Fly Malaysia

Author: FLY: Malaysia

  • Do you need to go to university after SPM/IGCSE/PT3? The answer is no

    Do you need to go to university after SPM/IGCSE/PT3? The answer is no

    Do you need to go to university after SPM/IGCSE/PT3? The answer is no

    Many would assume that there’s only one path post-secondary school which is, upon finishing SPM/IGCSE, you must do a foundation programme or A-Levels, then enrol in a university. Following that, one needs to find employment, find a partner etcetera etcetera. 

    Not only is university an extremely costly endeavour, it may not be a financially viable option (private institutions may set you back RM70,000). More importantly, however, enrolling in university may just not be right for you.

    In this article we’ll attempt to deconstruct societal norms and highlight various viable pathways one can pursue post-university.

     

    A reflection on why we go to university

    Societal and media norms often portray immediately jumping into tertiary education to be the only ‘normal’ and ‘acceptable’ progression after high school. Movies not only often glamorise university life, but they are also mainly saturated with characters from one type of economic background – the middle to upper class. This is not representative of the circumstances of the actual population.

    The reality is that university is a significantly larger commitment (and investment) than mainstream media dares to reflect. Fresh out of high school, it’s understandable for one to feel confused and lost about their future and ambitions. It’s a sudden and daunting shift from “What’s the latest movie to watch next weekend?” to “What do I want to study for the next 4 years of my life? How do I wish to contribute to the economy?”. On top of the huge financial commitment of up to tens of thousands for tertiary education tuition fees, taking one’s time to explore all the viable options and to better understand oneself may prove to be the next wisest step.

    Taking time (6 months – 1 year) to work before committing to a tertiary education programme is one of the most common and pragmatic routes after high school. By getting a job, one exposes themselves to the real working world while developing a more practical grasp of managing their own income and expenses. These kinds of real-life experiences could still be learnt later on, and may also be integrated into one’s university programme. However, there’s a significant difference between learning about things in theory, and actually experiencing things. 

    One could do a biomedical science degree in university and excel in the subjects learnt. Nonetheless, working in the actual field as a researcher or lab technician poses a completely different lifestyle to that of studying the field. By doing an internship in a field of potential interest prior to committing to a degree, you could develop a clearer career direction. Additionally, one could also discover one’s actual likes and dislikes to avoid costly course switches midway through a programme.

    As mentioned, even pre-university courses have annual tuition fees that range up to tens of thousands. This added monthly expenses takes up significant cash flows, and is not easy to provide for. For some families, the topic of undergraduate studies might be completely off the table due to its financial infeasibility, especially in light of the pandemic-induced economic downturn.

    With that said, it’s more important than ever to not lose grit for one’s goals. Though it is true that tertiary education can be invaluable to leverage on, attitude and experience are equally powerful. Take the example of Tan Sri Vincent Tan. He now has an estimated net worth of USD 1.6 billion, and is the founder of Berjaya Corporation Berhad, a conglomerate listed on the Malaysian stock exchange. Originally, Tan Sri Vincent Tan planned to study law overseas in New Zealand. However, after a financial downturn in his father’s business, he worked as a bank clerk right after high school. By the age of only 23, which is also the age most people are just entering the workforce, he became an agency manager for AIA. Clearly, he continued on his pattern of climbing up in the business world until his present-day success. Career climbs in general are not easy, additionally not being equipped with a degree may be viewed as a disadvantage. However, time and time again, we can see from entrepreneurial stories like these that success blooms from even in the harshest of soils. 

    Not everyone is fortunate to be able to afford tertiary education or to become a billionaire after high school. Even so, there is a lesson to be learnt from these stories of rags to riches. It is not that university is unimportant to success, nor it is also that one should completely forgo pursuing tertiary education. Instead, it is that success is able to bloom from even the harshest of soils. There is no one route to success, as there is also no single definition of success; we should all strive to approach our personal circumstances from an opportunistic point of view to realise the road to our ambitions.

     

    TVET – Technical and Vocational Education and Training

    If one has pursued various internships and has found a field that is of great interest, and wants to develop their expertise in that field, one may not need to pursue a bachelor’s degree.

    Technical and Vocational Education and Training (“TVET”) is a viable alternative that may be worth considering. This programme may be one of the best choices especially if you’re keen on applying knowledge related to technologies, sciences, or general education, across various institutional and work settings. 

    Breaking down what this foreign sounding programme is, TVET is an educational and training process that emphasises industrial practices, preparing learners before stepping into the workforce. The formal, non-formal, and informal learning focus on a range of scopes, varying from industrial training to the application of psychomotor skills. For instance, if one had the chance to work in a car workshop during their holidays and found great enjoyment, getting a formal training and education in this field with a TVET programme would be a more efficient way to become a mechanic. 

    This programme in Malaysia is offered at degree, diploma, and certificate levels by various ministries, including the Ministry of Higher Education (“MOHE”). It can be enrolled by PT3, SPM, or through the National Dual Training System. SPM qualifiers, for example, can opt for TVET by enrolling at a Community College, polytechnics or MTUN (Malaysia Technical University Network), whereas STPM/Matriculation school leavers and Diploma holders can advance to MTUN’s degree qualification.

    Overall, this vocational training provides a platform for those without academic qualification to master their knowledge and practical skills even better than those with academic certification. With that, both TVET and academic qualification open the doors to career opportunities. 

    TVET courses offer the flexibility of venturing into different fields yet also specialising in one. An example is a programme offered by Berjaya’s TVET college to gain a “Certificate in Management and Administration. Depending on how “in-depth” you’d like to go, you could be studying for a year or for four.

    (Image Source : https://berjayatvet.edu.my/index.php/centre-for-management-and-administration/)

    Depending on your household income bracket, you may opt for financial aid to fund these studies. However, if a 1-year commitment still sounds a bit too much, a Malaysian Skills Certificate may be more suitable.

     

    Malaysian Skills Certificate 

    Similar to TVET, which allows you to incorporate your knowledge across institutional and work settings, Malaysian Skills Certificate, or Sijil Kemahiran Malaysia (“SKM”) is a national certification that is offered in five authentication levels. 

    Malaysian Skills Certificate, or Sijil Kemahiran Malaysia (“SKM”) is a skill-and work-based qualification, which is offered by Jabatan Pembangunan Kemahiran (“JPK”). Students who have shown the necessary competencies to perform tasks for employment in the technical and practical work fields are more inclined to choose this certification. 

    SKM can be obtained through three methods, which are industry-oriented training, training in a recognised institution, and accreditation of prior achievement. Similar to pursuing a career with academic qualifications, SKM is an option for upskilling, a career path and personal growth for learners. 

    Some of the career pathways available that can open up after gaining a certificate include; the automotive industry, education, clerical work, food production among others. 

    Other anecdotes on how TVET programmes helped individuals achieve their goals, include Mohd Hazzerwan Mohd Hazzlee. The aforementioned figure founded “Wan & Mary” in 2018, which is a clothing brand mixing high and street fashion. Later, he furthered his studies in education at Heriot-Watt, which illustrates how an undergraduate study is not needed early on to enrol in university, and that masters programmes are a viable pathway as well. 

    Another individual who used a TVET programme to pursue his interest is Aiman Hakeem Aminuddin. He noted that he didn’t even check his UPU (university application) results, as he was determined to study at a vocational college, citing his interest in picking up life skills, in this case light vehicle maintenance.

    The point, however, is that one should pursue whatever interests you the most! Whether you’ve found a passion early on, a TVET/MSC programme may be more effective in getting you to your dream destination. That being said, university enrolment may be perfect for you – the chance to study a field further in-depth after picking up some foundational knowledge during your early years. With that, we’d like to share two stories detailing their experiences in university.  

     

    Some perspectives on the university experience

    University has been rewarding and it’s definitely in its own way, a training for the real world. I’m lucky to say that my current course is something I truly enjoy and would want to pursue further even after graduation. My only regret would be wasting time and money on past course switches, which could have all been avoided had I been more sure of myself from the start, and less insecure about losing out as everyone else was jumping into prestigious courses in elite schools. At the end of the day, I have realised that for any commitment to be sustainable, it has to be something that you value and can see the meaning in. Enjoyment and ease may be mistaken for actual ambition. However, nothing is easy all the time. You will know that you truly want to do something and are capable of committing to it when you see it contributing towards your goals and future, despite hiccups along the journey. If I could talk to the 17 year old me, I would tell her to stay true to her ambitions and goals and not force something unnatural onto herself, because in the end, no one can do your work for you.

    • Jennifer Ley, General Secretary of FLY 2021-2022

    University, so far anyway, has been a great experience, and I’m grateful for the opportunity and privilege to get to study fields I’ve been interested in from a young age. The highlights have been engaging in discussions on what’s come and what’s to come, understanding new perspectives that challenge perceptions I had, and delving deeper into curiosities. Other than that, it’s been rewarding to have met great people along the way, and take part in activities with other like-minded people.

    However, I do not see myself furthering my studies upon completion, desiring to gain experience in industries, and being slightly jaded with academic articles and dealing with exams. The only thing I’d have to say to prospective undergraduates, is to make the most of any opportunities but also have fun!

    • Muhammad Bahari, Research Director of FLY 2021-2022

     

    References: 

    Vulcan Post. 2022. 7 M’sian Entrepreneurs Who Dropped Out Of College To Pursue Their Own Vision. [online] Available at: <https://vulcanpost.com/548841/msian-entrepreneur-who-dropped-out-of-college/> [Accessed 26 May 2022].

    Karim, M., 2018. Tvet, a viable pathway. [online] New Straits Time. Available at: <https://www.nst.com.my/education/2018/10/422015/tvet-viable-pathway> [Accessed 26 May 2022].

    Moe.gov.my. n.d. MOE – Maklumat Umum TVET. [online] Available at: <https://www.moe.gov.my/en/maklumat-umum-tvet> [Accessed 26 May 2022].

    MTTC college. n.d. TVET in Malaysia. [online] Available at: <https://mttc.edu.my/tvet-in-malaysia/> [Accessed 26 May 2022].

    Global Institute of Studies. n.d. SKM. [online] Available at: <https://gis.edu.my/our-jpk-programmes/> [Accessed 26 May 2022].

    Researchers: Ley Ho Ying (Jeniffer), Nik Farhana binti Nik Hasnan, Muhammad Bahari

    Reviewer: Muhammad Bahari

    Editor: Ahmad Ayziel Zulkifli

  • Streaming Wars: Why Did Some Streaming Services Fail, While Others Succeeded?

    Streaming Wars: Why Did Some Streaming Services Fail, While Others Succeeded?

    Explaining the “Streaming Wars” (Netflix vs Disney Plus) and why should consumers care

    Streaming services are a staple of how we consume entertainment now, with shows like Squid Game, Stranger Things and The Mandalorian capturing the pop cultural zeitgeist. Netflix is a subscription streaming service and production company based in the United States.Prior to Covid, the platform was synonymous with the phrase “streaming service”, and in 2018, it had 139.25 million paid customers on its platform, cementing its position as the Champion of Streaming Services. 

    Since then, legacy entertainment companies have unveiled their own streaming services such as Peacock (NBC Universal, responsible for the Despicable Me and Jurassic Park franchise), HBO Max (Warner Bros – Harry Potter, DC), Paramount Plus (Mission Impossible – Transformers), and Disney Plus (Disney – Marvel, Star Wars and Toy Story to name a few) in an effort to capitalise on the future of entertainment. 

    However, after a decade of exponential growth, streaming providers are experiencing a drastically sluggish upward trend and increased rivalry, driving an unsustainable content war just as customers cut back on entertainment services. As a result, the importance of this “conflict” is that it affects users, investors, and the industry’s future.

    Recently, you may have heard about Netflix’s historic stock drop, losing 50 billion dollars in market value, despite Netflix having 221 million suscribers as of 2022. This article will explore Netflix’s historic drop along with a brief discussion on other services,their prospects and one of the biggest casualties of the “streaming war”, Quibi. By analysing, these streaming services, we get to understands models much better and demystify the brands that we consume daily, that we don’t give much thought to.

    Exploring The Reasons Behind Netflix’s Fall

    How the mighty have fallen. Despite fierce competition with some of the biggest names in the entertainment industry, Netflix remained the unchallenged champion of the video streaming business. However, their reign came to an end in 2022 when their stock dropped 38.64% on Wednesday (20th of April 2022), its lowest level since 2004 (as of writing). This isn’t the first time their share price has dropped this year. In January, when Netflix announced that it anticipated adding a considerably fewer number of users than the previous year, their stock dropped by more than 20%. Year to date, the stock has lost 60% of its value.

    Source: Netflix, Inc. (NFLX) Interactive Stock Chart – Yahoo Finance

    Furthermore, investors who had originally expected the company to add new users in the quarter were shocked to learn that the company disclosed losing 200,000 additional subscribers in the first quarter; and were expecting to lose another two million in the second quarter of 2022. This was possibly due to the increase in user subscription price in the U.S with their basic plan now being $9.99 a month from its original price of $8.99. Standard plans now cost $15.49 per month, an increase from $13.99, while premium plans have inched up to $19.99 a month.

    The recent decline of stocks can be attributed to rising interest rates as well. When interest rates rise, “growth stocks” (stocks that are more likely to increase in capital value than to produce substantial income) have a less favourable outlook due to the increased borrowing costs.

    Source: Netflix Stock Price Drops 35%, Posting Biggest Fall Since 2004 – WSJ

    In terms of subscriber loss, a recent Nielsen study found that over half of consumers in the U.S felt overwhelmed by the diversity of streaming options available. As it became increasingly difficult to access specific titles in a specific location,  customers grew increasingly dissatisfied. Hence, viewers were more likely to select services most vital to them when new providers enter the market.

    As an example,  during the 2021 Summer Olympic Games in Tokyo and the 2022 Winter Olympic Games in Beijing, NBCUniversal was able to successfully leverage its various consumer endpoints, including Peacock and NBC Sports. Following consumer feedback that indicated that the streaming experience during the 2021 Summer Olympics was confusing, NBCUniversal changed its strategy. During the 2022 Winter Olympics, the revised streaming strategy significantly simplified consumers’ ability to search for the content they desired.

    Source: State of Play – Nielsen

    A quote from senior strategy analyst Julia Alexander perfectly describes Netflix’s current position in this war; 

    “At the centre of it is Netflix, this large company with the biggest streaming service, that is now facing a wave of competition that, while they were prepared for it, is hitting them all at once and eating into their market share.”

    Therefore, with fierce competition from other services, Netflix’s market share and stock price have seen a dwindle.

    Source: Parrot Analytics: Who Is Leading the OTT Race? – TTV News (todotvnews.com)

    Source: Parrot Data: New Platforms Gaining Demand Share at Expense of Netflix – Media Play News

    Quibi, or 2 Billion Down the Drain

    Quibi was an American short-form streaming platform that produced content targeted for mobile device viewing. Its objective was to reach viewers in a fast-paced environment with its unique short-form videos that were claimed to be ideal for a clandestine watch everywhere (the brand name itself was a portmanteau of “quick bites”). In 2018, Quibi founder Jeffrey Katzenberg and CEO Meg Whitman sought and received $1 billion in seed funding from every major Hollywood studio, as well as venture capital firm Madrone Capital Partners, major banks Goldman Sachs and JPMorgan Chase & Co, and John Malone’s Liberty Global. Quibi would later close a second round of funding, bringing its total investment to $1.75 billion, just a month before the service launched to the public in April of 2020. There seemed to be much hope for Quibi’s success.

    Yet, hopes were dashed when  it shut down only six months after its launch. According to The Motley Fool (a private financial and investment consulting firm based in Alexandria, Virginia), here are some of the reasons why.

    Timing

    Quibi, which was released in the midst of the COVID-19 outbreak, was never going to be used in offices or on public transportation. Everyone was forced to stay home, binge-watching shows more than ever, just as Quibi came with its easy on-the-go streaming options. It can be seen that Quibi’s unique functionality proved completely inappropriate for the context of its release.

    Platform support

    Initially, Quibi appeared to be unduly invested in its campaign. The most prominent example of this was Quibi’s lack of platform support. Quibi did not support any other significant home entertainment platforms. Even Alphabet’s Chromecast devices, which are designed to simplify casting mobile device streams to TVs, were not supported at first. Quibi eventually added Chromecast, as well as support for Apple’s Airplay casting protocol.

    Content

    It’s hardly quantitative analysis to say that Quibi’s shows were “poor” in quality. The entire premise of Quibi was its brand-new format, which mandated the creation of all-new content. As a result, majority of the content of Quibi (i.e Nikki Fre$h, Punk’d, Singled Out etc) was universally panned by reviewers and regular viewers alike. 

    Final Takeaways

    What can we take away from Quibi? The most straightforward takeaway from Quibi’s downfall is that foundations still matter. If the basics are overlooked, such as comprehensive platform support and substantial content investments, a creative content strategy will inevitably fall short. Other streaming services must hence address these flaws should they want to avoid their share of the streaming market to vanish as soon as Quibi’s.

    Who will likely win?

    While Netflix was the undisputed king of streaming services, many newcomers are now vying for the top spot. Given that, we’ll investigate which streaming service is most likely to survive this war by examining their revenue, content quality and quantity.

    Disney+

    Disney+ presently has 118.1 million subscribers, noting an increase of 11.7 million over the previous quarter (as of February 2022). Hulu and ESPN+, Disney’s secondary products, also performed well with both gaining subscribers. Hulu SVOD has 40.9 million customers (up 1.2 million from the previous quarter) and ESPN+ has 21.3 million subscribers (up 4.2 million from last quarter).

    Source: Disney’s 2021 Annual Report FY21

    For this quarter, direct-to-consumer revenues climbed 34% from 3.51 billion to $4.7 billion, but operating losses increased 27% from 0.47 billion to $0.6 billion. Higher losses at Disney+ and, to a lesser extent, ESPN+ contributed to the increase in operating loss which was largely offset by stronger profits at Hulu.

    Higher programming, production, marketing, and technological expenditures were partially counterbalanced by a rise in subscriber income at Disney+, resulting in lower returns. Subscriber growth and retail pricing hikes also contributed to higher subscription revenue. Essentially, cost and subscriber increases reflected expansion into new markets and, to a lesser extent, growth in existing markets.

    Source: Disney’s 2021 Annual Report FY21

    Domestic Disney+ Average Monthly Revenue Per Paid Subscriber (ARPS) climbed due to greater retail pricing and a reduced share of wholesale customers, whereas foreign Disney+ (excluding Disney+ Hotstar) ARPS increased due to higher retail pricing. While Disney+ Hotstar grew as a result of new areas of users from countries such as Malaysia, Thailand and Indonesia with higher average rates, it was compensated in part by a higher percentage of wholesale subscribers.

    In my personal view, Disney+ is a wonderful membership option for a full family’s viewing pleasure. This is because it features Pixar, Marvel, National Geographic, Star Wars, and, of course, Disney’s iconic properties. It provides a big — and increasing — library of high-quality TV shows (over 7,500 titles) and movies (over 1,000) in a stylish, feature-rich package (ESPN+ and Hulu) that is simple to use. To put things in perspective, Quibi spent over $1 billion in its first year commissioning original content, totalling 8,500 short-form episodes and over 175 series. Overall, Disney+ is a formidable challenger in the streaming wars since it overcomes the challenge of accessing certain titles in specific locations. 

    However, Disney+ is yet to have the same depth of content as Netflix or Amazon. Certainly, family-friendly programming may not be as appealing to viewers who do not have children or are not fans of animated media. Therefore, Disney+ is currently best enjoyed as part of a larger collection of streaming services.

    Paramount +

    Paramount+ subscriber numbers were released recently for the first time, revealing 56 million global streaming subscribers.

     With the reveal of its current subscriber numbers, Paramount also projected itself to have 100 million global subscribers by the end of 2024. This was a large increase from the previous year’s forecast of 65-75 million subscribers.

    The following table presents Paramount+ and Pluto TV’s (a subsidiary of Paramount) Direct to Consumer product offerings.

    Source: PARAMOUNT REPORTS Q1 2022 EARNINGS RESULTS

    Based on these financials, DTC revenue is currently up 82% year on year.  It should be noted that their subscription revenue increased by 95% year over year, owing to paid subscriber growth on Paramount+.  Advertising revenue increased by 59% year over year, driven by increased pricing and impressions on both Pluto TV and Paramount+. Adjusted OIBDA (a financial performance indicator used by businesses to show profitability in their core operations) fell $307 million year on year, reflecting increased investment in streaming services.

    Diverse content on Paramount+ with shows like Halo, Star Trek Picard and live events (not offered on streaming service) were what likely drove increased subscriptions. Reality shows such as Acapulco Shore, was also a big hit with Latin audiences.

     Something other streaming services do not cater to.

    Aside from the greater variety of content and reduced cost, Paramount+ offers additional features such as the opportunity to download shows to personal devices and no commercials on a la carte television. Whether you’re a Trekkie, a nostalgia junkie, a sports fan, a parent, or someone else, Paramount+ has something for everyone at a price that’s similar to what many of its most popular shows were when they initially aired. This, however, may be their undoing, as rival providers provide more original, new TV and movies. To compare again with Quibi, Paramount+ has 75 original programmes and 36 original films, as well as 92 upcoming shows and 30 upcoming pictures. Quibi, on the other hand, commissioned 8,500 short-form episodes and over 175 series in its first year.

    What can they learn?

    The thing that both platforms have in common is that their content caters to specific audience demographics with little content for the regular viewer who may not be interested in consuming niche-specific content. As a result, I believe these platforms can learn from Quibi by investing more of their revenue in creating different genres of original content, as Netflix, Apple TV, and Amazon Prime do, in order to better satisfy a diverse range of audiences and retain subscribers.

    Conclusion

    In this article, we’ve explored the various streaming services that exist in the market; Peacock, HBO Max, Paramount Plus and Disney Plus. We’ve seen the rise of one in particular (Netflix), who after years of exponential gain in their stock price, has seen their momentum stalled, resulting in investors sending their share price plummeting. 

    The streaming industry has been particularly exciting over the years, with new entrants like Disney and Paramount Plus shaking up the game. With that, consumers have more choice and a variety of content. But there have been some spectacular failures, such as Quibi which famously cost 2 billion dollars. 

    What will determine the streaming war winner in the future will be the consumers – and one can hope that when the winner emerges, they do not engage in exploitative practices. 

    References:

    Webster, A. and Pulliam-Moore, C., 2022. Streaming Wars. [online] Theverge.com. Available at: <https://www.theverge.com/streaming-wars> [Accessed 9 June 2022].

    Sweeney, M., 2022. Investors alarmed as streaming services lose their magic touch. [online] the Guardian. Available at: <https://www.theguardian.com/media/2022/feb/19/investors-alarmed-as-streaming-services-lose-their-magic-touch> [Accessed 9 June 2022].

    Ostroff, C. and Banerjji, G., 2022. [online] Available at: <https://www.wsj.com/articles/netflix-stock-price-plunges-premarket-after-subscriber-loss-11650449002> [Accessed 9 June 2022].

    Patnaik, S., 2022. No chill: Netflix shares drop 39% after massive subscriber loss. [online] Aljazeera.com. Available at: <https://www.aljazeera.com/economy/2022/4/20/no-chill-netflix-shares-drop-39-after-massive-subscriber-loss> [Accessed 9 June 2022].

    Stokel-Walker, C., 2022. Netflix Struggles to Hold Its Place in the Streaming Wars. [online] Wired. Available at: <https://www.wired.com/story/netflix-reckoning/> [Accessed 9 June 2022].

    Sherman, A., 2022. [online] Available at: <https://www.cnbc.com/2022/02/09/disney-makes-up-ground-on-netflix-blowout-disney-subscriber-adds-.html> [Accessed 9 June 2022].

    Maglio, T., 2022. Who Is Winning the Streaming Wars? Subscribers by the Numbers. [online] IndieWire. Available at: <https://www.indiewire.com/2022/03/how-many-subscribers-netflix-disney-plus-peacock-amazon-prime-video-1234705515/> [Accessed 9 June 2022].

    Lovely, S., 2022. 3 Reasons Why Quibi Failed: Will Other Streaming Services Be Next? | The Motley Fool. [online] The Motley Fool. Available at: <https://www.fool.com/investing/2020/11/18/reasons-why-quibi-failed-other-streaming-services/> [Accessed 9 June 2022].

    Finshots. 2019. The Streaming Wars Begin. [online] Available at: <https://cred.finshots.in/the-streaming-wars-begin/#:~:text=The%20Streaming%20Wars%20Begin%20The%20Streaming%20Wars%20Begin,and%20how%20its%20shaking%20up%20an%20entire%20industry> [Accessed 9 June 2022].

    Nelson, 2022. State of Play. [online] Nielsen.com. Available at: <https://www.nielsen.com/us/en/insights/report/2022/state-of-play/> [Accessed 9 June 2022].

    The Economist. 2022. Disney, Netflix, Apple: is anyone winning the streaming wars?. [online] Available at: <https://www.economist.com/business/disney-netflix-apple-is-anyone-winning-the-streaming-wars/21807591> [Accessed 9 June 2022].

    Szalai, G. and Selling, E., 2022. Paramount Plus Subscriber Growth in First Quarter Report – The Hollywood Reporter. [online] Hollywoodreporter.com. Available at: <https://www.hollywoodreporter.com/business/business-news/paramount-plus-subscribers-growth-first-quarter-1235138907/> [Accessed 9 June 2022].

    Roth, E., 2022. Paramount Plus subscriber count has grown to nearly 40 million. [online] The Verge. Available at: <https://www.theverge.com/2022/5/3/23055121/paramount-plus-subscriber-count-40-million#:~:text=Paramount%20Plus%27%20subscriber%20count%20has,its%20earnings%20report%20on%20Tuesday.> [Accessed 9 June 2022].

    Tamarani, M., 2022. [online] Thestreamable.com. Available at: <https://thestreamable.com/news/paramount-plus-adds-6-8m-subscribers-in-q1-2022-to-reach-almost-40-million-global-subscribers> [Accessed 9 June 2022].

    Farkanos, K., 2022. Disney Plus Hits 130 Million Subscribers and Shows No Signs of Stopping. [online] Medium. Available at: <https://marker.medium.com/disney-plus-hits-130-million-subscribers-and-shows-no-signs-of-stopping-7064f682e7fe> [Accessed 9 June 2022].

    Barnes, B., 2022. Disney+ hits 130 million subscribers, beating expectations.. [online] Nytimes.com. Available at: <https://www.nytimes.com/2022/02/09/business/media/disney-earnings-bob-chapek.html#:~:text=LOS%20ANGELES%20—%20Disney%2B%20added%2011.8,toward%20200%20million%20total%20subscribers.> [Accessed 9 June 2022].

    Chan, J., 2022. Netflix Increases Subscription Price in U.S. and Canada – The Hollywood Reporter. [online] Hollywoodreporter.com. Available at: <https://www.hollywoodreporter.com/business/digital/netflix-price-increase-2022-1235075466/> [Accessed 9 June 2022].

    Researcher: Darryl Yeow

    Reviewers: Muhammad Bahari, Mindy Liew

    Editor: Mindy Liew

  • What is a recession, and are we in one right now?

    What is a recession, and are we in one right now?

    What is a recession, and are we in one right now?

    Have you felt that prices have increased? Do you feel that demand is sluggish? Well, the economy might just be in a recession.

    A recession is a contraction in the economy for two consecutive quarters. If the Malaysian and US economy were to contract in Q2, then both economies would be in a recession. 

    What has likely contributed to this is the increase in supply costs (Ukraine-Russia conflict, wages increase due to inflation) and sluggish demand.

    Read on to uncover what got us here and what we can do to protect ourselves.

    The US economy in real terms has contracted by 0.35%, from Q4 2021 to Q1 2022. (USD 19.8 trillion to USD 19.735 trillion). If the US economy were to contract again, the US would officially be in a recession.

    (Source: St Louis FED Real GDP)

    In Malaysia, in real terms (prices held at 2015), our economy has contracted by 2.96% from Q4 2021 to Q1 2022 (RM371 billion to RM360 billion). However, upon comparing Q1 2022 to Q2 2022 year on year, the economy is 5% larger. Comparing year on year may be preferable due to the cyclical nature of business cycles.

    (Source: Moody Analytics)

    Definition of a recession

    A period of temporary economic decline during which trade and industrial activity are reduced, generally identified by a fall in GDP in two successive quarters. Meaning, if Malaysia and the US were to contract in Q2 2022, both countries’ economies would be in recession.

    Looking at both demand and supply

    Demand side factors that may have reduced demand include, higher interest rates, reducing consumption and investment, Inflation reducing real purchasing power and a fall Government spending will less stimulus. 

    Supply side factors that may have affected supply include, increase in inflation expectations have seen revisions in wages (resulting in higher production costs), increase in interest rates have increased the cost of borrowing, the Russia-Ukraine conflict has increased oil prices and reduced the supply of food (Russia and Ukraine were huge wheat exporters).

    While this is a rough model, supply side issues have shifted the supply curve to the left (or Cost Push Inflation).  Reduction in demand on the other hand, has shifted the demand curve to the left.

    Therefore, Gross Domestic Output of the economy has fallen (Q1 to Q2) and Price has increased from (P1 to P2). Illustrated here is the phenomena of less output and an increase in the price level, also known as Stagflation, which occurred in the 1970’s. 

    The increasing costs in Malaysia could be attributed to electricity prices rising (as there are less discounts and subsidies) and increasing food prices. 

    Fertiliser costs have increased making farmers purchase them less, reducing crop yields. Fertiliser costs have skyrocketed, as Ukraine was a huge exporter of fertiliser, and since they’ve been invaded by Russia, economic activity has stalled. Case in point in Malaysia, no musang season as durian yields are very poor.

    (Source: The Guardian)

    (Source: The Edge Markets)

    Should Malaysians be worried?

    The weakening Ringgit may help economic growth, as exports become more desirable. However, if other economies are in a slump, demand for exports would be minimal. On the bright side, there’s still room for Bank Negara to ease monetary policy to cushion against sudden shocks, given our interest rate is higher than the US.

    (Source: The Edge Markets)

    According to Bank Negara, Malaysia’s economy is expected to grow with increased demand, private sector expenditure and investment projects lending support to growth. But determinants to growth could be weak global recovery, increased supply chain disruptions, and deadlier COVID variants immune to vaccines.

    General tips for staying safe in a recession:

    Cash and savings are your ally; especially in the event of unforeseen circumstances (like a lost job). Furthermore, going into debt is problematic as one is burdened with increased obligations and a high interest rate environment means increased borrowing cost. 

    It may also be worth doubling down on guaranteed investment returns like ASB, as stock markets are in an overall slump.

    When it comes to investing, the argument for diversifying investments is such that, by creating a portfolio of non-correlating investment pairs, where one is up, the other is down, and vice versa (for example, stocks and bonds).

     

    References :

    Andreson, S., 2022. 7 Ways to Recession-Proof Your Life. [online] Investopedia. Available at: <https://www.investopedia.com/articles/pf/08/recession-proof-your-life.asp> [Accessed 26 May 2022].

    Davies, E., 2022. Bad news for farmers – fertiliser prices just hit record highs. But these ASX producers could benefit – Stockhead. [online] Stockhead. Available at: <https://stockhead.com.au/food-agriculture/bad-news-for-farmers-fertiliser-prices-just-hit-record-highs-but-these-asx-producers-could-benefit/> [Accessed 26 May 2022].

    Fred.stlouisfed.org. n.d. Real Gross Domestic Product. [online] Available at: <https://fred.stlouisfed.org/series/GDPC1> [Accessed 26 May 2022].

    Analytics, M., n.d. Malaysia Real Gross Domestic Product | Moody’s Analytics. [online] Economy.com. Available at: <https://www.economy.com/malaysia/real-gross-domestic-product> [Accessed 26 May 2022].

    Bnm.gov.my. n.d. National Summary Data Page for Malaysia – Bank Negara Malaysia. [online] Available at: <https://www.bnm.gov.my/national-summary-data-page-for-malaysia> [Accessed 26 May 2022].

    Bnm.gov.my. 2022. Quarterly Bulletin 4Q 2021 – Bank Negara Malaysia. [online] Available at: <https://www.bnm.gov.my/-/quarterly-bulletin-4q-2021> [Accessed 26 May 2022].

    Researchers: Muhammad Bahari, Calvin Kwa, Darryl Yeow

    Reviewers: Muhammad Bahari, Faith Tan

    Editor: Emelia Anne

  • Index Funds Explained – “The Investment That Makes the Most Sense”

    Index Funds Explained – “The Investment That Makes the Most Sense”

    Index Funds Explained – “The Investment That Makes the Most Sense”

    This is a fact: active managers of funds aren’t really “great” at their jobs. ‘Active managers of funds’ means individuals who operate “hedge-funds” and pick various stocks that aim to generate “big” returns for their investors. These fund managers often charge a fee for managing these funds.

    In 2016, 66% of active managers couldn’t beat the “market index”. Over a 15-year period, 90% of fund investors also failed to beat the “market”.

    You may be a bit confused as we’re throwing around terms like “market”. But what does it mean when we say, investing in the market means purchasing a “passive” index fund? In this article, we’re going to break down the jargon on these terms, and explore what legendary investor Warren Buffet meant about index funds when he suggested it “makes the most sense practically all of the time” for the average investor.

    Introduction to Index Funds, Stocks & ETFs

    Index Funds Stocks (Equity) ETFs
    What are they?

    An index fund is a portfolio of securities that mimics the performance of a financial market index such as the Standard & Poor’s 500 Index and the Nasdaq 100.

    		 A stock, also known as equity, represents fractional ownership of a company. 

    Units of stocks are called ‘shares’. Shareholders are entitled to the company’s assets and profits equal to the amount of shares they own. 

    		 An exchange-traded fund (ETF), is a pooled investment ‘basket’ that tracks a particular index, commodity, bonds, or other assets and operates similarly to a mutual fund. 
    What are their benefits? Indexing is a passive form of investing. This strategy is common among people who lack the time to pick and value stocks individually. 

    Indexing also reduces the risks of completely diminishing their capital since the investor is mirroring a particular index i.e. S&P 500.

    		 Investors that own common shares in a company have the right to vote in shareholder meetings and the right to company profits (dividends). Majority shareholders have the right to steer the company’s direction by selecting its board members. The difference between a mutual fund and ETF is that an ETF can be purchased and/or sold on the stock exchange just like regular stocks.

    Mutual funds, which pool money from other individuals, usually have annual and first-time charges. 

    ETFs also offer the investor opportunities to invest in markets with minimal trading fees and fund expense ratios as low as 0.03 percent.
    Examples Standard % Poor 500 (SPX), Dow Jones Industrial Average (DJI), Nasdaq Composite Index (IXIC),

    BURSA MALAYSIA KLCI INDEX (KLCI)

    		 TESLA INC. (TSLA), META PLATFORMS (FB), FGV HOLDING BERHAD (FGV) ProShares UltraPro QQQ (TQQQ), ProShares Ultra VIX Short-Term Futures ETF (UVXY), Financial Select Sector SPDR Fund (XLF)

    The benefits of Index Funds

    1. Lower Expense Ratio 

    Index funds do not require constant human supervision as their goal is to simply mirror the market, hence they tend to request lower management fees (aka expense ratio). This is unlike mutual funds that are actively managed in order to beat the market, in turn coming with a higher management fee for fund managers tasked to choose your investment. It is shown that a lower expense ratio is better recommended for saving and in turn, can generate a generous amount of inflow in the long run. For example, an ETF (exchange-traded fund) offers the lowest expense ratio among all other types of index funds.

    1. Diversified Portfolios 

    It is always wise to invest in various portfolios rather than individual stocks. A particular index fund is made up of multiple companies, which means capital invested in the portfolio is exposed to all diversified sectors and stocks. Thus, an investor can seize the probable returns on a larger segment of the market through a single index fund. 

    1. Tax advantage 

    When a fund is set to sell a stock for profit, the difference between the initial purchase price and its final sales price is known as a capital gain. Funds with a higher turnover ratio derived from a higher capital gain will result in higher taxes by the fund manager. This isn’t the case for index funds, however, as they have a low turnover ratio from being passively managed by the fund manager. The fewer trades that were placed in a year concluded that lower capital gains were being generated for distribution to its shareholders.

    The point of discussing these is to demystify some of the terms you may find when financial jargon is thrown around. These are the three most common investment avenues you may find. We can’t tell you what to invest in, that depends on your financial goals as well as your risk appetite. 

    What is an Index, and exploring the “American Index” and “Malaysian Index”

    S&P 500

    S&P stands for Standard and Poor. The S&P 500 is a stock market index that tracks the stocks of 500 large-cap U.S. companies. It represents the stock market’s performance by reporting the risks and returns of the biggest companies. Investors use it as the benchmark of the overall market, to which all other investments are compared.

    Companies in the index include Apple, Microsoft, Amazon and Tesla.

    KLCI

    Kuala Lumpur Composite Index consists of the largest 30 companies listed on the Bursa Malaysia stock exchange as determined by Bursa rules requirement. The progression of the KLCI index value also preserves the historical movements of the Malaysian stock market. 

    Companies in the index include Maybank, CIMB and Tenaga.

    (Source: TradingView)

     S&P 500 VS. KLCI: Performance Comparison

    1-Yr 3-Yr 5-Yr Total

    S&P 500

    +6.40%

    +50.95%

    		 +86.62%

    +143.97%
    KLCI -1.20% -2.04% -9.51%

    -12.75%

    Investors may be surprised to know that returns for KLCI and S&P 500 index funds are not very similar if they compare their annual returns. We can see in the previous chart and also in the table, that the S&P 500 has provided the most returns to investors since the early 2000s. 

    “If you can’t beat ‘em, join ‘em.” That is essentially what index investors are currently doing. The investment objective of an actively managed mutual fund is to outperform market averages — to earn higher returns by having experts strategically pick investments they believe will boost overall performance. As a result, investors may choose an actively managed fund over an index fund in an attempt to outperform the index. However, investors can achieve greater diversification, and potentially greater performance, by selecting their own allocations.

    However, it’s worth noting that while during this period the KLCI was negative against the US market, the KLCI actually outperformed the US Index during the 80s and 90s.

    Jan 1987 March 1997 Percentage Increase

    S&P 500

    		 226.28 Points 793.17  points

    318%
    KLCI 275.65 Points 1261.45 points

    357.62%

    This is largely due to Malaysian companies benefiting from rapid economic growth during the period of the 1980s and 90s with foreign markets bolstering the Malaysian equity market as well. The KLCI was particularly hit, after this period, with the index falling to a low of nearly 300 points (or 76%).

    Currently, the Malaysian stock market has yet to reach its peak of around 1850 points in June 2014. This downturn could be attributed to the lack of “growth stocks” in the index, such as the technology companies in the United States like Apple, Alphabet (Google’s Parent Company), and Tesla. 

    Growth stocks, refer to stocks that trade at higher valuations, and the implication of this is they may seem expensive right now (if we start using metrics), but these high valuations may be fairly valued in the future. 

    (Source: https://americasbestpics.com/picture/visualizing-the-insanity-tesla-vs-world-659b-668b-cap-ford-wKvhkF3G8

    Some may find that Tesla’s price is outrageous, given that other carmakers combined make more “revenue” than Tesla (46.5 times more), but Tesla proponents would argue that in the future, Tesla cars become so popular and supply chain issues are overcome, that they will be worth that much in the future.

    Now that we’ve compared the US to Malaysia, we can zoom in further on two Index Funds in the US.

    SPDR S&P 500 ETF (SPY) vs Invesco QQQ Trust (QQQ): Performance Comparison

    (Source: TradingView)

    Mar 1999 – April 2022

    		 1-Yr 3-Yr 5-Yr Total

    SPDR S&P 500 trust (SPY)

    		 +6.40% +50.95% +86.62%

    +241.02%
    Invesco QQQ Trust (QQQ) +0.57% +77.51% +155.30%

    +545.01%

    In this chart, we compare the SPDR S&P 500 ETF to the Invesco QQQ Trust, an exchange-traded-fund (ETF) that tracks the Nasdaq 100 Index. The Nasdaq 100 Index is composed of a “basket” of the 100 largest most actively traded U.S companies on the Nasdaq exchange. Companies included deriving from various industries except for the financial industry. 

    Since technology accounts for 56% of the index’s weight, the Invesco QQQ Trust is susceptible to immense volatility and high risk. This is why we notice ‘Tech stocks’ in the Nasdaq often going higher than the Standard and Poor’s Index during bull markets. 

    Bull markets refer to when markets and share prices overall are rising. Bear markets refer to when markets are down (usually by 20%) and share prices overall are falling. 

    However, a con of the QQQ ETF is that during a bear market, investors would see their investment decline substantially. The QQQ ETF could technically be considered as more “expensive” and an increased risk. A big argument is that diversifying one’s portfolio is safer given that stock prices move at random, and the QQQ only represents the 100 largest companies in the US, and in comparison, an S&P 500 ETF would represent 500 of the largest companies in the US.

    If you’re wondering which ETF to invest given the benefits, it largely depends on your risk preference and financial goals. However, we hope that we’ve illustrated why in the words of Warren Buffet, index funds do “make sense most of the time”. While past returns are not indicative of future returns, index funds mean that one is “invested” in the market, without having to individually pick stocks. In the long run, a 10% average return is higher than a traditional savings account and it beats inflation.

    How to invest in an index fund?

    If you’re wondering how to invest in an index fund, it’s rather simple: 

    1. Create a Brokerage Account. You can choose one that operates completely online (see Rakuten, MPlus in Malaysia) or ask around friends/family for a remisier’s contact.
    2. Pick an index you would like to track, such as S&P 500 or Nasdaq 100.
    3. Select a fund that tracks your index.
    4. Purchase shares of an index fund.

     

    References :

    2022. The Motley Fool|3 reason to invest in Index Fund| [online] Available at: <https://www.fool.com/investing/how-to-invest/index-funds/why-invest/>

    2021. The balance|Risk and Benefits of Index Funds | [online] Available at:<https://www.thebalance.com/why-invest-in-index-funds-2466447>

    Fanklin Templeton |INDEX FUNDS MEANING, BENEFITS & HOW TO INVEST IN INDEX FUNDS| [online] Available at:<https://www.franklintempletonindia.com/article/index-funds-meaning-benefits-how-to-invest-in-index-funds-io04og33/index-funds-meaning-benefits-how-to-invest-in-index-funds>

    2022. CNBC| Index fund are one of the easiest way to invest- heres how they work| [online] Available at <https://www.cnbc.com/select/what-are-index-funds/>

    Chen, J. (2022, April 15). Exchange-traded fund (ETF). Investopedia. Retrieved April 16, 2022, from https://www.investopedia.com/terms/e/etf.asp#toc-what-is-an-exchange-traded-fund-etf

    Fernando, J. (2022, March 7). Index funds: How they work, pros and cons. Investopedia. Retrieved April 16, 2022, from https://www.investopedia.com/terms/i/indexfund.asp

    Hayes, A. (2022, March 5). What is a stock? Investopedia. Retrieved April 16, 2022, from https://www.investopedia.com/terms/s/stock.asp

    Thune, K. (n.d.). Compare Holdings and Performance. Total Stock Market Index vs. S&P 500 Index. Retrieved April 14, 2022, from https://www.thebalance.com/total-stock-market-vs-sandp-500-2466403#:~:text=The%20difference%20between%20a%20total,indexes%20represent%20only%20U.S.%20stocks.

    Norris, E. (2022, January 2). QQQ stock trading risks and rewards. Investopedia. Retrieved April 17, 2022, from https://www.investopedia.com/ask/answers/061715/what-qqq-etf.asp#toc-qqq-pros-and-cons

    2022. Nerdwallet |Index Fund: How to Invest and Best fund to choose| [online] Available at: <https://www.nerdwallet.com/article/investing/how-to-invest-in-index-funds>

    Researchers: Nasir Ali, Tan Dei Lonn, Hariz Shah

    Reviewer: Muhammad Bahari

    Editors: Mindy Liew, Julia Yazid

  • What is a Neobank/Digital Bank?

    What is a Neobank/Digital Bank?

    Neobanking : Everything you need to know about a (potentially) 2.05 Trillion Dollar Industry

    From “non-fungible tokens” or NFT’s to cryptocurrencies, things we once perceived as the norm are being challenged with the advent of new technologies. The banking industry is no different, and here it’s worth exploring “Neobanks”.

    All Neobanks, or Virtual Banks are digital banks that provide accessible financial services via apps. With minimal paperwork, an individual can take just under ten minutes to open a neobank account with the palm of their hand. There are many differences, but a key one is Neobanks do not have physical branches, but they still offer similar services that you’d expect from a traditional bank.

    The neobanking industry is currently estimated to be valued at USD 47 billion, and is estimated to grow at an annual average rate (CAGR) of 53.4% which by 2030 would value the industry at USD 2.05 trillion.

    What are Neobanks?

    Again, while the term “Neobanks” may make the industry sound like a daunting one to uncover. But it’s worth remembering what the function of a “traditional” bank is. In our previous article (which you can read here), “What Do Banks Do”, we’ve outlined that the three main functions of a bank are to (1) simplify transactions (2) lend money (3) keep money safe.

    A key difference is Neobanks operate completely digitally, and may not offer all the services you’d expect from a “conventional bank”, as they do not hold the same licence (but how they’re classified in the future may change!).

    Among the reasons as to why the Neobanking industry has grown exponentially include;

    1. The Covid-19 pandemic, as it has done to most industries, led to the accelerated adoption of digital cash, due to hygiene concerns. As a result, this has phased out the use of paper money (Furthermore, more find it more convenient)
    2. Rapid developments in new technologies have fundamentally transformed the banking system, such as technologies that enhance securities, which instil confidence in consumers to use digital services
    3. As Gen Z’s grow older and are able to use services, Gen Z’s just has a preference for digital banking
    4. Due to the lower start-up and operating costs (the lack of physical operations), Neobanks can offer their customers lower fees and higher interest rates, which gives a larger return to their customers
    5. By offering round-the-clock digital services, neobanks bypass the time gaps present in traditional banking. Since they are accessible 24/7, they are able to move swiftly in meeting consumer demands, and need not be constrained by 9-5 Office Hours.

     

    However, as of today Neobanks cannot completely erase the traditional banking industry” as for the older population, they are far more resistant to adoption of using these digital technologies. For even “Gen-Z-ers”, it may be preferable to dealing with a traditional established bank when dealing with a large sum of money (>RM10000). The prefix “Neo” is derived from Greek and simply means “New”, and given its nascency lacks the operating expertise that a traditional bank would have, like ensuring all its regulatory filings are in place. Lastly, a “Neobank” does not offer the exactly the same services as an established player would, as they need to meet the regulatory framework set by the economies central bank to offer more complex financial services.

    Regardless, the Neobanking industry has been booming in the past years, and is showing no signs of stopping. For one, Bank Negara has announced the 5 successful digital bank applicants to be Boost-RHB, GXS Bank-Kuok Brothers (Grab), YTL-SEA (Shopee), Aeon-Moneylion and KAF Consortium.

    As part of the announcement, Bank Negara highlighted that digital banks may benefit the consumers by; increasing convenience and access, the ability to focus on “unmet financial needs” and offering more financial products that benefit consumers. With the awarding of these licences, these companies could offer more complex financial products to consumers.

    Prior to this announcement that would evolve the digital banking space, there were established players in Malaysia like; Big Pay, Go Solo, Neat and Wise. Big Pay now has over 1.3 million users since its 2018 launch. In other countries established Neobanks include Tide Bank, in the UK which has over 100,000 members, JudoBank in Australia with over $1.5 Billion in Deposits and MYBank in China, which has ties with over 20 million SMEs in 2019.

    A further discussion on Malaysia and Neobanks

    Malaysia is set to launch its First Islamic Digital Bank in 2022. Al Rajhi Bank Malaysia (ARBM) has hired GFT, a technology and software firm, and Oliver Wyman, a management consulting firm, to develop, build, and launch a cloud-based Islamic digital bank, which will need ARBM to redesign its products, services, and channel.

    Malaysian Neobank, Crowdo has gained funding of USD 5.9 Million. Crowdo, an ESG-driven neobank for SMEs, closed its Pre-Series B bridge round of S$8 million ($5.9 million), which was co-led by existing investors, Gobi Partners and iVest Capital Pte Ltd.

    If you didn’t know, ESG or Environmental, Social and Governance is a framework applied to companies to ensure that criterias are met so companies are conscious of their impacts to societies, and not purely focused on profits.

    Crowdo will use the cash to grow its ESG finance portfolio and extend its neobank platform in Singapore and Indonesia. Crowdo is based in Singapore, but has been fully approved for digital lending by the Indonesian financial body, Otoritas Jasa Keuangan, since 2017. Crowdo is registered as a FinTech company under The Securities Commission of Malaysia.

    All in all, neobanks and traditional banks provide the same functions; one simply does it with the advent of technology.

    In our previous article, “What Do Banks Do”, we’ve outlined that the three main functions of a bank are to (1) simplify transactions (2) lend money (3) keep money safe.

    However, where neobanks could be a potentially lucrative industry, it is in creating innovative solutions that could go a long way in revolutionising finance.

    References :

    CNBCTV18.com. (2021, October 11). Understanding neo banks: Growth and scope in India. CNBC TV 18. https://www.cnbctv18.com/views/understanding-neo-banks-growth-and-scope-in-india-11066522.htm

    NeoBanks.app. (n.d.). Neobanks in Malaysia in April 2022. NeoBanks.app, https://neobanks.app/neobanks/malaysia

    Tan, V. (2022, March 1). Al Rajhi Bank Malaysia readies itself for 2022 Islamic digital bank launch. Ifnfintech. Retrieved from https://ifnfintech.com/al-rajhi-bank-malaysia-readies-itself-for-2022-islamic-digital-bank-launch/

    Gundaniya, N. (n.d.). Everything you need to know about Neobank. Digipay.guru. Retrieved from https://www.digipay.guru/blog/everything-you-need-know-about-neobank/

    Sorensen, E. (2019, September 9). What is a neobank? How does it differ from traditional banks. Mobile transaction. Retrieved from https://www.mobiletransaction.org/what-is-a-neo-bank/

    Augustin, F, S. (2022, January 12). Southeast Asia neobank Crowdo closes $5.9M pre-Series B convertible bridge round from Gobi, Ivest. Technode Global. Retrieved from https://technode.global/2022/01/12/southeast-asia-neobank-crowdo-closes-5-9m-pre-series-b-convertible-bridge-round-from-gobi-ivest/

    FinTech News. (2018, September 21). Digital banking and neobanks. https://www.fintechnews.org/digital-banking-and-neobanks/

    Mind Sumo. (n.d). Next big thing in Neobanking.
    https://www.mindsumo.com/contests/neobanking

    WHICH-50. (2020, March 16). The rise of neobanks and their impact on banking sector.
    https://which-50.com/the-rise-of-neobanks-and-their-impact-on-the-banking-sector/

    Statista. (n.d). Market size of neobanks in 2021 with a forecast for 2022 and 2030.
    https://www.statista.com/statistics/1228241/neobanks-global-market-size/

    Tide. (2022, January 27). Bumper year for Tide: 7% of SME’s now use the business financial platform. Tide. https://www.tide.co/blog/tide-update/a-bumper-year-for-tide-7-of-smes-now-use-the-business-financial-platform/

    Digital News Asia. (2021, March 5). BigPay brings cash top-ups to customers across Malaysia. Digital News Asia. https://www.digitalnewsasia.com/business/bigpay-brings-cash-top-ups-customers-across-malaysia

    Business wire.(n.d.). MYbank Served Over 20 Million SMEs as of 2019, Further Spurring the Growth of China’s Small and Micro Businesses. Business Wire. https://www.businesswire.com/news/home/20200427005353/en/MYbank-Served-Over-20-Million-SMEs-as-of-2019-Further-Spurring-the-Growth-of-China%E2%80%99s-Small-and-Micro-Businesses

    Azevedo, M. A. (2020, May 8). Australia’s Judo Bank Closes On $147M Series C For SME Loans. Crunchbase news. https://news.crunchbase.com/news/australias-judo-bank-closes-on-147m-series-c-for-sme-loans/

    Investopedia. 2022. Environmental, Social, & Governance (ESG) Criteria Definition. [online] Available at: <https://www.investopedia.com/terms/e/environmental-social-and-governance-esg-criteria.asp> [Accessed 29 April 2022].

    Bnm.gov.my. 2022. Five successful applicants for the digital bank licences – Bank Negara Malaysia. [online] Available at: <https://www.bnm.gov.my/-/digital-bank-5-licences> [Accessed 29 April 2022].

    Researcher: Yeow Wern Jieh, Tan Jia Chyi, Woon Wen May

    Reviewer: Muhammad Bahari, Myra Kiasatina

    Editors: Abigail Phang, Emelia Anne

  • Explaining the Malaysian “Glove Stock Mania” of 2020, and it’s subsequent fall

    Explaining the Malaysian “Glove Stock Mania” of 2020, and it’s subsequent fall

    Explaining the Malaysian “Glove Stock Mania” of 2020, and it’s subsequent fall

    Two years ago, the “glove mania” started to gain steam in the Malaysian stock market, capturing the attention of institutional and retail investors. This article serves to encapsulate the saga thus far, and provide a timeline of key events.

    Intuitively, the price of gloves would go up if demand for gloves were to rise, but this article aims to explore further in-depth what made these gloves (1) so special, (2) attract such lofty valuations, at a time representing two of the top three companies in Bursa Malaysia and (3) contextualise the stock rally and subsequent fall.

    Why was there no fervour over companies that produced masks? Or why gloves?

    For one, masks are easier to manufacture as only a sewing machine is needed. In contrast, gloves require complex dipping lines which are created by specialised contractors like HLT (whose stock price benefitted from the pandemic as well).

    Glove plants are a capital intensive venture. For instance, Supermax, one of Malaysia’s largest players, is building a new facility in the US that for only the first phase, would cost a staggering RM1.5 Billion. Upon completion of the four phases, Supermax would be able to produce 19.2 billion gloves. (Reuters, 2021). 


    There are three main types of gloves commercially used, namely latex(rubber), vinyl(plastic), and nitrile. Latex gloves are the most flexible of all and vinyl are the cheapest but least environmentally friendly as they’re non-biodegradable.

    Nitrile gloves, as a latex alternative, are the most suited for medical environments catered to the masses. It eliminates the risk of latex allergy reactions, making them the most highly demanded and hence, lucrative type of glove (Ventyv, 2020)

    Fun Fact: Top Glove from 2011, had increased their product mix year on year, offering more nitrile gloves to their clients. In 2011, it was 11% and in 2020, 47%, meaning if the market price were to rise, they’d be able to profit greatly, considering nitrile gloves were in demand.

    The conclusion is that once the pandemic hits, demand would increase for all sorts of Personal Protective Equipment (PPE), which includes masks and gloves. However, masks did not experience a chronic shortage as simply put, it’s easier to manufacture. Gloves on the other hand require capital equipment and raw materials like butadiene and nitrile. 

    Analysing the business model and underlying economics

    50% of the cost of gloves comes from raw materials (which makes it particularly hard for new entrants). Profit margins were extremely thin pre-pandemic due to the industry’s competitive environment. For context, the average selling price of gloves was around 20 dollars per carton, and the large players would sell a carton for 18 dollars.

    “Why were the large players able to keep costs lower?”

    Large players are able to keep costs lower as they can exploit Economies of Scale, where when the quantity produced increases, the average cost of a unit falls. This may be for a confluence of factors such as the ability to leverage on fixed costs. Machines may cost the same, regardless of whether it’s operating at 40% or 100% capacity. 


    Source : (https://www.thebalance.com/economies-of-scale-3305926)

    When the pandemic hit, demand for these products would rise, hence (assuming supply grew at a slower rate) the prices would rise, and the profits would rise. Even so, how did the profits rise so astronomically that the quarter on quarter percentage increase was 3412%? 

    Costs actually decreased, due to the overall global fall in the cost of raw materials. Butadiene, a “raw material” component, is derived from Crude Oil, which was as low as $16 a barrel (compared to its average price of $70 in 2019).

    If costs remained the same, this means that any increase in price would translate to pure profit. 

    If the average selling price per carton was 20 dollars and the cost was 18 dollars, the profit would be 2 dollars.

    However, if the average selling price was 40 dollars, if the cost is still 18 dollars, the profit would soar to 22 dollars, which is a 10 times increase.

    The quarterly report illustrates this, with the profit margin being only 9.4% in Q2 2020, but a whopping 53.5% in Q2 2021. It didn’t help that gloves could be classified as an inelastic good, meaning there’d be little resistance to price increases as consumers are still willing to purchase the goods.

    The underlying economics are pretty simple and the increase in profits would mean the stock price would rise as an increase in profits makes the business more attractive. However, for context and perspective, here are some anecdotes related to the “glove mania”.

    • While there’s no evidence that the two are related, the Malaysian stock exchange (Bursa Malaysia) halted trading at 3.30pm due to a “technical issue”. The same day Top Glove lost RM2.10, Kossan lost 44 cents, and Comfort Gloves lost 21 cents.
    • Top Glove nearly overtook Maybank, Malaysia’s largest bank, as the “most valuable company in Malaysia”.


    (Source : https://twitter.com/jalilword/status/1282867827620208640)

    A trip down memory lane : Glove Share Performance

    Ready for take-off – April 2020

    Unfettered Optimism and Expansion Plans

    On 15th April 2020, Supermax started its series of stock buybacks, which lasted until 30th April, spending a combined RM58 million in cash. 

    When companies buy back their stock from the market, investors see it as a signal that the upper management believes the stock to be undervalued. Investors, like the authors, were puzzled. Not only was the amount spent on buybacks equivalent to half of their 2019 earnings, but the share price was hovering near all-time highs.

    Supermax released their quarterly report on the 20th of May 2020, with their profit more than double of last year’s, the first clue of how “phenomenal” the coming financial year will be. 

    For context, when Supermax began its stock buybacks, the price was RM0.98. By the 20th of May 2020, its stock price was RM2.88, a 193% INCREASE.

    Following that, Top Glove made a series of statements with its CEO Lim Chai Wei speaking to media outlets, reaffirming its aim to be a Fortune 500 company by 2030.  Investors were also pricing in Top Glove’s plan to list in Hong Kong, which in the investors’ eyes brings more “prestige” to the company’s image. The company would also be exposed to the international stage, and with that comes potential new contracts and opportunities. Supermax announced their plans to do a dual listing in Singapore (which would also bring it more exposure). An expansion plan was announced as well which would allow them to produce 19.2 million new gloves per annum in the United States, which is double their capacity. In the short term, a flurry of good news can lead investors on the sideline to get caught up in the optimism and enter to join in the rally.

    As the stock market is a forward-looking mechanism, investors would want to get in “at the floor” before the actual bump in earnings were achieved. Some also argued that the rally was bolstered by the first movement control order and people working from home. Add on the 6-month loan moratorium, retail investors could have the time to monitor markets, and with more money to spend (as they don’t need to pay loans), the glove industry seemed like too much of an attractive proposition to ignore.

    Tangible Profits (June 2020)

    The first Quarterly Report (QR) of the windfall earnings series came on 11th June 2020 as Top Glove reported their figures for the third quarter of 2020, which sparked a correction as investors sought to take profit from gloves. In the QR, net profit came in at RM400 million, shattering previous records. Monthly sales orders went up by some 180%, resulting in long lead times, which went up from 40 days to around 400 days. This meant orders placed in June 2020 would only be delivered over a year later. This surge in demand has allowed glove manufacturers to raise their prices unrestrictedly as the demand for gloves is inelastic. Following the marked increase in glove demand from virtually every country in the world, the Group’s utilisation rate rose from a pre-COVID level of 85% to above 95% in Q3 2020, resulting in greater efficiency and economies of scale.

    Fall back to earth (November 2020)

    As valuations hit exorbitant levels, investors started to find reason to take profit. The bull run ran out of fumes as positive vaccine news started to circulate, pointing to an end of the pandemic. Investors also came down to earth, realising that supplies will gradually increase and the astronomical earnings won’t last. With positive vaccine developments, investors are also finding value in heavily battered recovery stocks like banks, thus shifting investors’ attention and funds away from the healthcare sector. 

    Top Glove’s attempts to support its share price (Oct 2020 – February 2021)

    In a span of five months between Oct 9, 2020, and Feb 22, 2021, Top Glove Corp Bhd bought back its own shares for about RM1.42 billion after the share price hit a record high and while cash coffers were expanding fast as it was making supernormal profit. This is one of the many aggressive attempts Topglove conducted to boost investors’ confidence, on top of the listing on Hong Kong exchange and paying special dividend in 2021.

    The aggressive share buyback was jaw-dropping, given the quantity spent. Some veteran investors believe this could well be the biggest amount ever spent by a single company on share buyback in Malaysia’s corporate history. The incident spooked a major controversy in Malaysia, as the massive amount of money could be utilised elsewhere especially on improving the criminally low standard of labour treatment in its factories. 

    One last push – GameStop Mania (Jan 2021)

    The final and arguably most memorable event during the glove saga was of course none other than the “GameStop Mania”, which fueled TopGlove to jump as much as 15% on Friday, the 29th of October. The rally came as several Malaysians, inspired by thee success of American amateur stock traders who helped shoot up the share price of ailing gaming retailer GameStop on Wall Street, started “Bursa Bets”. Glove discussion groups were created primarily on Reddit and Telegram, with the aim of attempting to short squeeze. The most popular one, “TOP Glove Investors Discussion!” on Telegram exceeded 45,000 members at its peak. 

    The group, a collective of presumably stock and option traders, called for “unity” against “institutions”. The group claimed the market to be rigged and manipulated by large institutions like JP Morgan, who work to suppress share prices of local glove makers. JP Morgan earned an unfavourable reputation over this group for its unfavourable coverage of Top Glove’s share price, giving it Target Price of RM3.80, which was seen as low considering it was trading well above RM6. The telegram group accused institutions like JP Morgan of profiting by short selling and giving sell calls simultaneously to glove counters. By giving a sell call, retail investors would react by selling, hence causing the share price to drop. This drop in share price then enables the institution to profit by short selling glove shares.

    Since the majority of retail investors have lost money given the suppressed market condition in Bursa over the past two decades, this populist theory to put the blame on the manipulation by “sharks” and institutions easily fueled their anger, prompting many to join. A retired uncle’s message that circulated around WhatsApp groups summed it all up, saying “I’m buying TopGlove tomorrow to show my support to the retail investors, and to send the message across to show big institutions that us retail investors aren’t afraid of them, I don’t care whether I make money or not”. 

    Ultimately, unlike GameStop, the short squeezing plot didn’t work out in Malaysia.  Short squeezing occurs when a stock moves sharply higher, prompting traders who bet that its price would fall to buy it in order to avoid greater losses.The plot of “short squeeze” didn’t work as only an insignificant 3% of TopGlove shares were shorted, compared to GameStop’s 140%. Since the failed attempt at a comeback, the share price of glove counters continues to bleed until today. 

    Glove stocks as of 2022 

    During the beginning of the year, Supermax traded below a Price/Earnings ratio of 1, which to some may have seemed improbable. A common interpretation of the PE ratio is how much an investor is paying for a dollar of profit for the year. By this logic, a PE ratio of less than one means the shareholders are paying less than what the company has made this year. 

    Of course, this valuation method isn’t always appropriate as we also have to take cash flows and dividends into account. This perhaps, is a lesson on how purely theoretical knowledge cannot be applied to the stock market and how investors must always be aware of the associated risks. Additionally, this could also serve as a lesson on the role of expectations and sentiment in the market. Looking back at the plans, Supermax’s and TopGlove’s plans to list in Hong Kong and Singapore are nowhere to be seen. The only major development on the plans they’ve made was that Supermax has recently announced their objective to invest 350 million USD  to build the first of the four phases of its U.S. manufacturing plant in December 2021. 

    The Author’s View, which does not represent FLY:Malaysia

    The author believes that the fall in ASPs was brought on by aggressive expansions of existing players and newcomers, who saw their profits dwindle greatly. Going forward, oversupply is still an issue, but Malaysia has historically been a global leader for gloves. 

    Malaysia has a better supply chain ecosystem compared to the new player, China. For one, they have easier access to cheaper natural gas, and their industry leaders possess valuable experience in this sector. Evidence supporting this is such that the new firm, Blue Sail Medical in China, saw a net loss in the third Quarter of 2021, whereas Hartalega in Malaysia is still making a 45% net profit within the period.

    Careplus, a smaller glove manufacturer sunk into the red in Q4 2021 while Hartalega and Kossan are still earning more than double their pre-pandemic profits in the same quarter. How the industry shakes out going forward, like most things, is uncertain. 

    Even so, personal preference and conviction is that the titans of the industry are titans for a reason, and will thrive as they’re the fittest of their kind. Kossan, the third largest glove company in Malaysia by volume and market cap, highly emphasises on investing in automation and customer relationship, giving it a promising future by staying competitive. The author’s top pick is Kossan by a wide margin, as he believes that judging by the lower than pre-pandemic share price, investors have overlooked the company’s steady growth prospects by not taking into consideration the cash pile they’ve built during the windfall year in 2021, which makes up more than half of the market cap. Given prudent management of their cash, the author believes Kossan with its considerable cash will use it wisely or otherwise return them to its shareholders in the form of dividends. 

    References: 

    Reuters. 2021. Malaysia’s Supermax to spend $350 mln for first U.S. facility amid import ban. [online] Available at: <https://www.reuters.com/markets/funds/malaysias-supermax-invest-350-mln-first-us-facility-2021-12-17/> [Accessed 30 January 2022].

    Hltglobal.com.my. n.d. Products & Services – HLT Global Berhad. [online] Available at: <https://www.hltglobal.com.my/products-services.html> [Accessed 30 January 2022].

    Ventyv.com. 2020. What’s The Difference Between Nitrile, Latex, and Vinyl Gloves?. [online] Available at: <https://www.ventyv.com/blog/whats-the-difference-between-nitrile-latex-and-vinyl-gloves> [Accessed 8 May 2022].

    Naqib Idris, A., 2021. Top Glove sits on RM860 mil paper loss on massive share buyback. [online] The Edge Markets. Available at: <https://www.theedgemarkets.com/article/top-glove-sits-rm860-mil-paper-loss-massive-share-buyback> [Accessed 8 May 2022].

    Zahid, S., 2021. Inspired by GameStop’s Wall Street rally, BursaBets investors drive up Top Glove shares today | Malay Mail. [online] Malaymail.com. Available at: <https://www.malaymail.com/news/malaysia/2021/01/29/inspired-by-gamestops-wall-street-rally-bursabets-investors-drive-up-top-gl/1945149> [Accessed 8 May 2022].

    Ikram, I., 2022. Careplus sinks into red in 4Q amid lower glove ASP as market demand normalises. [online] The Edge Markets. Available at: <https://www.theedgemarkets.com/article/careplus-sinks-red-4q-amid-lower-glove-asp-market-demand-normalises> [Accessed 8 May 2022].

    Researcher: Calvin Kwa

    Reviewer: Muhammad Bahari

    Editors: Abigail Phang and Ahmad Ayziel Zulkifli

  • Why EPF withdrawals could have adverse long term economic consequences for Malaysians

    Why EPF withdrawals could have adverse long term economic consequences for Malaysians

    Why EPF withdrawals could have adverse long term economic consequences for Malaysians

    To the younger ones, you probably don’t have an EPF account yet because you’re not working. If you didn’t know, EPF, or the Employees Provident Fund is a fund you and your employer contribute to monthly so you have enough saved for retirement.

    If you’ve been following the news lately, you may have heard that the government is allowing withdrawals of up to RM10,000 in EPF’s fund, which you normally would only be able to withdraw for reasons that include, but are not limited to; building a house, funding education, performing hajj or most importantly, when you’re 55 years old.

    In this article, we explore what the implications of this “special withdrawal” could be on the Malaysian economy.

    The case for withdrawing

    On a positive note, financial savvy peers see this as an opportunity to reinvest the RM10,000 to more lucrative investments than what’s offered by EPF, on average a 6% return .

    However, with over half a million M40 households falling into the B40 category, the reality is that most Malaysians now seek the fourth and last EPF withdrawal as their final resort.

    In essence, most Malaysians had seen a fall in incomes during the past 2 years.

    With little to short notice of spontaneous lockdowns over the past 2 years, businesses have descended into chaos as many were shut down or forced to undergo restructuring. 

    There is no doubt that unemployment rates were on the rise. Consequently, the average monthly household experienced a decline of 10.3% in the past year. With that, approximately 20% of, or 60,000, M40 households moved into the B40 group.

    HOUSEHOLD INCOME CLASSIFICATION

    EXPLANATION

    MONTHLY HOUSEHOLD GROSS INCOME

    B40

    Lower-income group. Represents 40% of Malaysians.

    RM1 – RM4,850

    M40

    Middle-income group. Represents 40% of Malaysians.

    RM4,851 – RM10,970

    T20

    Upper group. Represents the top 20% of Malaysians.

    RM10,970 and above

    Source: Household Income and Basic Survey Amenities Report 2019, DOSM.

    Overall, this could provide a short term economic boom in Malaysia.

    More EPF withdrawals would bring about more cash . This would definitely help out the general public, especially the B40 community which could utilise the withdrawals for autonomous consumption, hence reducing financial burdens. 

    Autonomous consumption: Spending made even when there’s no disposable income. 

    This large EPF withdrawal could be seen as an injection into the circular flow (economy) that would stimulate further rounds of spending, resulting in demand-pull inflation which, all things being equal, would generate a short term economic boost.

    As quoted by economist Lee Heng Guie, the estimated RM 20 million in the next round of special EPF withdrawals could contribute to 0.5% economic growth based on Bank Negara Malaysia’s Projections. (Free Malaysia Today (FMT))

    But should we be worried?

    Our Finance Minister oversees RM63 billion being withdrawn from the latest EPF movement. This could hit returns on the EPF’s investments due to the need to rebalance its portfolio and sell foreign investment assets to cover the additional liquidity needs, while in current volatile market conditions.

    Given the EPF’s size and dominant position in the marketplace, a sudden increase in selling could hit the local equities as well as bond markets. This would lead to a lower dividend rate and thus lower dividends being distributed to members.

    Finance Minister, Tengku Zafurl has also mentioned that the EPF’s role in providing capital liquidity in the government bond market may be affected due to the government’s borrowing cost  rising to 100bps on average from the third quarter of 2020.

    In essence, EPF needs to have the funds available for withdrawal, which reduces its ability to invest. Given its large shareholdings of stocks like Tenaga, Axiata, and Telekom Malaysia, they may sell these stocks at discount to achieve liquidity.

    Potential Long Term Impact

    The purpose of EPF is to ensure that citizens have essential cash flow after retirement. Given that the members decide to withdraw now to make purchases, their accounts might not have sufficient savings for their retirement.

    It is known that Malaysia is transitioning to an ageing nation. Therefore, an extensive poor ageing population would be a significant issue in Malaysia in the future. 

    In that case, the government would have no choice but to generate revenue by imposing taxes on the population to support the impoverished ageing population. 

    As the economic term goes, there’s no such thing as a free lunch.

    In the short run, the EPF withdrawal may be an ideal choice to mitigate the current issues and  the burden that Malaysians are facing during this crisis.

    However, in the long run, this is not sustainable as it undermines the main purpose of our future retirement fund. 

    If more Malaysians don’t have retirement savings, not only will the ageing population lead a less prosperous life during their golden years, but will use up resources in which it could’ve been employed elsewhere for investment.

    References: 

    Free Malaysia Today (FMT). (2022, April 4th). Latest EPF withdrawal could hit RM20 billion, says economist. Malaysia. Retrieved April 15, 2022, from https://www.freemalaysiatoday.com/category/nation/2022/04/04/latest-epf-withdrawal-could-hit-rm20-billion-says-economist/

    B.K. Sidhu (2022) “RM10,000 withdrawal from the EPF has its risks” The Star. doi:https://www.thestar.com. y/business/bu iness-new /20 22/03/28/rm10000-withdrawal-from-the-epf-has-its-risks

    Carvalho, M., Rahim, R., &amp; Tan, T. (2021, October 25). Roughly 600,000 families went from M40 to B40 due to pandemic, says Tok Pa. The Star. Retrieved April 16, 2022, from https://www.thestar.com.my/news/nation/2021/10/25/roughly-600000-families-went-from-m40-to-b40-due-to-pandemic-says-tok-pa

    BERNAMA (2022, March 14th) Kos pinjaman kerajaan bertambah RM830 juta setahun kerana pengeluaran KWSP. Retrieved April 16, 2022, from https://www.hmetro.com.my/amp/mutakhir/2022/03/820923/kos-pinjaman-kerajaan-bertambah-rm830-juta-setahun-kerana-pengeluaran-kwsp

    Pensions and Investments (2021) The World’s Largest Retirement Funds in 2021 doi: https://www.pionline.c om/interactive/worlds-largest-retirement-funds-2021

    https://www.thestar.com.my/business/business-news/2022/03/28/rm10000-withdrawal-from-the-epf-has-its-risks

    Researchers : Sherilynn Ngerng Siew Fong, Abdullah Fawwaz bin Khairul Nahar, Low Zhiyi, Edwin Oh Chun Kit

    Reviewers : Muhammad Bahari

    Editors: Julia Yazid, Wee Marcus

  • The Problem with Yayasan’s in Malaysia and how Political Financing can be reformed (FLY x YPol : Part 4)

    The Problem with Yayasan’s in Malaysia and how Political Financing can be reformed (FLY x YPol : Part 4)

    This is the finale of our 4 part series on Political Financing in Malaysia, if you missed out the last posts, feel free to check them out here:

    Post 1 : Defining Political Financing

    Post 2 : How much do our Members of Parliament Earn? (and CDF’s)

    Post 3 : Money Politics Explained Through the Context of Elections

    As we’ve highlighted in the past episodes, the influence of money in politics can lead to issues like patronage and policy capture, which may stray away from our idealised version of the political process (depending on how we define it). Another vehicle for political financing that was kept in the dark until recently, it’s also worth exploring “Yayasan’s” and how they’re also a source of political financing. 

    Demystifying Foundations, or “Yayasans”

    Former deputy minister, Zahid Hamidi is undergoing court trials for misappropriating funds from Yayasan Akalbudi, a foundation he established in 1997 to “eradicate poverty”. Yayasan may serve as a vehicle for politicians to collect donations from business interests, under the motive of contributing to a worthy cause.

    The issues with foundations is currently:

    There is no legislation to ensure donations are publicly disclosed, the laws only concern campaign financing and not the flow of funds to foundations and there is no disclosure regarding the sponsors of these foundations.

    The information and donors we know about certain foundations include; Tan Sri Muhyddin’s Charity Golf Foundation, which has received donations from; Genting Malaysia BHD, Tropicana Corporation Bhd and the Top Glove Corporation. According to Muhyiddin, the foundation has collected RM27 million in donations and has channelled RM24 Million to charitable projects. Yayasan Permata, founded by Datin Seri Rosmah Mansor, had donors such as: Khazanah Nasional, PNB, and the Berjaya Corporation.

    Furthermore, there’s a larger discussion to be had regarding what we don’t know about foundations. Yayasan Aman established in 1993, linked to Dr Wan Azizah and Anwar Ibrahim, has no known donors and its annual report is unavailable on its website, yayasanaman.com. Highlighted by Lalitha Kunaratham, Yayasan Aman claims cash donations are tax-exempt, but in order to achieve tax-exemption status, its reports must be submitted to the Inland Revenue Board. 

    The issue with foundations

    In addition to the lack of transparency, it also calls into question why policy makers who have been in power in the legislature choose to channel energy towards foundations, over actual policy making.

    When a lack of transparency creates issues

    The lack of transparency regarding political financing is detrimental to our political environment, as citizens are unsure where the loyalties lie. This is particularly vital during a crisis, such as the Covid-19 pandemic as curbing any form of political corruption is of crucial importance in ensuring the effective use of resources, especially.

    Such a case is best exemplified with what was dubbed the 2021 “Randox Scandal”, in the UK, where an MP, Owen Paterson, resigned after breaching lobbying rules. This was due a lack of transparency over his relationship with Randox, a health and toxicology company, which called into question whether Paterson’s relationship with Randox was influential in winning contracts related to COVID-19 testing (worth £133 million and £347 million)

    The call for Political Financing reform isn’t new…

    During the Pakatan Harapan Government, former Prime Minister Mahathir Mohamad announced that the government “will draw up a political funding law”. While there has been little movement since the announcement, the MACC chief, Tan Sri Azam Baki, claims that it was “on the cards” in 2021.  However, without much political will, it appears to be stuck in limbo despite some politicians calling for its implementation. 

     

    What a political funding reform may look like, if passed.

    One nation with a ‘political financing act’ is Norway.  The law was passed in 2005, after complaints of the difficulties in keeping track of the finances of parties, before and after elections. 

    What does The Political Financing Act in Norway look like?

    • Their Political Parties Act Committee, an independent body whose senior members are appointed by the monarch for a six-year term, has the power to regulate the financing of political parties in the country. [2]
    • Bans on donations from foreign interests, unknown donors, and corporations that are partly owned by the government are implemented. [2]
    • Parties are required to report and publicise their finances. The report must disclose finances related to the election campaign and donor identities. [2]
    • Public funding for political parties is available and allocated based on the share of votes in previous elections and the representation in the elected body. 

    In conclusion of this series

    The First Post : Money is a necessary part of our political reality, required by parties to conduct their day to day activities. But if unregulated, it undermines the political process. The Second Post: MP’s have some of the highest paying jobs in Malaysia, yet allocations across the political spectrum are largely inequitable. The Third Post: Elections are a costly endeavour, which may lead politicians to scavenge for more money, occasionally from wealthy elites. This post: Established how yayasans, a pseudo-charity organisation are misused and putting forth ideas towards a regulatory framework.

    Without a proper framework in place, it’s hard to hold our politicians accountable. But even if a “political financing act” was passed, the rakyat should be just as vigilant as those in power may still circumvent the checks and balances in place. 

    How you can support the issue of political financing in Malaysia:

    1. Check out some reading recommendations by the team
      1. The Center to Combat Corruption and Cronyism’s reports on Foundations and Donations: https://c4center.org/foundations-and-donations-political-financing-corruption-and-the-pursuit-of-power/
      2. This infographic by New Naratif on political financing: https://newnaratif.com/fix-malaysian-political-financing/
    2. Support the works of various think tanks, such as IDEAS, that have advocated for political financing reform
    3. Write to your MP’s. If you need some guidance, we have a template (here), on how to reach out to them

     

    References 

    Transparency International. (n.d.).  RECOMMENDATIONS ON POLITICAL FINANCING FOR OGP ACTION PLANS. Transparency International.

    Reuters. (2022, January 13). Ministry: Recovered 1MDB funds only enough to pay debt principal for 2022. Malaysiakini.

    Rashid, F. (2022, April 15).The importance of governance transparency in dealing with the Covid-19 pandemic. Malay Mail. 

    Transparency International. (2021). What Is Corruption? Transparency International.

    The Center to Combat Corruption and Cronyism. (2021). Foundations and Donations: Political Financing, Corruption, and the Pursuit of Power. The C4 Centre

    The Ministry of Government Adminstration And Reform. (2004). On the Act relating to certain circumstances concerning political parties (Party Act). (Arms of the Norweigan State)

    EuroPAM.(n.d.). Norway Public Accountability Index. EuroPAM.

    Graphics, W. com N. (n.d.). Malaysia’s 1MDB Decoded: How Millions Went Missing. The Wall Street Journal.

    IDEAS .(n.d.).Brief IDEAS No. 33 – Political financing in Malaysia: Recent developments and plugging potential gaps. IDEAS.

    Kong, C. Y. (2019, September 1). Be a transparent, accountable and clean government. Malaysiakini.

    OECD.(n.d.). Financing Democracy: Funding of Political Parties and Election Campaigns and the Risk of Policy Capture. OECD.

    Researchers: Shahril Azhar, Elizabeth Lajawai

    Reviewers: Muhammad Bahari, Jie Yee Ku, Faith Tan

    Editors: Chanel Ng, Siva Nagappan, Kartika Zayad, Wan Nabil Ikram

  • What does Money Politics mean? Explored through the context of elections in Malaysia (FLYxYPol: Post 3)

    What does Money Politics mean? Explored through the context of elections in Malaysia (FLYxYPol: Post 3)

    You’ve probably heard politicians mention the influence of money in politics, but how does it actually?

    Does Money = Victory?

    A recent study conducted in 2020 found that there is a strong correlation between campaign spending and election performance, thus illustrating how candidate spending indeed significantly impacts the decisions of voters. 

    In perspective of how money can take precedence…

    During the 1993 UMNO party election between Anwar Ibrahim and Tun Ghafar for the Deputy President post, it was alleged that “RM200-300 million” had been spent by one faction. In 1995, one candidate allegedly spent RM6 million to secure the post of division chairman. Following this, Tun Dr Mahathir, the then President of UMNO in 1996, banned campaigning for party posts. 

    In the context of elections

    According to Rafizi Ramli, the former MP of Pandan, the costs of campaigning as a member of parliament may start at a minimum of RM250,000. The basics include:

    • T-Shirts
    • Flags
    • Advertisements
    • Field workers’ salary 

    Other costs may include gifts, advisors, poll monitors, survey institutes, travel expenses, remuneration for attending meetings, and more.

    When Candidates want to double down

    Aside from the bare minimum costs, candidates can go beyond by spending on;

    Advertising

    • Political advertising, such as street banners, is a powerful way to reach and influence voters. 
    • Unlike previous campaigns, social media technology has allowed candidates to reach target voter groups with little physical effort.

    Communication cost

    • Unlike advertising, communication is two-way and requires more physical effort. 
    • Strategies may include holding press conferences, rallies, and events

    Market research

    • Research allows a greater understanding of the behaviour, needs, and wants of key voter groups. 
    • It informs strategic decisions on communication and advertising to educate, persuade, and reinforce existing views.

    When cash is king:

    Given the strong correlation between campaign spending and election performance, politicians may resort to the wealthy elites to fund their campaigns. 

    When Politicians rely on wealthy individuals or corporations to fund their campaigns, patronage may occur, where political parties provide business favours in exchange for funding. The favour could include access to contracts, speedy government approvals, etc When candidates win elections, their donors expect that they are to be compensated. This may result in policy capture, where public policy decisions are repeatedly oriented away from the public interest and towards a specific interest, thereby worsening democratic principles..

    If we were to talk about 1MDB…

    1MDB was initially established by former Prime Minister Dato Seri Najib Razak in 2009 under the pretence of promoting Malaysia’s economic development and improving people’s well-being through global partnerships and foreign direct investment. 1MDB instead became a massive political financing source for the 13th general election campaign. The Malaysian Anti-Corruption Commission also revealed that RM 212 million of 1MDB funds had been transferred to his political party, UMNO.  Among the sources of these funds were from foreign nations, such as a donation from the King of Saudi Arabia of $800 Million. 

    Money provided from a foreign nation allows them to influence the decisions made by those elected. This raises the question: why are their wants prioritised over the rakyat?

    The Limits: As they exist now

    • According to the Election Offences Act 1954, candidates for a parliamentary seat are permitted election expenses up to RM200,000 each, while the maximum amount allowed for a candidate contesting a state seat is RM100,000.
    • However, as we’ve established, electoral campaigns are costly and politicians are tempted to spend far more than the spending limits allow to achieve victory.

    The law, contradicts as former MP, Rafizi Ramli puts it, an “ open secret” that a parliamentary seat campaign at minimum could cost RM250,000 . When money takes precedence in our elections, it may undermine our democratic processes. It begs a reflection on what we want our politics to be. Do we want our leaders to be elected on the merit of their policy proposals and principles, or based on the wealth they’ve accumulated?

    Money and Politics going forward

    Though money is a necessary expense in elections, if unregulated, could get out of hand. As established, it may create problems of money based factionalism, policy capture and patronage. Going forwards, how our politics is conducted largely depends on what you think is important. Do you think it should be policy based or who has the largest pockets?

    But one thing is certain, if money indeed takes precedence, politicians who have little resources may be forced to find funding from nefarious sources, and the cycle of money politics continues.

    References

    Azmi, K. S. A., & Zainudin, R. (2020). Money in politics: a recipe for corruption in Malaysia. Journal of Financial Crime, 28(2), 593-606.

    Falguera, E., Jones, S., & Ohman, M. (2014). Funding of Political Parties and Election Campaigns: A Handbook on Political Finance. International IDEA.

    Schuster, S. S. (2020). Does Campaign Spending Affect Election Outcomes? New Evidence from Transaction-Level Disbursement Data. The Journal of Politics, 82(4), 1502-1515. doi:10.1086/708646

    OECD (2017). Preventing Policy Capture: Integrity in Public Decision Making. OECD Public Governance Reviews. doi:10.1787/9789264065239-en

    Vaswani, K. (2018, May 11). Corruption, money and Malaysia’s election. BBC News

    Office of Public Affairs (2021, August 5). Over $1 Billion in Misappropriated 1MDB Funds Now Repatriated to Malaysia. The United States Department of Justice.

    Yeoh, T. (2019, July 13). Following the money: Political financing in Malaysia. Asia Research Institute

    Saravanamuttu, J. & Mohamad, M. (2020). The Monetisation of Consent and its Limits: Explaining Political Dominance and Decline in Malaysia. Journal of Contemporary Asia, vol. 50, https://doi.org/10.1080/00472336.2019.1569710

    The Electoral Commission. (n.d.). Election campaign spending. The Electoral Commission.

    The University of Auckland (n.d.). Political Market Research. The University of Auckland.

    Detrow, S. (2018, March 20). What Did Cambridge Analytica Do During The 2016 Election? National Public Radio. 

    Ivy, JA. & Puyok, A. (2021). Political patronage In election: Impacts of the coalition change in Malaysian federal government on Sarawak’s politics. 8th International Conference On Public Policy And Social Science (ICoPS).

    Researchers : Jia Rou, Lua Yun Xin (Kelly)

    Reviewers: Muhammad Bahari, Jie Yee Ku, Faith Tan

    Editors : Chanel Ng, Siva Nagappan, Kartika Zayad, Wan Nabil Ikram

  • How much does a member of parliament in Malaysia make, and unpacking CDF’s (FLY x YPol: Part 2)

    How much does a member of parliament in Malaysia make, and unpacking CDF’s (FLY x YPol: Part 2)

    Constituency Development Funds (CDFs) are an MP/ ADUN allocation to support grass-root level projects in constituencies.

    Our last post provided an overview on what political financing is, but did you know that MPs have been receiving unequal CDF allocation despite having similar roles? Continue reading to unpack how much an MP earns and how CDF funds are allocated

    How much does an MP earn? 

    An elected official’s salary is determined by the sum of monthly salary and the monthly allowances that the official is entitled to. This amount is then decided by the positions that they hold within the government.

    Members of Parliament (MP), monthly allowances

    • Senate (Dewan Negara): RM11,000
    • House of Representatives (Dewan Rakyat): RM16,000

    A Malaysian parliamentarian would also earn a monthly salary based on the administrative or executive government position that they hold;

    Monthly Salary of Members of the Administration:

    • Prime Minister: RM22,826.65
    • Deputy Prime Minister: RM18,170.20
    • Minister: RM14,907.20
    • Deputy Minister: RM8,847.65

    Overall, there is a direct correlation between income and the position of power a Parliamentarian holds. If an MP holds two or more administrative offices within the government, the official would then only be entitled to the highest salary and allowances payable for the position that they hold. 

    The salary and allowances for a State Legislative Assembly (ADUN) member are controlled and governed by each individual state.

    Malaysian MPs are also entitled to a host of other allowances and claims. Which include:

    • Meeting allowances
    • Entertainment allowances
    • Special payment allowances
    • Monthly travelling allowances
    • Driver allowances
    • Meal allowances
    • Daily living allowances

    An MP’s income, further explained

    In Budget 2022, RM148 Million has been allocated to the “running of parliament”. 

    As a result of amendments brought on in 2015;

    • An MP would earn RM16,000 a month
    • If the MP was a minister, the lawmaker would get an additional RM13,400

    That’s not all! MP’s get paid on top of their monthly salary, for coming in to work;

    • For showing up to parliament, they can collect RM400
    • For showing up to government “meetings or workshops”, they can collect RM300

    MP’s also need not use their monthly salary to purchase their “wants” as most leisurely expenses are taken care of through allowances:

    • MP’s can collect RM2500 in “entertainment allowances”. 
    • MP’s can purchase the latest iPhone or Macbooks, if they collect the RM2000 in handphone allowance or the RM6000 computer allowances

    MP’s also can look their best, with their purchases of dress wear being subsidised up to RM1000. 

    CDF: Another income for MP 

    Constituency Development Funds (CDFs) is an MP/ ADUN allocation to support grass-root level projects in constituencies 

    Examples include:

    • Repairing basic schools and community centres
    • Providing back-to-school assistance
    • Assisting with sports and healthy lifestyle projects.

    This policy aims to help fill in the important gaps in government services in constituencies that have not been addressed in the government’s large, comprehensive policy programs. 

    However, the allocation has attracted intense debate in Malaysia. 

    • Due to the unequal distribution of CDF between MP/ ADUN from opposition parties and the ruling party. The CDFs have also been condemned as a political tool to buy political support.
    • Critics claimed that this abuse is an unfair advantage of the incumbent government.

    Here are a few examples, during the BN administration

    • The allocation for each BN MP ranged between RM5,000,000 to RM10,000,00 
    • Opposition MPs did not receive any allocation. 

    During the PH administration

    • equal distribution of CDFs also was not realised.
    • PH MPs received RM1,500,000
    • Opposition MPs received RM200,000. 

    Continuing our discussion on MP’s income…

    A member of parliament in Malaysia may be the only profession where they themselves can decide on what wage to receive. The last time MP’s gave themselves a raise was in 2015. The minister in the Prime Minister’s Department at the time, Shahidan Kassim justified the raise as “the duty of the Members of Parliament is getting heavier in carrying out the high hopes of the people, and this will boost the spirit of the elected representatives to work with more commitment and dedication” [1]

    However, MP’s in Malaysia sit far less than their counterparts, for instance: 

    • US congress members sat for 145 days in 2017
    • UK MPs sat for 158 days, during the 2015-2016 session [2]

    Our parliamentarians, in contrast, are slated to only meet for 60 days this year, according to the parliamentary schedule.  Furthermore, there should be a greater discussion on the disparity between the average Malaysian and their representative.

    The average salary of a Malaysian citizen in 2019, was RM3224. The individual would be expected to work 20 days a month, for about six hours per day.  Assuming the Malaysian citizen works year round, the yearly salary would be RM38,688 with about 1440 hours clocked in. Compare that, with an MP who, in theory doesn’t attend parliament, could still receive an annual salary of RM192,000 (without collecting any allowances).

    Moving Forward 

    “Ministers get a luxurious house in Putrajaya, cars, drivers and even expenses for their daily meals can be claimed back from the government.” Syed Saddiq Syed Abdul Rahman, MP of Muar. 

    At the end of the day, their salaries come from the taxes collected. Hence, as their employers it’s worth reflecting whether MPs truly adding RM192,000 worth of value yearly into the economy, compared to the average Malaysian? If not, does this mean MP’s are being paid too much, or is the rakyat not compensated fairly? Furthermore, are members of the dewan rakyat the best individuals to decide on their respective wages?

    Potential Ideas for a more equitable wage

    There has been progress, for one 

    • YB Datuk Mastura Mohd Yazid from the Minister in the Prime Minister’s Department announced equal allocations to be provided to government and opposition MPs over the period of September to December 2021. 

    But perhaps:

    • MPs who are absent during parliamentary votes may have to repay their salary as the Swedish parliament did. 
    • The government should give priority to asset declaration laws. Currently, no one is penalised for not declaring their assets and MACC’s website on asset declarations does not have detailed information. 
    • Equitable CDFs should be implemented over a longer-term, not just 4 months during a “Memorandum of Understanding”. 

    References :

    CDF Law Needed to Prevent Abuse of Power and Ensure Equitable Allocation. (2021, March 30). Retrieved March 2, 2022, from IDEAS website: https://www.ideas.org.my/cdf-law-needed-to-prevent-abuse-of-power-and-ensure-equitable-allocation/

    Constituency Development Fund – Office of the Prime Minister. (n.d.). Retrieved March 2, 2022, from https://opm.gov.jm/opm_agency/constituency-development-fund/

    Dzulkifly, D. (n.d.). How much do Pakatan ministers and MPs actually earn? Saifuddin Nasution explains | Malay Mail. Retrieved March 2, 2022, from www.malaymail.com website: https://www.malaymail.com/news/malaysia/2019/12/27/how-much-do-pakatan-ministers-and-mps-actually-earn-saifuddin-nasution-expl/1822606

    Hakim, A. (n.d.). Just How Much Do Malaysian Parliamentarians Get Paid? | TRP. Retrieved March 2, 2022, from https://www.therakyatpost.com/ website: https://www.therakyatpost.com/news/malaysia/2019/12/27/just-how-much-do-malaysian-lawmakers-earn/

    IDEAS welcomes equal allocation for all members of parliament. (2021, September 28). Retrieved March 2, 2022, from IDEAS website: https://www.ideas.org.my/ideas-welcomes-equal-allocation-for-all-members-of-parliament/

    Malaysian Anti-Corruption Commission Act amended to provide for corporate liability for corruption offences. (n.d.). Retrieved March 2, 2022, from Allen & Gledhill website: https://www.allenandgledhill.com/vn/publication/articles/15447/malaysian-anti-corruption-commission-act-amended-to-provide-for-corporate-liability-for-corruption-offences

    Othman, A. F., Ariff, S. U., & Yusof, T. A. (2019, July 1). Dewan Rakyat passes special motion on asset declaration | New Straits Times. Retrieved March 2, 2022, from NST Online website: https://www.nst.com.my/news/nation/2019/07/500680/dewan-rakyat-passes-special-motion-asset-declaration

    Removal or Reform: Charting the Way Forward for Malaysia’s Constituency Development Funds (Peruntukan Ahli Parlimen dan ADUN). (n.d.). Retrieved March 2, 2022, from IDEAS website: https://www.ideas.org.my/publications-item/removal-or-reform-charting-the-way-forward-for-malaysias-constituency-development-funds-peruntukan-ahli-parlimen-dan-adun/

    Sweden: Parliament Decides Absent Members Must Repay Salary. (n.d.). Retrieved March 2, 2022, from Library of Congress, Washington, D.C. 20540 USA website: https://www.loc.gov/item/global-legal-monitor/2021-11-30/sweden-parliament-decides-absent-members-must-repay-salary/

    Syed Saddiq: Some politicians may be getting RM100,000 in monthly pension. (2021, September 29). Retrieved from The Edge Markets website: https://www.theedgemarkets.com/article/syed-saddiq-some-politicians-may-be-getting-rm100000-monthly-pension

    Times, N. S. (2021, October 5). C4 calls for asset declaration law to be given priority | New Straits Times. Retrieved March 2, 2022, from NST Online website: https://www.nst.com.my/news/nation/2021/10/733879/c4-calls-asset-declaration-law-be-given-priority

    What is a former prime minister entitled to? | The Malaysian Insight. (n.d.). Retrieved from www.themalaysianinsight.com website: https://www.themalaysianinsight.com/s/351954#:~:text=THE%20Members%20of%20Parliament%20

    Researchers: Lee Kah Kei, Jie Yee Ku, Muhammad Bahari

    Reviewers: Jie Yee Ku, Muhammad Bahari, Faith Tan

    Editor: Natalie Eng

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