Moody’s rating for Malaysia and the 86.8% household debt versus GDP

moodysIn The Star online today (26 March), Moody’s Investors Service said that it expects Malaysia to be able to withstand external financial shocks due to its strong external position and large pool of domestic savings.Currently, Malaysia is rated at A3 (positive). What’s the meaning of this rating? The actual definition is ‘Rated as Upper Medium and Low Credit Risk’. To understand in simple English, it means this is considered a good rating and Malaysia is considered a safe investment grade for investment.
What’s the current domestic savings to GDP? It is around 34% as at today. Compared to many countries in the world, this is considered above average. In other words, Malaysians save a lot comparatively. It’s not all rosy though. Moody’s said that Malaysia’s fiscal deficits continue to be wider than A-rated peers while the debt burden at 54.8% of GDP as at end 2013 also constrains the policy space. In simple English, it means there are certain limitations to Malaysia’s ability to respond as much as it wanted because of its debt burden. Besides that, direct petroleum-related receipts equate to nearly one-third of total federal government revenue.
household debtWhat about Malaysia’s household debt which is 86.8% of GDP which is very high in comparison to many countries, including Singapore? Actually, household debt is an important gauge but do be reminded that with the continuous urbanisation as well as a population which is reaching the age where buying a home is a necessity, this % will continue to increase. What is more important to understand that in Malaysia, if you do not qualify for loan, the banks would reject your loan  due to the strict guidelines imposed. Thus, the quality of loans given out, especially for housing is not of questionable quality.  This is unlike the US Mortgage crisis where the loans given out were speculative in nature. Everyone thought then that the price will never stop going up! Always understand macro-economics because these factors will affect your investment, irregardless of whether it’s gold, unit trust, property or even stock market.  Want to learn a little on how to spot potential bubbles even before the official stats are published? Do read ‘How to spot property bubble’.
written on 26 March 2014
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