A daunting year for Malaysia and Indonesia

By Afiq Isa / The Edge Malaysia   | February 3, 2015 : 2:00 PM

IT is a testing time for Malaysia and Indonesia, two of Southeast Asia’s economic powerhouses. Amid a worsening outlook for the world economy, a half-decade of prosperity slowed down last year for the two countries, which are particularly exposed to volatile commodity prices and the flight of foreign funds accustomed to high yields.

However, at a media briefing on the sidelines of Credit Suisse’s 4th annual macro conference and 6th annual Asean conference earlier this month, its heads of research from Malaysia and Indonesia were sanguine about the prospects for the two neighbours and optimistic that important changes could be instituted.

Jahanzeb Naseer, Credit Suisse’s head of research for Indonesia, noted that the republic will be grappling with a multitude of institutional and political reforms and Malaysia with economic and fiscal reforms.

He said President Joko Widodo, or Jokowi as he is popularly known, has proved his reformist credentials by making and implementing tough decisions.

“For example, Jokowi chose to cut fuel subsidies even when crude oil prices were at US$80 per barrel and he changed the board of (state-owned oil company) Pertamina, which not many had expected. That’s a sign of his commitment to executing reforms. Over the past 15 years, none of the previous governments touched this because it was a very difficult thing to do.”

To encourage growth, Jokowi is redirecting the close to US$30 billion (RM108 billion) in savings from the fuel subsidy cut to infrastructure development. New land reforms are expected to be announced.

“After US$30 billion in savings following the fuel subsidy cut, spending it to boost infrastructure will be challenging as Jokowi now needs to cope with land reforms and ensure ease of investment,” observed Jahanzeb.

According to him, new land reforms are expected to be announced by the end of this month, which would smooth the way for land acquisitions that are dedicated to infrastructure projects, such as highways.

“However, this will be Jokowi’s next big challenge as he now has to deal with various departments and stakeholders to make it happen. This is more difficult than a single policy decision.”

It is worth noting that last Tuesday, the Indonesian Parliament voted unanimously to reinstate direct elections that were scrapped last October. This means direct elections will be held for mayors, regents and governors.

Malaysia faces a different set of challenges, said Credit Suisse’s head of equity research Tan Ting Min, including dealing with the reality of low oil prices and the economic ramifications for the country going forward.

“Malaysia was the worst-performing market in Asean last year partly due to the weak crude oil prices and ringgit, which continued to decline at the start of 2015. But every cloud has a silver lining: the second half of this year should be better for the equity market as all the negative elements would have been factored in,” she pointed out.

Tan highlighted the implementation of the Goods and Services Tax (GST) as a key theme this year. She said she sees a spike in consumption just before April and a slump thereafter before gradually normalising.

“It would take about 6 to 12 months for domestic consumption to normalise after factoring in GST. There will also be problems when it comes to the tax’s implementation and it may take up to a year to sort everything out. Even the highly efficient Singaporeans had problems [with their implementation] for a year.”

Both heads of research agreed that Indonesia and Malaysia’s exposure to “hot money” or foreign capital outflow remains a looming problem.

Jahanzeb pointed out that foreign holding of Indonesia’s sovereign debt is at an all-time high.

“The risk of hot money outflow is on the bond side instead of equities, similar to what Malaysia is currently facing. If people worry about a scenario where the interest rate [for the US dollar] is headed upwards, the outflow from bonds will put more pressure on the local currency, which in turn will negatively affect the current account balance,” he said.

The external pressures notwithstanding, Credit Suisse remains optimistic about Indonesia’s growth prospects but not so much about Malaysia’s. In a Jan 20 note, Tan explains that the group’s 2015 gross domestic product (GDP) forecast of 4.8% for Malaysia is below consensus expectations.

Last Tuesday, Prime Minister Datuk Seri Najib Razak announced revisions to Budget 2015 and lowered the country’s GDP growth target to between 4.5% and 5.5% this year from between 5% and 6%.

Economic growth in Indonesia, on the other hand, could surprise on the upside.

“I think the expectation of 5% GDP growth right now is probably underestimated. The investment needed for infrastructure over the next five years is US$300 billion. Instead of a 43% year-on-year increase in infrastructure expenditure, we may be looking at a 200% increase, thanks to the reduced fuel subsidies,” Jahanzeb said.

Indonesia will remain a top investment destination in the region if reforms are speedily executed, he added.

Both experts concur that corporate earnings growth in Indonesia will outpace Malaysia’s this year due to the respective economic factors.

While Tan said earnings growth for Malaysia will be underwhelming at below 8%, Jahanzeb believes that the focus on infrastructure growth and the corresponding investment inflow will result in around 12% to 13% earnings growth for Indonesia.

“With the upcoming GST and expected weak economic and earnings numbers, I think the first half of the year will be quite tricky for Malaysia,” Tan concluded.

AirAsia ASEAN Pass

To all my friends, AirAsia has announced yesterday its new product called ASEAN Pass. It allows the pass holders to fly up to 10 times within 30 day to any of AirAsia routes within the 10 ASEAN countries for a flat price of RM500, excluding airport taxes and charges.

According "Abang Tony", the ASEAN Pass will be available starting from 15 January 2015. One of the conditions is no repeats. Well, AirAsia needs to elaborate on this. My understanding is if one flies from klia2 to Bangkok (1 out of 10) and flies back to klia (2 out 10), he or she cannot fly to Bangkok again in order to utilise his or her balance of up to 8 flights. 

Why I used "up to" is because each eligible route will be valued in the range of  1 credit and 8 credits. A 30-day pass comes with a value of 10 credits. If the first flight costs you 8 credits, you will be left with 2 more credits 😋

I'm sure my friends Aidie and Eja as well as my cousin Ojot will find this new product of AirAsia, irresistable!

Hopefully, this innovation will spark more innovative products from other airlines serving ASEAN countries.

The picture is taken from The Borneo Post.

Travel Advice: Singapore Haze Report

Some of my friends love to go shopping in Singapura. I hope the appended travel advice would be helpful.

Masalah jerebu ini bukannya masalah Singapura sahaja, malah juga mendatangkan masalah kepada rakyat Malaysia juga. Pihak berwajib Indonesia perlu lebih serius dalam menangani aktiviti pembakaran hutan di Indonesia yang mendatangkan masalah pencemaran kepada penduduk di rantau nusantara ini.

Dan ianya berlaku saban tahun.

Sudah berbuih pihak berwajib Singapura dan Malaysia menggesa agar pihak berwajib Indonesia bertindak segera tetapi macam tiada perubahan yang total kepada masalah ini!

I have an handful of Indonesian friends and all of them are hospitable, rational and accommodating. I'm sure the Indonesian authority is the same too.

Kita kan serumpun :)



Dear Valuable Partners,

Warmest Greetings from RMG Tours Pte Ltd SINGAPORE!

Hope that all is well with you.

Please be alert that Singapore has been effected recently by transboundary smoke haze

transpired by the forest fire in Sumatra. 

Hazy Conditions Update

(Updated on 18 June 2013)
Southwest Monsoon conditions have onset over the region since the beginning of the week, with low level winds blowing predominantly from the southeast or southwest. The Southwest Monsoon season typically last from June to September and is the traditional dry season for the southern ASEAN region. In the coming months, occasional extended periods of drier weather can be expected in the region. During the season, increased hotspot activities may be expected in Sumatra and Borneo. In addition, transboundary smoke haze could affect the region during periods of persistent dry weather conditions.

Weather conditions in the region have become drier and an increase in hotspot activities has been observed mainly over central Sumatra.  113 and 187 hotspots were detected over Sumatra on 17 and 18 June 2013 respectively.  The smoke haze from the fires in Sumatra was brought over by prevailing winds blowing from the southwest or west, and has affected Singapore since 13 June 2013.  The hazy conditions are expected to persist for the next few days.

Remembering 1st Backpacking Experience

Yeap, it was my first time backpacking to our neighbouring country, Thailand. Well, not the whole Thailand, merely its capital city.

There were three of us – Shai, Fai and I. Whilst Fai have been there a few times, Shai and I were totally alien to Bangkok.

The best part is we did not book our accommodation in advance, so we spent the first four hours in the Bangkok, literally running from one budget hotel to another. Thank God, we found one, in Silom Street. So, moral of the story, book your hotel in advance!

I’m sure Bangkok has changed a lot since the first and last time I was there, which was way back in 2005. I think it’s timely to revisit this city, may be with my family this time. But, definitely not backpacking style and will make sure that I’ve book my room way in advance.

Thank you Shai and Fai for introducing me to the world of backpacking.

Yangon Trip 2010

When Zack invited me to join him and Izal to go to Yangon, I straight away accepted it.

Hanoi Trip 2010