Monday, 26 September 2016

Viral Whatsapp Message From a Friend From Singapore

I received this images via Whatsapp from a friend yesterday. Apparently it’s been making its round on Whatsapp, Facebook, Twitter or how people like to call it these days this post has gone “viral” on social media. People shared, retweeted, reposted to their friends and added comments like “save your money”, “economy has gone to the dogs”, “we are doomed” and so on.
I’m not sure whether people bother to fact-check the content of this message before sharing or at least double check the statement that’s been made by this so called everyone’s “friend from financial sector. As someone who’s currently working in the financial sector, I scoffed when I first read this post. There are too many factually incorrect statements, wild and baseless “forecasts” and false and unverified citations.
Let me explain sentence by sentence, please bear with me, here goes:
“Malaysian currency is expected to depreciate further to RM4.50 by end of September as Ringgit is not used as currency’s for trading in World Stock Exchange”
USD/MYR is currently trading at 4.09 or in layman term, you need RM4.09 to buy 1 US Dollar. This so called friend in financial sector is saying that MYR will depreciate to 4.50 by end of this month. He/She is also implying it’s because MYR is not traded in other foreign stock exchanges.
Can MYR depreciate further to 4.50? Sure it can, there’s no doubt about that. But it’s not because MYR is not internationally traded in “World Stock Exchange” whatsoever. It’s because MYR movements are correlated with commodities prices especially crude oil prices.
When crude oil prices drop, MYR and a whole lot of other petro-currencies like Australian Dollar, Mexican Peso, Canadian Dollar, Norwegian Kroner et al will depreciate. That’s why last year MYR depreciated to as low as 4.48 in September because crude oil prices dropped from USD115/barrel to only USD45/barrel. I hope we are clear on that.
Why would MYR be used in “World Stock Exchange”? Would investors buy stocks in Singapore Stock Exchange (SSE) using MYR? Would traders trade stocks in Indonesian Stock Exchange (IDX) using MYR? Would pension funds invest in stocks in Philippine Stock Exchange (PSE) using MYR? No, no and no. Nobody’s using other country’s currency to buy/trade something in other country.
MYR can depreciate if crude oil prices fall, AND MYR can also appreciate to 3.9, 3.8, 3.5 if crude oil prices rebound to USD60/barrel, USD80/barrel or USD100/barrel. Bottom line nobody can predict where crude oil and MYR are headed. Any numbers that’ve been picked by forecasters are merely speculations based on previous movements, fundamental and technical factors. Yup, just like 4.50 by end of this month, it’s also a speculation.
“Ringgit will stumbled further as the government further cut on export of crude oil due to over over supply”
Oh my English. Don’t mind the grammar but government doesn’t cut oil exports. Exports depend on external demand not whether government wants to export more or fewer of Malaysian products. If our trading partners (importers) demand/order more of our crude oil, natural gas and petroleum products, we will exports more as simple as that.
“Bank Negara held reserved is only RM101 billion at this moment. But our debt has climbed to RM614,880,270 billion. Which means each taxpaying citizen has a debt of RM18,835”
I gotta admit I felt really snarky reading these particular sentences. Why? Because all the facts are blatantly incorrect. First, Bank Negara International Reserves stood at RM391.9 billion as at 15th August 2016. National ( let’s use government) debt is at RM655,745,000 (RM655.745 billion) at the end of 2nd quarter of 2016, yes more than what was cited above but that’s not the point.
Dividing government debt to total population is pretty pointless. It’s not that every citizen will have to pay back what the government owes to its debtors. Sure government collect taxes from citizens to service interests on its debts, but part of the interest payments flow back to us via EPF, mutual funds, pensions and many more. How so? Government issues debt not just to finance its (development) budget, but also to provide safe assets to pension funds, mutual funds and investors. Government bonds (debts) are deemed as the safest financial asset that not just guaranteed its value (if held until maturity), it also provides steady stream of income in the form of interests to investors like EPF, KWAP and mutual funds which are investing our retirement money, pension funds and savings.
“Stop investing in any ventures, properties or car. Cash in hand is safe as disaster is on the way”
Our friend here said stop investing in any ventures, properties or car. Do you guys realize how paradoxical it is to ask people to stop investing and consuming when our economy is consists of investments and consumptions. If all or many people stop investing and consuming, won’t it exacerbate the allegedly bad economic conditon further?
Yes, of course you need to save for rainy days, you need to prepare for uncertainties that lies ahead and you certainly need to manage your financial situation accordingly. You would never know what’s going to happen in the future. Nobody would.
World Economic Analysts predict within the next 3 months, Malaysia economy will collapse. Stock market & currency will nosedive in a drastic manner.”
I don’t know what or who are these “World Economic Analysts”. I don’t know on what basis they’re predicting the demise of Malaysia’s economy, stock market and currency. I try googled but coudn’t find anything about these “World Economic Analysts”. Try google for me guys?
Like I said earlier, nobody can predict what’s gonna happen tomorrow, more so 3 months from now. It can go both ways, economic conditions can improve considerably as it can go down. Any drastic movements can only happen if there are major terrorist attacks or sharp downturn in major economies like US, EU, Japan, China. As an open economy, Malaysia is vulnerable to external forces that are beyond anyone’s control.
Malaysia’s economic growth has been slowing down since last year. These were Malaysia’s quarterly economic (GDP) growth:
Q1 2014: 6.3%

Q2 2014: 6.5%
Q3 2014: 5.6%
Q4 2014: 5.7%
Q1 2015: 5.7%
Q2 2015: 4.9%
Q3 2015: 4.7%
Q4 2015: 4.5%
Q1 2016: 4.2%
Q2 2016: 4.0%

Economic growth are slowing down BUT not contracting. It still grows albeit at slower rate. If our economy growth is contracting we’d have negative growth rate or simply known as economic recession. I repeat we are not in recession. Not yet.
Personally I think, Malaysia’s economic growth will rebound or at least bottom out in the next quarter. GST effect on consumption has receded, new minimum wage level from RM900 to RM1,000 was implemented with effect from 1st July 2016, civil servants received salary bump also with effect from July 2016. Those will boost private consumption and support Malaysia’s economic growth going forward.
“Crude oil will crash due to oversupply as Americans are pumping more crude oil. The reasons:

i) to hurt Russian’s economy and her currency as Russian is world’s no 1
ii) ISIS in order to finance their survival is also selling cheap smuggled crude oil from Syria & Iraq thus flooding the oil market”
Crude oil prices have already crashed due to oversupply since middle of 2014. Yes the US has doubled its production over the last few years. The boom and surge in US oil output was due to the wide use of the technology called fracking by US oil producers. As oil production doubled, US became less reliant on foreign imports from Saudi, Venezuela, Nigeria, Algeria et al like they used to. So these oil produced by mideast and Africa nations need to find another home.
There are also other oil producers like Russia, Canada and Norway which also produced and exported more oil year after year. Almost all producers are pumping oil at record level including Iraq and Iran. These producers have to lower the prices of their products to compete with other producers and attract buyers from all over the world.
As a result crude oil price dropped as much as 70% compared with June 2014. At one point Brent crude oil dropped to lowest level of USD27/barrel in January 2016; lowest level since 2004. Although since then crude oil prices have recovered to today’s level of USD45–50 per barrel, it’s still way below its 2014 level of USD120 per barrel.
So US pumped more oil to hurt Russia because Russia’s economy and currency is number 1? Russia faced economic recession since last year and its currency Russian Rouble dropped as much as 20% at one point after the fall in oil prices much like our own currency Ringgit Malaysia. Russia’s also faced economic sanctions from international community due to their shenanigans in Ukraine particularly in Crimea. US didn’t need to ramp oil productions just to hurt Russia. They have already been hurting themselves. What number 1?
About ISIS. I’m no expert on global terrorism but from my reading on ISIS finances, ISIS relied on taxations and extortions more than they relied on oil. They also stole hundreds of millions from state-owned banks in Iraq that they have occupied/invaded/captured. As oil prices are already low, revenue from oil constituted only 10% of ISIS total revenue. In 2014, USD600 million came from taxation and extortion on land and people they invaded, USD500 million stolen from state-owned banks in Iraq and only USD100 million came from oil. AND that’s before oil prices plunged. Imagine the revenue after oil prices plunged 70%. Oil is not the main source of revenue for ISIS.
“Malaysia’s oil production will be hit due to this. Apart from the current political uncertainty and corruption which discourages foreign investments.”
I really could not fathom why our friend from financial sector insists that Malaysia’s oil production will go down. In 2014 Malaysia produced 603,000 barrels of crude oil per day. In 2014 productions increased to 654,000 barrels per day. 2016 is pretty much the same.
We must differentiate between value and volume. Exports value is affected by oil prices while export volume is how many in quantity is exported in the case of oil how many barrel. For example. In January we export one barrel of crude oil priced at USD100. Our revenue in January will be USD100. In February we export the same amount of barrel which is one barrel of crude oil but price has dropped to USD50. Our revenue in February will be USD50. But our production and export remained the same i.e. one barrel. Ou export value changed due to oil price, but our export volume remained the same.
Logically if Malaysia wants to offset the fall in prices, they should produce and export more barrel per day not reduce.
While we are at it, let me explain to you guys why the depreciation of MYR in tandem of falling crude oil prices are a blessing rather than a curse FOR Malaysia’s (Petronas) finance.
Since oil is traded in US Dollar, oil producers and exporters sell their oil and gain revenue in USD. They will convert their oil revenue in USD to LCU (local currency unit) in our case Ringgit. Let’s assume in 2014 oil price on average is USD100 per barrel and in 2015 it drops to USD50 per barrel. In USD term, Malaysia’s oil revenue in 2015 will fall 50% as oil prices drop 50% during the same period.
But how about our revenue in Ringgit (MYR). Let’s assume USD/MYR on average trading at 3.00 in 2014 and as oil prices dropped MYR depreciates to 4.00 in 2015. Also assume that oil prices are USD100 in 2014 and USD50 in 2015 like the above assumption. Our oil revenue in MYR in 2014 will be USD100 x 3.00 = RM300 per barrel. in 2015 our oil revenue in MYR will be USD50 x 4.00 = RM200 per barrel. Can you see that our revenue in MYR term falls only by 33% as opposed to 50% in USD term.
Why is that? Because MYR depreciation offsets the fall of oil revenue in USD term. Let’s say MYR remained unchanged in 2015 at 3.00 as per example above. Malaysia’s oil revenue in 2015 will be USD50 x 3.00 = RM150 per barrel. The loss in revenue will be 50% exactly the same as loss in oil revenue in USD term.
Now you guys get why Ringgit depreciation is (partly) a blessing rather than a curse right? Had MYR not depreciated after the fall of oil prices, Malaysia will be more severely affected and we would be in worse condition than presently.
As we know last year we’ve been bogged down by political situations. But have the situations discouraged investments into Malaysia? These are foreign direct investments (FDI) figures received by enterprises in Malaysia:
2010: RM92.66 billion

2011: RM103.21 billion
2012: RM107.52 billion
2013: RM103.87 billion
2014: RM112.35 billion
2015: RM128.38 billion

Not really discouraged wasn’t it? Even in the first half of this year, we recorded RM67.72 billion of FDI inflow more than half of what recorded in the first half of 2015. Political noises didn’t really affect investments flow into our country. Foreign investors know the reality of investment climate and they usually ignore the excessive politicking by the local politicians.
“The World has perceived Malaysia as ranking no 1 for corruption & scandals and financial forgery in money laundering.”
I don’t know from where our friend got his/her source of this claim. I know 1MDB is quite a big issue. US Department of Justice and many other foreign authorities are investigating the alleged money laundering activitities by certain individuals involving our own state-owned fund that is 1MDB. Our own police force also is still investigating the matter as far as I know.
What important is, 1MDB has never been a major factor that affected Malaysia’s economy as it was potrayed by some people.
While there are corruptions in our country and MACC is working on fighting it, I don’t think we are ranked as no 1 in corruption whatsoever. There are worse countries like Brazil, Argentina, Venezuela and many others than us whose economies have been dragged by their corrupt leaders and businesses. Case in point Brazil-Dilma Rousseff-Petrobras.
“So my dear friends again as a reminder to myself and all of us please spend our money wisely. Keep our money for rainy days. As we are heading towards difficult and bumpy days. The journey will be tough and unpredictable. This will hit hard on all of us, regardless whether you are rich or poor.”
Regardless whether there will be an economic crisis or not, we need to spend our money wisely. Of course the future is unpredictable and nobody. nobody has a crystal ball to predict what will happen in the future. But please, do manage your financial because you need and must to, not because some unverified whatsapp messages.
By all means save and invest for your future, for your children’s education, for a comfortable retirement and for whatever reasons that you deemed fit with your financial objectives and ambitions.
Please verify everything you read on social media before sharing, retweeting or reposting to your friends and families. Nobody benefits from creation of panics and anxiety among us except for some politicians. Be smart and be informed. We Malaysians, are better than this.
TL;DR summary of my FB post:
1) Ringgit can appreciate and depreciate according to many factors but mainly commodities prices such as crude oil

2) Malaysia’s economic growth is still on upward trajectory albeit at slower rate, again, because of external factors
3) Ringgit depreciation helped offset the fall in oil revenue of Malaysia’s oil producer (Petronas)
4) Political “problems’ in Malaysia have not affected flows of foreign investments into Malaysia
5) Verify viral posts vefore you share, pretty please?


p.s. I hope this post will get “viral’ too. Just kidding ;)

No comments:

Post a Comment