Malaysia and Mongolia, same rating. 🙂

After slightly over 6 months of a reaffirmation of A- rating, Fitch Ratings has now given Malaysia a Negative Outlook. It said that out of the 10 Emerging Asian sovereigns, two is under Negative while the rest are all on stable outlook. Yes, the two include Malaysia and Mongolia. The two major reasons include erosion of current account surplus (means our export numbers are not high enough versus imports) and a large public sector deficits. Both these are compounded by the drop in oil prices. Due to all these factors it has to downgrade Malaysia as we are no longer fit for an ‘A’ range sovereign. It did however said that the government has kept to its consolidation path but the oil price can throw a spanner into its path. This is the ‘badder’ news in the sense that the near future may be rockier and more testy. If we can emerge unscathed, I think a re-rating is in place.
Fortunately, it’s not all bad news. 2014 can be considered a good year even if 2015 is likely to be tougher. According to Standard Chartered, they are predicting that Malaysia would record a robust 5.9% GDP growth for 2014. This would be the highest since the 2008 crisis. They are also maintaining their forecast for 2015 at 5.5% and said that this would be helped by the fact that Malaysia is a big exporter of non-commodities which comprise of 70% of its exports. This is likely to benefit from the effects of the fall in oil price. 5.5% is still considered very healthy when we consider the average of just 4.3% for the periods of 2001 – 2013. It expects the second half to be a better half and said that Malaysia’s fundamental remain strong with the full employment as well as new foreign investments that the country is receiving.
Okay, which one should we believe? One is a top rating agency while another is quite a big international bank. The answer is pretty easy. Are you investing or are you waiting? if you are investing, of course the report from Standard Chartered is better. In fact with this report, you may want to buy that nice little place now and wait for a better second half by the time your transaction is completed. If you are waiting, of course you hope that 2015 may not be a good year for Malaysia. Then, you may be able to get some potential ‘fire-sale’ in the property market. Personally, I would like to believe what Standard Chartered said is true. The reason is because I think the GST would just come and go. Complaints? Sure. Lots of noises? Sure. However, it will be just another phase in the country’s growth and once GST starts to show its positive effects in the years to come, I think the rating agencies would be happier with Malaysia. I only have an MBA, not an economics degree. We shall see whether Fitch Ratings or Standard Chartered or even Charles is right. Haha.
written on 12 Jan 2015
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