malaysia (SME Corp), in its SME Annual Report 2014/2015, said the SME sector grew at an average annual rate of 7.1 per cent versus 4.9 per cent of the GDP in the 2005-2014 period.

It said the SME GDP grew at a phenomenal rate of 13.6 per cent in 2014 versus 6.4 per cent of the national GDP in 2013, attributed mainly to the one-off effect of the new SME definition which came into force in January 2014.

"Nevertheless, excluding the redefinition effect, the growth of the SME GDP remained strong at 7.9 per cent last year, supported by growth across all sectors of the economy," SME Corp added.

If the global outlook and Malaysia's growth forecast of between 4.5 and 5.5 per cent this year is anything to go by, the SME GDP is expected to expand between 5.0 and 5.5 per cent in 2015, SME Corp said.

It said in line with Malaysia's chairmanship of ASEAN, the SME Annual Report 2014/2015 themed 'One Business, One Community' highlights opportunities for SMEs with the formation of the ASEAN Economic Community (AEC) by year-end.

With a market size of 625 million people, the AEC is expected to provide boundless opportunities for Malaysian SMEs.

"To reap the benefits, the SMEs must be ready to penetrate into the region and face the challenges.

However, the First Quarter 2015 SME Survey revealed that only 40 of the respondents were aware of the AEC," it said.

In an effort to raise awareness of AEC and ASEAN market opportunities among the SMEs, the Ministry of International Trade and Industry organised the AEC Open Day in August 2015 which drew over 600 representatives from SME and industry associations. 

Investing 52

Oil's holding near $45 while the bad news keeps coming. For investor Jim Rogers, that's usually a sign a rebound's round the corner.

The Organization of Petroleum Exporting Countries is still pumping near record amounts of oil, China's imports have slowed and U.S. crude stockpiles remain about 100 million barrels above the five-year seasonal average.

Yet, U.S. benchmark prices have held steady for more than four weeks since plunging to a six- year low at the end of August. “When there's bad news and something doesn’t decline, it usually means it's at a bottom and will be turning,” Rogers, who correctly predicted a commodities rally in 1999, said in an interview in Singapore on Thursday. “Whether we’re at a turning point or not, I don’t know yet and I’m watching this very closely.” A persistent global glut of crude that's cut prices by half over the past year has prompted banks including Citigroup Inc. to predict further declines, with Goldman Sachs Group Inc. warning they may drop to as low as $20 a barrel. The losses, driven by a U.S. shale boom and OPEC's strategy to sustain output to defend market share, has led a slump in commodities that's roiled currency, equity and debt markets across the world. West Texas Intermediate crude futures in New York plunged to $37.75 a barrel on Aug. 24, the lowest intraday level since February 2009. They’ve since averaged $44.99 and haven’t closed below $44 from the start of September. The November contract traded 53 cents higher at $45.27 at 1:17 p.m. Singapore time on Friday. While U.S. inventories remain abundant, the nation's production has slipped in seven of the past eight weeks and drillers have idled more than half their rigs. Those cuts will help stabilize prices, Rogers said. “Some companies are stopping drilling and production is actually going down in the U.S. now,” the chairman of Rogers Holdings said. “Shell is canceling some drilling. All of these mean supplies will be going down in the future.” Rogers also said he was watching Glencore Plc, whose shares fell by a record on Monday in London amid concern over its debt load. The commodity producer and trader has since recovered some of the near 30 percent loss after the company moved to reassure investors and as banks including JPMorgan Chase & Co. said the slump left the stock undervalued. Citigroup wrote that management should consider taking the company private. Agriculture Opportunity “It might be a good trade if you go public at a high price and you buy it back at a depressed price,” Rogers said, referring to Glencore. “That might be a wise thing to do. On the other hand, they have a lot of debt so I don’t know if they could do that.” With the Bloomberg Commodity Index, a measure of returns from 22 components, plunging to the lowest level since 1999 in August, Rogers also sees opportunities for investors in other raw materials. “Agriculture is probably where the best opportunities are,” he said. “I’m not buying rice and sugar at the moment but some of these things are down a lot from their all time highs. There's potential opportunities out there.

Investing 51

1) German prosecutors are investigating former Volkswagen CEO Martin Winterkorn for possible fraud related to selling cars with falsified emissions data. Winterkorn took responsibility for the scandal when he resigned last week, but said then he was not aware of any wrong doing on his part.

2) Volkswagen on Friday appointed Matthias Mueller, the head of Porsche, to succeed Winterkorn.

3) The company was found to have falsified U.S. pollution tests on 500,000 diesel engine vehicles, by installing software ("defeat devices") to make them appear cleaner than they were when being tested. Once on the road, the cars would pump out as much as 40 times the allowed level of nitrogen oxides.

4) The U.S. models affected include the VW Jetta, Beetle and Golf from 2009 through 2015, the Passat from 2014-2015 as well as the Audi A3, model years 2009-2015. Volkswagen said Monday about five million VW branded cars are affected worldwide, including some Tiguan models. Other group brands such as Audi (2.1 million cars) and Skoda (1.2 million cars) are also involved. In total as many as 11 million vehicles may have been manipulated.

5) Volkswagen's scheme was discovered last year by a West Virginia laboratory that was commissioned by a clean energy advocacy group that had raised questions about emission levels in diesel vehicles. For more than a year, VW argued to U.S. officials that it was not doing anything wrong. Only recently did VW admit to them that it had installed "defeat devices" in the cars to get around emissions standards.

6) It's not clear yet how Volkswagen plans to alter the cars so they comply with regulations. The company has been ordered to recall the 500,000 cars in the U.S., and it has suspended sales. U.S.regulators say the cars are safe to drive and recommend, for now, that owners do nothing differently. But eventually the cars will need to be repaired so they can pass emissions test without cheating.

7) Western Europe is the most important market for Volkswagen -- around one in four new cars is made by the group. Authorities in the European Union have urged national governments to conduct investigations.

8) Volkswagen is facing heavy fines. It has already set aside 6.5 billion euros ($7.3 billion) to cover recalls and other costs. But the bill is likely to rise. U.S. authorities could in theory impose up to $18 billion penalties for breaching the emission limits. Germany could also slap Volkswagen with fines, and owners and dealers will want compensation.

9) Volkswagen has promised to work with German prosecutors on a criminal investigation. Employees held responsible could be prosecuted for fraud. If convicted, they face big individual fines and could be sentenced to a maximum of 10 years in prison.

10) About a quarter of the company's market value was wiped out in the first week. That means big losses for powerful shareholders such as the Porsche family, Qatar and the German state of Lower Saxony. The scandal has already trashed Volkswagen's financial forecasts for the year.

Investing 50

With uncertainty heightened amid China recording slower growth and implementing structural change, and the United States showing signs of picking up again, investors are showing more interest in “safe haven” stocks and economies.

These companies, according to Nomura Asset Management Malaysia Sdn Bhd Leslie Yap, would be in the consumer, healthcare and technology sectors in developed markets.

Amid the uncertainty coming from differing economic cycles in the global arena, Yap said investor interests were more heavily placed in developed markets. “People at this point of time are more comfortable with where the developed markets are going,” he told StarBiz in an interview.

In terms of the economy, the United States is picking up, employment is getting better and the housing index is getting back up close to pre-Lehman days, accordig to Yap.

Europe and Japan are still into very easy monetary policies. “... if you look at it overall, things are not bad,” he added. He expects developed markets to continue doing well.

“From an investment and stock market point of view, unfortunately we are caught in between the two largest economies in the world going through different cycles,” he said.

The two main concerns, or reasons for uncertainty, are coming from China, which is going through slower growth, structural changes and looking to ease; while US is growing and looking to “normalise” rates.

“Until a decision is made by the Fed, I would expect this sort of volatility to remain in the markets,” he said.

He added that some exposure to global developed markets was actually good. “They give you dividends, buybacks and benefit of growth not just in Malaysia but from growth prospects in the US,” he said.

Despite this, Nomura sees opportunities in the tech sector. “It has been sold down in the last one to two months as there have been a lot of concerns on spending and handphone sales slowing down.

“Also for a lot of semiconductor companies, the amount of usage for their components are actually increasing for some of the gadgets we spend on. They are now trading at mid-to-low teens and they are holding lots of cash,” he said.

This makes the sector an attractive long-term investment so although sentiment is that things are slowing, given a year or two, the tech sector should be looked at if it continues to pull back, according to Yap.

Another growth area would be in the healthcare sector. “Pharmaceuticals or medical devices companies will also do well because from the long term perspective the aging population around the world and the ability to sell and benefit from stronger US dollar is good for them.

“There are also a lot of companies with intellectual property because of the drugs they develop and they do provide decent yields. They still get growth and dividends,” Yap added.

But the healthcare sector will not only do well in developed markets but emerging markets as well. “People will continue to demand for better healthcare service and drugs,” he said.

Meanwhile, the consumer sector would continue to benefit from recovery in the US as and when wages picks up and kicks in. “We have seen examples of consumer or retail names, whereby one exposed to domestic economy has done really well. It is clear that those exposed to the domestic side are doing well, but those exposed globally will still see headwinds,” he said.

Another area Nomura is keeping an eye out for is industrial robotics. Lower labour force coupled with increased safety concerns are making the usage of robotics in manufacturing and obvious trend.

“A lot of auto companies have been automating because you don’t want people to be carrying big pieces of metal and getting injured. But what surprised me are companies like Adidas, or sports shoe manufacturers where it used to be labour intensive, they are already testing out a fully automated production line in Germany,” he said.

Moving forward, he expects growth to further drive developed economies. Although there has been some recovery since the global financial crisis, it has been weaker-than-expected, he added.

If growth continues to pick up in the third or fourth quarter, investors would be more comfortable with putting money back in, and this will be in companies that can produce and generate growth.

Despite emerging markets slowing down, Yap believes the middle class will continue to grow over time so there will still be opportunities in consumer and consumption brands.

Economy 61

Bank Negara governor Tan Sri Zeti Akhtar Aziz is unconcerned with the possible downgrade to “junk status” by credit default swap (CDS) traders as she believes Malaysia is resilient enough to weather the current market volatility.

“(The potential downgrade) is not by the rating agencies,” she told reporters on the sidelines of the launch of the Financial LATeracy exhibition at Bank Negara yesterday.

“During the Asian financial crisis, all sorts of things were said about Malaysia. But in 1999, less than a year after the crisis, we went to tell the world our story. This is what we must do, so investors will look at how we assess our situation and they can make their assessment then.”

Bloomberg had last week reported that six developing nations, including Malaysia and South Africa, could follow Brazil to have their bond status degraded to junk level, following loss of investments.

CDS announced it two weeks after the Latin American country lost its investment grade at one of the three major ratings providers.

On the declining ringgit, Zeti noted that global developments were still highly volatile, adding that Malaysia was affected by this volatility.

“What is important is that we have the strength and resilience to ride it out. Of course we’ll be affected. From time to time, the ringgit will recover and then there are other developments like in China and the Middle East and the United States.

“All of them have an impact on countries around the world and we are affected by the developments of these countries. This is likely to persist for some time to come – so we must have the resilience to ride out this period.”

She added that Bank Negara would like to see the ringgit stabilise.

“It’s challenging for businesses and people that have exposure to currencies, for people whose children are studying abroad.

“But we do not have any particular level, because this is not a static environment, it’s a dynamic one. Other currencies are also adjusting, so we cannot keep it at one specific level.”

Zeti said the outlook remained challenging but projected the economy to grow between 4.5% and 5% this year.