RED has been the colour of choice in the global stock
markets as of recent. Stocks and indices seem to be having a blood bath while
chaos dominates the world. How far are we from salvation? Well, I wish I knew
the answer to that. But to make it simple, things aren’t going to be rosy
anytime soon. Hate to be the bearer of bad news but someone had to rip the
band-aid off. However, there may be some things to look out for in the coming
economic horizon. There is still plenty of room to make your money grow besides
having it drained out by excessive government spending. So where are these
investment zones you ask? Well, let us look into Malaysia, Indonesia and Sri
Lanka, shall we?
Malaysia
Let me paint you a mental picture of the problem at hand.
Imagine that Malaysia is like a beautiful garland. The different cultures,
races and people are the various flowers that make this garland, with peace and
harmony being the string that binds them together. Well, this is not the
problem. The problem is that now, there are monkeys in the picture. We all know
what happens to the garland when the monkeys come. The lack of wisdom,
competence and the constant need to mark their territories seem to be hindering
certain decision makers from making the decisions the country badly needs. The
“spend now, take later” policy that was implemented during the last general
election has come to fruition. And now, it is time to harvest. As the
harvesters celebrate, the following things shall come to be: Reduction in
petrol subsidy (note that they did not increase the price), reduction in sugar
subsidy (to curb diabetes and to increase people’s libido), electricity tariff
increase (to reduce subsidies to industries),
toll price hike (EPF needs to make for its losses somehow), introduction
of the GST (to prevent the country from declaring bankruptcy and to identify
national traitors) and last but not the least, the increase in people’s salary
( yeah right…. ). Now, the whole idea of there being two sides to a coin is
very much applicable in this situation. Malaysia is going to gain strength as a
stable investment hub. Why? Well, let us look at the sectors where the prices
are increasing. They are all goods and services where people, whether they like
it or not, have to use. Hence, as much
as people would fret and whine about it, they will still continue to use these
goods and services. Furthermore, with Bank Negara’s potential increase of the
Overnight Policy Rate (the OPR is the interest rate charged by Bank Negara
Malaysia to the commercial banks ) from 3% to about 3.25-3.5% next year, there
may be a lot of investment opportunities coming your way. However, the domino
effect of the price hike may also eat into the pockets of the average income
earner. Hence, the Malay-sian dilemma.
Indonesia
I still have my bets on this one! The recent super
devaluation of the Rupiah was due to the current account deficit of Indonesia.
Before going further, it may be helpful to know what a current account deficit
means. A current account deficit occurs when a country’s cost of imports exceed
the cost of exports. Meaning, the amount spent to import goods and services, is
more than the income earned by exporting goods and service from the country. If
the income from exports is more than the cost of imports, then the scenario
would be called a current account surplus. So, Indonesia’s predicament is just
like most of our new income earners globally. They spend more on refurbishing
themselves with gadgets and gizmos which cost them more than their salaries.
Currently, the current account deficit of Indonesia stands at US$ 8.4 billion
(which is 3.8% of the GDP, Gross Domestic
Product). It has decreased compared to last year where is was US$ 9.9
billion (4.4%of the GDP) showing signs that it is recovering. And recently,
Bank Indonesia a.k.a the Indonesian Central Bank had increased the interest
rate. Now, this may in fact act as a catalyst to reduce the exports and create
more demand for locally produced goods and services which would curb the demand
for imports. This would certainly aid the current account deficits
tremendously. But what is more exciting is that the increase in interest rates
might stir more activity in the market making way for new investment
opportunities to form. I still have my bets on this nation to do really well in
the coming years. And since prices are at a low now, I am literally going on a
shopping spree. The long term investor may look into this option as well.
Sri Lanka
A country of beauty and splendor, Sri Lanka has been
marching through the economic front with a very stable economy. The end of the
civil war brought about both good and bad. Good was the economic potential and
avenues for social and economic growth. It was bad because of the media
attention that started befalling the nation due to the lack of clarity surrounding
the war scene. The growth of the nation started a little higher than the
current estimates which still stand at an expected growth of 7.5%. The constant
development, despite global scrutiny, has been the key factor or attraction for
most global investors. Over the years, the economy has proven itself to be
pretty resilient towards any political happenings within the nation. The recent
CHOGM 2013 (Commonwealth Heads of
Government Meeting) that was held in Sri Lanka had ushered in an
international crowd of potential investors who may be investing in the
activities that are aimed at rebuilding the nation. But there is still a slight
shadow befalling the nation when David Cameron’s visit to the war affected
areas created a bigger platform for global outcries and a potential inquisition
waiting to happen. Whatever the outcome may be, Sri Lanka is still going to
serve as a good investment hub due to many economic factors. As I have always
believed, emotions and Investments are two things that are never best put together.
Perhaps, RED is the colour in the stock markets now. But with
proper calculated risks taken on your investments, you may eventually be the
one painting the town RED.
Written By,
Ashveen Chakravarthy Sekaran
December 3, 2013
