No Indonesian "detour" for Malaysian economy
By Abdul Wahid Omar
Minister in the Prime Minister's Departmenr
KL, Oct 8: Upon my return from the recent NEw York trip, one of the fund managers I met emailed to me a research note from JP Morgan entitled " Is Malaysia taking the Indonesia Detour? "
Here's my short answer to his email:
"Likewise it was a pleasure to meet with you again too. Thanks for sharing the JP Morgan piece. Unfortunately I did not meet with Harsh Modi when he came to KL. Having led Maybank which has sizeable operations in Indonesia, I would say the economic fundamentals between our countries are very different :-
1. Malaysia's economy is far more diversified where its dependency on commodities as at 2014 (before the significant drop in commodity prices) is much less ie 18% in terms of GDP, 23% in terms of exports and 30% in terms of Government revenue. In April 2015, we implemented GST which broadened our revenue base further. This helps to partially cushion the drop in oil & gas revenues.
2. Our Government debt level at 54% is below the self imposed limit of 55% and is expected to decline gradually as we get the private sector to drive fixed capital formation / investments. Private investments grew to 64% of total investments in 2014 and increased further to 71% in first half 2015. 97% of Government debts are denominated in MYR.
3. Our financial system is well developed with sizeable equity and debt capital markets. In fact our debt capital market is the most developed in ASEAN with ability to fund long term infrastructure projects. Our banks are well capitalised, well managed with good risk & liquidity management, well regulated and effectively supervised by Bank Negara Malaysia.
4. Corporate debt levels at 56% for PLCs are significantly lower than during1997/98. Most corporate debts are denominated in MYR. Companies that borrow in USD or other foreign currencies have matching assets or revenue streams.
5. With forward PE of 14 times, the market valuation can be considered reasonable especially if you take into account the Maybank Kim Eng's recent analysis on the resilience of Malaysian stock market.
Indeed, I would say that Malaysia is more resilient now compared to our position during the previous crises and certainly more resilient than the neighbouring country mentioned if you were to do a side by side comparison. On my part, we will continue to focus on the fundamentals and let the market decide on the appropriate 'pricing' for our financial markets.
Bru Notes: Back in 97-98 currency crisis, Indonesia suffered not just economic woes but a troubled race/religious relations due to those woes. Despite enlisting the help of the IMF, some parts of Indonesia continued to "bleed" for years. In Malaysia, the ethnic groups drew closer rather than apart even as the crisis ravaged their wellbeing and put their future in doubt. In the end, we did not go the Indonesian-IMF way.
Note that the original heading before the correction was "JP Morgan: Sell Indonesian bonds, Rupiah NOW"