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  • What is “Political Financing” (FLY x YPol : Part 1)

    What is “Political Financing” (FLY x YPol : Part 1)

    What is “Political Financing” (FLY x YPol : Part 1)

    In light of the recent number of state elections in Malaysia, this series, brought to you by FLY:Malaysia and YPolitics explores the role money plays within Malaysia’s political system.

    But first, let’s break down the basics to political financing. How are parties financed and what forms of political financing are there?

    With Malaysian news headlines constantly being flooded by corruption cases and calls for reform, political financing is a term that has been raised on multiple occasions.

    What is political financing?

    Political financing is how political parties source and fund for party activities during and outside of election campaign season.

    Why do parties need money?

    Money is a necessary component to keeping the party operations running. Ideally, these funds enable political participation, campaigning, and representation. Uses of money in politics include:

    • Maintaining permanent offices
    • Running the party 
    • Conducting policy research
    • Political education and campaigns
    • Mobilising voters
    • Paying staff like assistants
    • Advertisement campaigns on policy

    The two types of political financing:

    • Private financing 

    Sources of funds include membership fees, donations, personal wealth and business

    • Public financing 

    Directly or indirectly transferred from the government,  which include the allocation from the national budget and from taxpayer funds

    What are the potential issues when it comes to political financing?

    • Currently, political parties have a hand in the business world

    Barisan Nasional component parties UMNO, MCA, and MIC own large assets and businesses:

    • UMNO owns Putra World Trade Centre, Seri Pacific Hotel, and 18.17% of Utusan Melayu, a newspaper 
    • MCA owns 43% of The Star Media Group Bhd, which publishes the newspaper The Star
    • MIC is affiliated with AIMST University

    While owning a business isn’t illegal, the lack of framework leads to various issues:

    1. We are unsure of how much they truly own due to indirect ownership. 
      1. This could be through layers of private companies, proxies and trustees. 
    1. As these networks have become more complicated, a haphazard policy that outright bans parties owning businesses may lead to the situation worsening, as these activities are conducted even more covertly.

    While the internal party elections are the main concern of political parties, money playing a dominant role could lead to:

    Money – Based Factionalism: The political process is not carried out on the basis of improving the welfare of the rakyat, but instead a popularity contest determined by money rather than ideas.

    Rent-Seeking and Patronage: Rent seeking is when excess returns are made by businesses, which would not exist in competitive markets . 

    These excess profits come from patronage where connections are rewarded due to loyalty. 

    To illustrate this, say the true costs to supply a box with relief aid is RM7. 

    • The job is given to a connection who assisted the politician with funding during the election, and charges RM14 to the government.
    • The connection doesn’t add any value, and inflates the cost for his/her personal profit. 

    The problem with political patronage is : Connections are rewarded with contracts not based on merit, which could lead to economic inefficiencies. An overinflated budget that serves corporate interest could lead to needless inflation. 

    Not only has the political sphere been tainted, but economic inefficiencies are created within the corporate sectors.

    Why should you care about political financing?

    Currently, money is a necessary component of the political process: Political parties require it to carry out their activities, such as representing and connecting with you, the people.

    • If not effectively regulated, it can:
      • Undermine the integrity of the political process
      • Jeopardise the quality of our democracy
    • Which could:
      • Corrupt the overall flow of Malaysia’s economy, disincentivising investment and leading to brain drain
      • Prevent Malaysia from advancing to where it should and can be

    Stay tuned for the other three chapters in our series on political financing, which focuses on how much money is involved, the issues that have stemmed from the lack of framework, and the way forward.

    References

    Azhari, A., & Tricia, Y. 2021. Political financing in Malaysia: Recent developments and plugging potential gaps. Institute For Democracy and Economic Affairs.

    Fraser, D., Zhang, H. and Derashid, C., 2006. Capital structure and political patronage: The case of 

    Malaysia. Journal of Banking & Finance, 30(4), pp.1291-1308.

    Tan, J. and Weiss, M., 2014. Routledge Handbook of Contemporary Malaysia. 1st ed. Taylor & Francis Group, p.200.

    Researcher: Lee Jih Yih, Vincent Henendra Tandry, Matsurah

    Reviewer: Muhammad Bahari, Jie Yee Ku, Faith Tan

    Editor: Johanna Lok

  • Saving Explained : The Basics and Tips to do it Effectively

    Saving Explained : The Basics and Tips to do it Effectively

    Many confuse saving and investing, but both are equally important in achieving the common goal of financial freedom. Gaining a better understanding of both these financial strategies will allow you to personally decide on whether it’s appropriate to invest money, to save that money or even do both. In conjunction with FEN Network and Global Money Week 2022, this article will explore what saving is, and give strategies which we hope you find useful for your journey in achieving financial freedom. Stay tuned for our other article, where we discuss investing in the same detail!

    What is Saving?

    Essentially, saving means putting aside your money to use in the near future. Instead of jumping at the chance to spend your entire paycheck on unnecessary expenses, you hold back and set aside a portion of that hard-earned money into a savings account. Some people may employ a strict budgeting technique and  divide their monthly after-tax income into three major spending categories. This is called the 50/30/20 budget rule where  50% of your salary is spent on necessities, 30% is for leisure spending, and the remaining 20% goes towards savings. 

    Saving is a good financial strategy if you require money quickly and is often considered the safer route as the money in your bank account will never decrease unless you withdraw funds. The ultimate aim of saving is to have those funds readily available and easily accessible for future  use. If you are saving towards a particular short-term goal, such as putting aside money for the down payment of a car or a house or saving for a holiday you have always been dreaming to go on,  you would then target a specific amount to save each month to reach  that goal of yours. Alternatively, you may be building a savings pot to protect yourself from any unexpected financial emergencies.

    A rule of thumb is that saving should typically be for short-term financial goals. Although it is regarded as one of the safest forms of investment due to its minimal risk, interest rates are usually low when money is deposited in a savings account. This would cause the returns you receive on your savings to be low as well, and it might not be the best possible scenario to allow your money to grow quickly. Over time, the money you set aside for savings may lose purchasing power as the rate of inflation rises, reducing the value of your savings and the interest you earn.

    (source: http://www.swanlowpark.co.uk )

    The  graph above is an illustration of how average bank interest rates consistently track below inflation. This suggests that for people who do not invest their money, the value of their savings, or ‘rainy day funds’, is declining in real terms. Basically, the money you set aside now may buy you less items than it did previously. With the same RM100, 5 years later, your basket can buy less goods.

    How do Saving Accounts work? 

    A savings account is a type of bank account that allows you to deposit and withdraw money freely without incurring any penalties, and receive interest on  your deposits. Certain banks have a tier system where different interest rates are offered based on the amount of your deposit. 

    For instance, if you own a savings account with an annual interest rate of 1% and deposit RM10,000 at the beginning of the year, you will earn an interest of RM100 at the end of the year, provided the RM10,000 in the account remains unchanged throughout the year. This is generally a straightforward interest calculation.

    The interest rate for basic savings accounts are low (mostly below 1%), with high-yield savings accounts providing better rates. Although savings accounts are considered to be an incentive offered by banks to keep you as a loyal customer, the interest rates are not high enough to be viewed as a real investment option.

    There are several accounts that offer better interest rates for higher-interest savings accounts, but it must be noted that there is a list of eligibility requirements one has to meet before applying for a high interest savings account. 

    Aside from requiring a high minimum deposit to create an account, you just  need to consistently maintain a minimum balance to receive a high interest, which is normally greater than RM10,000. Most banks will   expect you to do more than just save, they will also want you to spend a certain amount of money from that account monthly. ‘Save, Pay, Spend’ is the overarching concept here. This is why it’s unlikely for most people to qualify for high interest right away, resulting in a loss of prospective interest from the beginning. 

    The table below compares  high-yield interest savings accounts in Malaysia and the eligibility requirements needed to receive the maximum interest rate.

    Savings Account Maximum Interest Rate Minimum Conditions
    Standard Chartered Privilege $aver 0.05% – 4.30% p.a. ●  Deposit RM3,000 monthly

    ●  Spend RM1,000 on your credit card monthly

    ●  Make at least five retail transactions on your debit card monthly

    ●  Invest or insure at least RM30,000 during the month
    RHB Smart Account 0.05% – 2.85% p.a. ●  Save RM2,000 monthly

    ●  Pay three bills online monthly

    ●  Spend a minimum of RM1,000 with your credit or debit card monthly
    UOB Stash Account 0.05% – 2.30% p.a. ●    Maintain a balance above RM100,000
    Hong Leong Bank Pay & Save Account 0% – 2.25% p.a. ●  Deposit at least RM2,000 in a single transaction monthly for three consecutive months

    ●  Spend at least RM500 with your debit card monthly

    ●  Pay at least RM500 online on your bills, loans or credit card monthly
    Alliance SavePlus Account 0% – 2.25% p.a. ●  Maintain a balance above RM400,000
    OCBC 360 Account 0.05% – 2.15% p.a. ●  Deposit RM500

    ●  Pay at least three bills online

    ●  Spend at least RM500 on your OCBC card(s)
    UOB ONE Account 0.10% – 2.15% p.a. ●  RM50,000 in your account

    ●  Spend a minimum of RM500 with your credit or debit card per month

    ●  Pay at least three bills (minimum RM50 per bill)

    ●  Deposit RM2,000 a month.

    *as of April 2021

    (Source: https://versa.com.my/high-interest-savings-account-malaysia/)

    Practical Advice for Saving

    1. Building up an emergency fund

    We all have experienced unplanned financial emergencies at some point of our lives, whether it is caused by a sudden loss of income, an unexpected medical bill or even a damaged mobile device (believe me, it happens more often than you’d think). 

    A couple years ago, I had an issue with my beloved MacBook Air as it was not switching on all of a sudden. After a quick consultation with the technician, I was told that the motherboard of my MacBook Air had been damaged and  replacing it would cost RM2500 t. Now,  you could buy a new laptop for the price of RM2500, nonetheless  I had no choice but to pay for the repair of my existing MacBook since  all my valuable data was stored in it.

    The point is that RM2500  is the equivalent of a month’s salary for many people . No matter how big or small these financial emergencies may seem, they always tend to strike  at the worst times.

    One way to sustain yourself during emergencies like these is to set up an emergency fund. It is a good idea to set aside money specifically for unplanned expenses or financial emergencies. Without savings, even a slight  setback can quickly become major like debt. A question you may be pondering  is how much money should you have in an emergency savings fund. The general rule of thumb is to have  at least 3-6 months’ worth of living expenses in an emergency fund.

     It does seem overwhelming to put away that much money at first, especially if you are living paycheck to paycheck. However, even a small amount can provide some financial security. Besides setting specific targets for your savings, the 50/30/20 budget rule as mentioned above is a good system to keep you accountable for making consistent contributions to your savings.

        2. Utilising multiple accounts for different purposes 

    For some of us, managing one bank account at our age can already be daunting. It can be challenging to keep track of all our finances and monitor our cash flow.Nevertheless , there are added benefits that come with having more than one bank account, especially if you are trying to stay on top of your finances. The average financial expert would recommend  having four  different bank accounts, but if you are just starting out, two separate accounts for your finances should suffice .

    For starters, you should have a current account to keep track of your monthly expenses and purchases. This would be your main account, which you would use  daily and withdraw funds from to make purchases or payments. Your savings account, on the other hand, should remain untouched and used only  when the unexpected happens or if you are stashing away money for other big saving goals. It may  be effective to separate your emergency savings fund from your savings account for other goals, as this will  allow you to efficiently monitor how much money you have set aside for each purpose. 

    Splitting your monthly income into different accounts before spending is advantageous as you will be less inclined  to overspend your money. At the same time, you will be continually  working towards your savings. 

    Investing your savings in a low-risk venture

    People are sometimes hesitant to invest because there is a high level of risk involved. However, it is possible to find a middle ground between the high risks of the stock market and the low return on cash savings, that is through lower risk investments. If you are looking for ways to save and grow your funds without  a lot of risks, low-risk investments might work for you.

    For example, Amanah Saham Bumiputera (ASB) and Amanah Saham Malaysia (ASM) are unit trust funds managed by Amanah Saham Nasional Berhad. ASB provides an avenue for Bumiputera citizens to save and invest in a fairly low risk and long-term investment instrument, with  the price per unit of the fund  fixed at RM1 and  a low management fee. Each eligible investor is limited to a maximum investment of 200,000 units. On the other hand, ASM is  a unit trust fund that is open to all Malaysians. With a similar investment strategy to ASB, ASM is considered a long-term, low-risk investment with consistent returns. However, unlike ASB, ASM has a limited number of units available for investment whereas  the sale of ASB units is unlimited. 

    When comparing  the two, ASB is often regarded   as one of the better low-risk investment options in Malaysia due to its  relatively high returns, despite the fact that  their distribution rates have been declining in recent years. ASM has typically delivered slightly lower dividends than ASB, and has a higher annual management fee of 1% as opposed to ASB’s 0.35% Like most long-term investment instruments, it is thought to be a good hedge against inflation as the longer you keep your money invested, the higher the likelihood  of better returns. 

    Conclusion

    Ultimately , it is your call to decide how to manage your finances and whether you choose to invest, save, or do both. If you have short-term goals that you want to achieve , or if you absolutely require the money within the next couple of years, saving may  be a good option for you. There is no risk of your balance decreasing unless you make a withdrawal from your account.

    However, the issue with saving is that with rising inflation, your purchasing power eventually decreases. If you have enough savings,investing might be the better option for you, and that will be the subject of our next article!

    References:

    Abundance. 2019. What you need to know to find balance between savings and investments. [online] Available at: <https://medium.abundanceinvestment.com/what-you-need-to-know-to-find-balance-between-savings-and-investments-c28bcfedc39a> [Accessed 6 March 2022].

    Brock, C., 2022. Saving vs. Investing: Which Route Should You Take? | The Motley Fool. [online] The Motley Fool. Available at: <https://www.fool.com/investing/how-to-invest/saving-vs-investing/> [Accessed 6 March 2022].

    Chin, Y. 2022. [Sponsored Post] What is ASNB and How to Invest in It?. [online] No Money Lah. Available at: <https://nomoneylah.com/2022/01/23/intro-to-asnb/> [Accessed 6 March 2022].

    CompareHero. 2021. 11 Things You Should Know About Your Savings Account. [online] Available at: <https://www.comparehero.my/investment/articles/how-savings-accounts-work#3_What_is_the_average_interest_rate_for_savings_accounts_in_Malaysia> [Accessed 6 March 2022].

    Cothern, L., 2022. Why Should You Have Multiple Bank Accounts. [online] Money Under 30. Available at: <https://www.moneyunder30.com/how-many-bank-accounts-should-you-have> [Accessed 6 March 2022].

    HSBC Malaysia. n.d. Saving vs Investing. [online] Available at: <https://www.hsbc.com.my/financial-wellbeing/savings-vs-investing/> [Accessed 6 March 2022].

    Loanstreet.com.my. 2021. What is Amanah Saham Bumiputera (ASB)?. [online] Available at: <https://loanstreet.com.my/learning-centre/amanah-saham-bumiputera-asb-explained> [Accessed 6 March 2022].

    Morgan Stanley. 2022. What’s the Difference Between Saving and Investing? | Morgan Stanley. [online] Available at: <https://www.morganstanley.com/articles/saving-investing> [Accessed 6 March 2022].

    Versa. 2021. Is a high interest savings account in Malaysia worth it? | Versa – Versa. [online] Available at: <https://versa.com.my/high-interest-savings-account-malaysia/> [Accessed 6 March 2022].

    Researcher: Shruthi Venkatesan

    Reviewer: Muhammad Bahari

    Editor: Jessie Gan

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  • Investment Theses

    Investment Theses

    13 min read

    Many young people find investing to be an incredibly daunting task There’s always the question of what, how, when, who and why? 

    To boil it down to its basics, all you need to purchase a stock in any public company is a brokerage account and enough capital to purchase said stock at the market price. Still a bit too jargony? Breaking it down even further, you can have ownership of any company (even something like Apple), if you have enough money to buy a unit of its share.

    Then comes the “what to buy”, and for many this is the biggest hurdle. Here at FLY, we’ve assembled a few of our members who have a keen interest in investing to form FLY’s Virtual Investment Portfolio or FLY VIP. 

    Our philosophy is that, behind every investment, are strong ideas. These ideas are built on an interest in their business model, which allow us to gauge their future prospects. With this in mind, members of FLY VIP will now elaborate on their investment picks, and provide a short thesis to explain their rationale behind their pick.

    The point of this exercise is to illustrate to you, the reader, how you can conduct your own due diligence and allow you to start thinking about businesses that you’re passionate about. 

    DISCLAIMER: This should not be misconstrued as financial advice, nor is this an inducement to take any positions. This is simply an educational illustrative exercise and does not represent the views of FLY MALAYSIA as a whole.

    And with that, here are the picks our team are most passionate about:

    Cheong Hien’s Investment Pick: Berkshire Hathaway (BRK.A)

    Disclosure: The author has units of the stock in his own personal portfolio

    (Image Source: https://www.investopedia.com/articles/markets/041714/how-warren-buffett-made-berkshire-hathaway-worldbeater.asp)

    Thesis: Progressing into the year, investors should be on the lookout for valuations and cash flow generation as the Federal Reserve (FED) is expected to raise rates and reduce QE completely. With this in mind, I scoured meticulously for a business that is diversified, able to handle inflationary pressures efficiently, fairly valued and generates a strong free cash flow. At last, the company I found that embodies these qualities is Berkshire Hathaway.

    Berkshire Hathaway is a giant conglomerate which operates in various sectors such as insurance, railway, energy, foods, and consumer goods This diversification grants Berkshire the stability needed to  easily weather numerous environments. A side note; energy, railway and financials, which make up a larger portion of Berkshire’s business, is expected to outperform in 2022 due to higher energy prices, higher demand for transportation and higher rates. These are trends that may potentially help boost Berkshire to a year of outperformance relative to the SnP500. 

    All of Berkshire’s ventures are excellent cash flow generators which are reinvested sometimes back into their core businesses to grow organically but more notably, into its  gigantic investment portfolio worth $348b as of September 2021. This portfolio helps Berkshire increase its book value every year and provides another source of income for the conglomerate in the form of dividends. Consisting of countless strong companies such as Apple, American Express, Coca Cola, Bank of America and the like, the portfolio is just as solid as Berkshire’s core businesses. Being arguably the best stock picker in the world, Berkshire’s portfolio has consistently crushed the SnP’s annual returns since its inception, that is until the last decade where the Fed started to implement a looser approach in both monetary and fiscal policies. As the Fed starts to tighten their policies once more, Berkshire, in my opinion, should once again outperform the market 

    Berkshire Hathaway is a business with many facets and as such it is very hard to know its true value. For example, Berkshire is required to report its unrealised gains by the quarter which  distorts many valuation calculations for the multinational. Furthermore, its insurance and financial businesses are also subject to different standards of accounting and valuation methods. However, coupled with the aforementioned points, I have full faith in Warren Buffett and Charlie Munger, who are regarded as the world’s best capital allocators, to lead Berkshire Hathaway to greater heights in 2022.

    Muhammad Bahari’s Investment Pick: AXIS REIT (5106)

    Disclosure: The author has units of the stock in his own personal portfolio

    (Image Source: https://www.edgeprop.my/content/1412799/latest-asset-buy-seen-have-muted-impact-axis-reit%E2%80%99s-earnings) 

    Thesis: A key idea of achieving financial freedom is the creation of a consistent and steady cash flow, and dividends are a means of achieving this. A constant stream of income every quarter helps alleviate monthly expenses. REITs have to pay 90% of their earnings to their shareholders, hence unlike publicly listed companies who can (unless stated in their constitution) declare dividends on a whim, REIT’s almost guarantee a higher than normal dividend, assuming earnings are good.

    Personally, I’ve considered investing in REITs , but the pandemic made me hesitant. Office spaces and mall uptakes would never be the same due to the shift in consumer behaviour. But upon deeper research into REITs, AXIS REIT caught my eye.  Its portfolio consists of data centres, logistical warehouses, and manufacturing facilities in which the demand and use of such industrial spaces are far more specific than the need for office spaces.

    Myra Kiasatina’s Investment Pick: Twilio Inc. (TWLO)

    (Image Source : https://techcrunch.com/2021/07/14/twilios-new-tools-will-let-anyone-add-live-video-and-audio-to-their-apps/?guccounter=1&guce_referrer=aHR0cHM6Ly93d3cuZ29vZ2xlLmNvbS8&guce_referrer_sig=AQAAAE7zsMfPGC2oPP44_7ZDmIMM7rStJT4t9AdHIp9GS6_yOlpLIVeTauUNUY4ACI7olAGNupz3hyyL_W3LmMdhTn0dltqQJZ3i1eU9EyDQKMWeVkrpwrQuPEZ4XMIfFN_uIBHlqEm8sZfog29W6Nm16EwuczKcP9SKFbpnl16la3m5)  

    Thesis:  “Numbers don’t usually tell the whole story”. When investing, it’s a crucial key factor for investors to look beyond the quantitative terms and instead opt for a more qualitative approach. 

    As Benjamin Graham, author of The Intelligent Investor puts it “ the market is highly bipolar”. I don’t think any of us can predict where the bottom is for any stock, it’s unpredictable, irrational, and volatile. Take how titans such as Facebook (or now known as Meta), lost $200b in market value when their Q4 earnings report fell below market expectations.

    Thus, when choosing an investment, we should always conduct proper research and gain a true understanding of the company and its future projections. TWLO’s objective is to fuel the future of digital communications whichI believe has strong growth potential. One of TWLO’s goals is to digitise customer engagement with its top-tier cloud communications platform; this lies at the core of the world’s future communication. 

    TWLO has regularly generated high total revenue growth in recent quarters, although organic revenue growth was a bit below expectations at 38% year over year last year. A lot more noise now than before clouds our thinking when making an investment decision. However, it is also worth noting that recent research reports highlighted TWLO’s prospects to be better than ever due to its high-rate environment and business nature that strives alongside the advent of technology. Such ability for future growth presents the company with a golden opportunity over the long haul. Hence, in my opinion, it’s important for us to find assets that will be in high demand over the long run, purchase said assets and hold them for the long term. 

    Jih Yih’s Investment Pick: iShares Core S&P Total US Stock Market ETF (ITOT) 

    Disclosure: This is not a recommendation to buy/sell said stock but meant for research purposes only.

    (Image Source : https://seekingalpha.com/article/4327651-ishares-core-s-and-p-total-u-s-stock-market-etf-buy-all-limit-your-risk)

    Thesis:  One fundamental idea to achieve long-term growth consistency for investments is the creation of a well-diversified portfolio. Exchange Traded Fund (ETF) best applies this practice. Essentially, an ETF is a basket of securities that holds multiple underlying assets, instead of just one like a stock does.

    ITOT consists of all U.S common equities listed on the NYSE and the NASDAQ, which goes beyond a NASDAQ ETF (100 largest technology companies) or an SnP500 ETF (500 largest listed companies in the US). Therefore, ITOT in my view, is a single fund with convenient access to the total US stock market . 

    Furthermore, unlike SnP500 ETFs which have an expense ratio of 0.09%, ITOT is one third of the cost – it’s expense ratio is only 0.03%. In terms of sector weightage, 25.27% of its assets is invested in the technology sector, which I am bullish on, due to the nature of emerging technologies (i.e., artificial intelligence, machine learning) which are rapidly advancing. A major portion of 12.9% of its assets is invested in healthcare (i.e., one of the non-cyclical sectors) which serves as a good safety net when the economy underperforms.

    To achieve financial freedom, one must understand the importance of diversification in reducing the volatility/risk of their investments. As there are many ETFs to choose from, we should select one that best suits our own financial profile. For instance, if you prefer long term investment, you may opt for an ETF that invests heavily in blue-chip firms that can promise steady growth in the long run based on excellent reputation and financial stability. Contrarily, if you favour short term investment, you may opt for an ETF that invests in startups and has high growth potential for the near future. 

    Key Term: Blue Chip 

    “Typically, large, well established and financially sound companies that have operated for many years” (Chen, 2020)

    In Malaysia, many consider Maybank, Public Bank and Tenaga to be “blue chips”, as they have strong financials year to year, and consistently pay a dividend.

    Kng Fen Ying’s Investment Pick: Revenue Group Berhad (REVENUE)

    Disclosure: This is not a recommendation to buy/sell said stock but meant for research purposes only. Invest at your own risk.

    (Image Source : https://www.theedgemarkets.com/article/revenue-group-buy-25-stake-digitalisation-service-provider-rm12m) 

    Thesis: Before investing, we must first understand our purpose and identify our risk appetite. Some may prefer stable dividend investments  while others may prefer high-growth stock. 

    When choosing a good company to invest in, the future prospects of the company is one of the key aspects to consider. Good future prospects  suggest that the business will create more value (generating revenue, turning a profit) which means shareholders are rewarded as the value of their investment increases.

    Secondly, we have to understand the company’s business, management and financial position. One of the ways to do so is by  selecting the industry of choice,  evaluating all the companies in it and then deciding on a corporation to invest in. For example, I believe that in the future, digital payment will be the new norm hence, I am confident that the digital payment industry holds a bright future ahead. 

    To assess a company’s management,  it is necessary to stay informed about any reports of the business. attending a business’ AGM and sharing sessions, is an additional way of ensuring management efficiency. I have personally been to a REVENUE sharing session where the professionalism and expertise of the management instilled confidence in me. Moreover, I believe that as the REVENUE co-founders double as the high management, they’re incentivised to make the business successful, removing any worry of the “principal agent problem”.

    Fen Ying’s word of advice for our young Malaysian readers: 

    Investing is a life-long journey. Keep learning and be patient. As the economic cycle peaks and troughs, so does an investment journey have its wins and losses.  

    Nadiah Sobri’s Investment Pick: Vanguard Total Stock Market ETF (VTI)

    Disclosure: This is not a recommendation to buy/sell said stock but meant for research purposes only.

    (Image Source : https://www.nasdaq.com/articles/is-vanguard-total-stock-market-etf-stock-a-buy-2020-02-08) 

    Thesis: An Exchange Traded Fund (ETF) is a type of index fund that can be traded. It is essentially a basket with a selection of securities and shares. Instead of investing in individual stocks, investing in an ETF is a good way to diversify one’s portfolio. 

    VTI is a market-value weighted index that measures the entire investable US equity market, including small-, medium-, and large-cap companies. Due to its nature as a passive index fund, it has a low expense ratio of 0.03%, making it beneficial for long-term growth investors. This fund’s largest percentage of holdings of 29% are in the technology sector, with its top three holdings being Microsoft, Apple and Alphabet (Google’s parent company). 

    A significantly large percentage of this portfolio is also in the consumer discretionary sector, industrials and healthcare. I believe this is a strategic investment as technological progress is advancing rapidly and the fund is well-balanced with a diverse range of sectors, giving it good future prospects. Despite inevitably being exposed to systematic risk and economic downturn, VTI has done well historically, with a one-year return of 18.52% and a five-year return of 16.08%. It’s annual healthy returns also make it seemingly attractive for long-term investors. Although, it is always good to bear in mind the common investment adage; “past performance is not indicative of future performance”.

    Shahril Azhar’s Investment Pick: Malayan Banking Berhad (MAYBANK)

    Disclosure: The author has few units in his own portfolio. This is not a recommendation to buy/sell said stock but meant for research purposes only.

    (Image Source : https://www.nst.com.my/business/2019/05/489353/maybank-further-lowers-its-rates-second-time-after-opr-cut) 

    Thesis:  Good financial performance and consistent dividend payout is a great way to play it safe in the market and survive in the long run. Maybank, in my view, possesses these characteristics. It is Malaysia’s leading financial service with over 22 million customers, close to the heart of the community and is a benchmark for the country’s financial industry

    Fundamentally, its financial health is robust with 80% of its liabilities being low-risk funding, meaning the default risk is incredibly low. Over the past 5 years, Maybank has shown  great performance with earnings growth of 1.2% per year on average.

    However on the downside, its past dividend (8.05%) is not well-covered by earnings leading the Malaysian bank to look elsewhere for means to give out dividends. If this trend remains, it might pose a risk to investors. 

    Shahril’s word of advice for our young Malaysian readers: Not all investment ideas will be a “winner”. Hence, take stride in losses by learning and enjoy the process.

    What comes next:

    Keep an eye out on our social media platforms, as we will track month to month how our “virtual portfolio” is doing. Our researchers can also decide to change their position, if they deem a change in the fundamentals, so make sure to follow us by keeping engaged with all of our channels!

    References

    Chen, J., 2020. Blue Chip Stock. [online] Investopedia. Available at: <https://www.investopedia.com/terms/b/bluechipstock.asp#:~:text=A%20blue%20chip%20stock%20is,often%20paying%20dividends%20to%20investors.> [Accessed 26 February 2022].

    Researcher(s): FLY VIP’s team

    (Cheong Hien, Muhammad Bahari, Myra Kiasatina, Jih Yih, Kng Fen Ying, Nadiah Mohd Sobri, Sharil Azhar)

    Reviewer(s): Muhammad Bahari, Faith Tan

    Editors : Natalie Seah

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  • Bonding with Bondsupermart: Bond Analysts 101

    Bonding with Bondsupermart: Bond Analysts 101

    Introduction

    You have probably heard the word ‘Analyst’ multiple times before and we are sure that it has ignited curiosity as to what exactly does it mean to become one? What are the pathways that can be taken to debut in the career? What does the journey entail? Thankfully, FLY journalists Emeline and Yean Quen had the opportunity to interview Teng Chong to give us insights into his journey of becoming a Fixed Income Analyst at iFAST Financial Singapore whilst tackling the complexities of the world’s largest securities market – the bond market! 

    Teng Chong’s journey of becoming a bond analyst took flight when he majored in Economics at the National University of Singapore (NUS), where he learned how monetary policy affects money supply in the economy and how it will help curb inflation. He also attributes the pursuit of this practice to his internship experience, which piqued his interest in this career path when he was doing credit research on European and Asian high yield bonds. 

    Bond Analysts & Bondsupermart

    “Generally, bond analysts like any other research analyst will have a set coverage that they are in charge of and provide frequent updates on the issuers in terms of their financials and credits.”

    Teng Chong kicks off the interview explaining the dynamic nature of his job; his day-to-day responsibilities are not fixed and it ranges from conducting research on the newest bond initial public offering (IPO) to analysing the best action plans for bondholders based on new announcements and more. He works hard to provide recommendations or ideas for bond investments to investors to help them capitalise on opportunities within the fixed income space. Additionally, he also comments on the movements of Fixed Income Indices and the general financial markets.

    “Bondsupermart is an information gateway for anything bond-related for investors who are keen on investing in bonds to gather information and gain insights.”

    Bondsupermart has a repository of bond data as it offers credit updates on various corporate issuers and new bond issues. The content aggregation portal also provides a variety of investment tools provided to its users to make investing easier, such as a portfolio builder and a bond calculator. Teng Chong personally finds the chart centre very useful as it allows users to compare the performance and yields of different bonds across different periods.

    The Bond Market

    “I think one of the most important things to think about before investing is to know your risk appetite and your time horizon for your investments. These will help you be grounded on your investment goals and expected returns for your investments.”

    Despite being a relatively low-risk investment, the bond market can be intimidating to youths since it is a long-term investment and returns may fluctuate depending on interest rates. Teng Chong reassures readers that while this is true, holding bonds to maturity in the long term will help offset these fluctuations and allow decent and stable returns for bond investors. He encourages those interested to research the company beforehand to mitigate the risks.

    “Knowing more about a particular company’s business model and financials will help in knowing if a particular company is worth investing in or not”

    Teng Chong believes that one of the important factors when approaching the bond market is the relationship between interest rates and bonds. He stresses, “Bonds have an inverse relationship to interest rates. When interest rates rise, bond prices usually fall, and vice versa”. As such, he highlights the importance of keeping abreast of monetary news on central banks around the world, as key interest rates such as the Fed Funds Rate will have an impact on the prices and yields of bonds.

    Bond Valuation

    To shed light on the reason behind the bond market’s volatility, Teng Chong further explained that bonds are priced by calculating the bond’s cash flow and its face value when it matures, while the bond’s cash flow will be determined by the bond’s annual coupon rate and face value. After then, the cash flow would need to be discounted back to its present value. This discounting of the cash flow is what causes bond prices to fluctuate as the interest rate rises. In essence, the uncertainty in bond pricing is driven by its inverse relationship with interest rates.

    Why Invest in Bond

    In response to the perception of bonds as a relatively less exciting investment vehicle and its appeal, Teng Chong propounded that bonds would be right up the alley for investors who want to achieve important financial goals such as home renovation, without putting their capital at risk. This is because bonds provide investors with a much safer and stable return. Circling back to his earlier point, knowing one’s risk tolerance and investment horizon is vital as each individual invests differently and one should do so according to their risk appetite. Essentially, the key is to always be patient and stay grounded to your investment goal. 

    The Way Forward 

    Teng Chong is optimistic that bonds focusing on environmental, social and governance (ESG) will rise further in 2022. For example, Hyundai Capital Services and India Clean Energy issued several green bonds at the start of this year. The financial sector is also preparing to green the economy through ESG investments

    Career Path

    As you invest more time in knowing yourself through exploration and experimentation, your chances of choosing the right career path grow exponentially. The less information you have, the more challenging it is to choose the right career path. It’s like playing darts with a blindfold, you might get a bullseye on your first attempt, but chances are you will have to throw a few more before you even get on the board.

    Teng Chong advised students not to restrict their possibilities when it comes to internships, and try their hand at everything as this allows them to make well-informed decisions down the line and find the career path that works best for them. 

    “One thing I wished I knew about bonds back in university would be how to provide a relative valuation for bonds by comparing them with a benchmark or their peers. I think this is important in bond investing as it compares bond yields and spreads between other issuers to compare against their yields.” 

    In addition, he encourages those interested in a similar career path as him to understand and analyse financial statements, as this constitutes an important part of becoming a bond analyst.

    Closing Remark 

    “Do not be afraid to make mistakes and learn throughout the process. Also, do not be greedy in the markets, there will always be this ‘FOMO’ (Fear of Missing Out) feeling when you miss out on an opportunity and I think it is important to always do your due diligence on what you are investing.” In a nutshell, investing is like surfing in that you don’t try to catch every wave. Sets of good waves come in intervals, as do the opportunities in investment; it is pertinent to keep in mind that there will always be another wave and opportunity. Waves are wild and unpredictable, investments are no different; what is important is that before setting foot in the water, you understand those variables and know how to put them together to get the whole picture of the conditions. With that said, always perform pre-investment due diligence so that you can pick the waves worth riding. 

    For further information, Teng Chong recommends the resources linked below,

    Keep paddling and happy investing!

    Journalists: Yean Quen Cheam, Emeline Yong

    Reviewers: Hurriya Irfan, Jessie Gan

    Download Article: [download id=”6402″]

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  • What Do Banks Actually Do?

    What Do Banks Actually Do?

    Introduction

    Commercial Banks perform three key functions; (1) Keep your money safe, (2) Lending Money, (3) Simplifying Transactions.

    Keeping Your Money Safe

    Keeping large amounts of money under your mattress is a really bad idea. If it’s stolen or misplaced, it’s gone forever. When you keep your money in the bank, the Malaysia Deposit Insurance Corporation (also known as Perbadanan Insurans Deposit Malaysia, PIDM) will insure up to RM250,000 for you. Let’s say the bank fails (banks can run out of money), and you’ve kept all your savings (RM230,000) in the bank, PIDM will give you RM230,000 with no questions asked.

    Segway: How do banks make money? Commercial banks like CIMB, Maybank, RHB, etc. lend money to those who want to take out loans. Here’s how it works:

    • Say Jeff keeps RM100 in his savings account at Bank FLY.
    • Jeff doesn’t need that RM100 now and puts it in the bank for safekeeping.
    • Bank FLY pays Jeff a 3% interest on his savings.
    • Now, Ali would like to borrow RM100 from Bank FLY, which charges him a 10% interest rate.
    • Ali has to reimburse Bank FLY for RM110 while your account now has a balance of RM103 (remember the 3% interest rate offered from the previous page).
    • As such, Bank FLY makes a profit of RM7.

    This is a simplified representation of how banks operate, now imagine this at a much larger scale! Important note: Banks are unable to lend out 100% of their funds because they need to keep some funds in case someone needs it. This is known as a reserve ratio.

    Lending Money

    Banks lend money for all sorts of reasons. Individuals may want to obtain a loan to purchase a new car, house, or business. Fun Fact: Wealthy people may take out loans, even if they can pay for the item with cash. If interest rates are low enough, the overall cost may be cheaper. To illustrate this, say a wealthy individual, Abu, wanted to purchase a property. He could take out a loan (and pay off the mortgage) or purchase it entirely in cash. 

    Taking out a loan may be preferable as his assets grow (with the new house purchase), and his cash flow remains stable (as he pays installments). If he purchased the property entirely in cash, his cash flow might suffer.

    Simplifying Transactions

    The Bank Of England estimates that over 500 billion pounds (2.8 trillion ringgit) worth of transactions pass through bank accounts every day. Banks offer products that help streamline our everyday dealings like credit and debit cards. Imagine carrying cash with you to get on with your day-to-day business. It would be easy to misplace your money. All of the banks have a mechanism of communicating in order to authorize the transactions from individuals to businesses. 

    Bank Negara Malaysia

    To ensure that these transactions run smoothly, this is where our central bank, Bank Negara Malaysia, comes in. They also formulate a regulatory framework and oversee large value and retail payment systems. You cannot go up to Bank Negara and ask for a loan. Bank Negara Malaysia or any country’s central bank plays an essential role in ensuring financial stability. Bank Negara Malaysia is responsible for controlling and printing Malaysia’s money supply. They make an effort, using monetary policy to keep prices “stable”: If I go out tomorrow, they make sure that my lunch will not cost me RM100. 

    If you’d like to read more about central banks, like Bank Negara Malaysia keep the economy stable, check out our previous article on interest rates: (Click this link)

    Points to Remember

    Commercial banks offer more services than the ones listed in this infographic. Many banks provide different specialized services for their clients. They could help their clients in investing or advise them on financial matters, as well as offer customers special offers tailored to their needs. It’s important to remember that commercial banks are, first and foremost, businesses, liable to their shareholders. This is where Bank Negara differs since it is accountable to Malaysians and society as a whole.

    References:

    Bnm.gov.my. n.d. Role of Bank Negara Malaysia – Bank Negara Malaysia. [online] Available at: <https://www.bnm.gov.my/role-of-bank-negara-malaysia> [Accessed 12 February 2022].

    Bankofengland.co.uk. n.d. What do banks do?. [online] Available at: <https://www.bankofengland.co.uk/knowledgebank/what-do-banks-do#:~:text=UK%20banks%20help%20people%20manage,high%20street%20cash%20machine%20withdrawals.> [Accessed 9 February 2022].

    Researcher: Emil Zaydan

    Reviewer: Muhammad Bahari

    Editor: Jessie Gan

    Download Article: [download id=”6386″]

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  • Bonds Explained : What are they, and how can they fit into your investment portfolio

    Bonds Explained : What are they, and how can they fit into your investment portfolio

    Disclaimer: This article was curated as part of a sponsorship agreement with Bondsupermart in conjunction with MYFS. 

    If this were an exam, the answer would be “A fixed-income instrument that represents a loan made by an investor to a borrower (typically corporate or government) (Fernando, 2021).

    To illustrate it with an example:

    Let’s say company A wants to raise funds. They could issue bonds, and if investors deem it attractive, they will hold the bond.

    What do investors get when they hold a bond? Well, year to year, they may receive “coupon payments” for holding the bond, and at the end of the maturity period, they receive the payment in full.

    Face Value: RM1000
    Coupon Rate: 5%
    Coupon Payment Frequency: Yearly
    Time to maturity: 3 years

    You initially lend RM1000 to the company, and every year for 3 years, you get 5% (which is RM50). At the end of the 3 years, you not only will get the RM1000 back but you’ve also received another RM150. 

    There are more complex things to consider, such as the “present value of a coupon” and the risks involved. There is always a chance that the company (or country, in the case of Greece) will be unable to repay you.

    Some key terms involved with bonds:

    Principal: How much the issuer will pay the lender of the bond at expiration, also called a fixed value.

    Covenant: legally binding, agreed on by lenders to protect themselves if the bond issuer fails to meet the obligations.

    For other commonly used terms and jargons, you may read this article or visit Bondsupermart’s dedicated bond basics page for more information.

    The history of bonds

    While the modern-day bond seen in financial markets today did not emerge until the 1700s, the first “debt” and contract of sorts can be traced back to present-day Iraq in 2400 BC (which would be 4422 years ago) (Cummans, 2014).


    (Image Source : Bondfunds.com)

    The above is a picture of the stone. The terms in question were guaranteed payment of grain, and the surety guaranteed the principal if payment failed.  

    Bonds can be issued not only by corporations but also by governments. The Bank Of England created the first government bonds in 1693 to raise funds for a war against France (Cummans, 2014). In The First Avenger (2011), you may remember Captain America mobilising the public and driving demand for government bonds by putting on various entertainment shows.


    (Copyright of Marvel Studios) 

    Have you wondered what the world would be like without bonds? Hear this podcast as Senior Fixed Income Analyst Dexter Tan from iFAST Singapore discusses the origins of bonds, if there is a need for this asset class, and dive deep into the questions you may have about why bonds exist.

    How do you calculate bond prices and trade them?

    It is far easier to determine a bond’s present value than stocks. If we return to our previous example

    Face Value: RM1000
    Coupon Rate: 5%
    Coupon Payment Frequency: Yearly
    Time to maturity: 3 years

    1000 / (1 + 0.05) ^ 3 = Present Value

    If I were to purchase the bond right now at par, with three years to maturity, its present value would be $863.84

    Bonds, like stocks, can be traded on the open market, but you may pay a higher price due to a premium.

    Like stocks, bonds can trade for below or above their “fair value.” For one, bonds may fall in price or desirability due to interest rates/Overnight Policy Rate (OPR) rises. However, bond issuers make the promise to pay investors the face value at the bond’s maturity date. While there are companies that fail to do so, the likelihood of default in payment is typically low for financially stable corporations and agencies.

    Bonds can also fall in price if there is an increased perceived risk among the public associated with the bonds. For instance, take Serba Dinamik, an energy services group in the Oil & Gas, petrochemical, power generation industries, water & wastewater, and utility industry. 

    Serba Dinamik is currently being sued by the Securities Commission for “submitting false statements,” and its stock is currently suspended after failing to meet its Sukuk payment of $222 Million to the holders (Reuters, 2021). As a result, market participants are concerned that they will default on further bond payments, hence a fall in the bond price.


    (Source : Bondsupermart, SDHMK 6.300% 09May2022 Corp (USD)

    Calculations are made easier with Bondsupermart’s Bond Calculator, due to it taking into account figures like accrued interest. If you purchase the bond at a price of 13.401 USD with a settlement date of 12 Jan 2022, the total payment would amount to USD29,007.

    Assuming things go smoothly and the company fulfills its financial obligations, you can receive an annual coupon of USD 12,600 on top of USD 200,000 when the bond expires, which would be a nearly 690% return on your investment. However, after failing to meet it’s previous sukuk payment, investors may feel less confident that their financial obligations would be fulfilled. 

    Where do bonds fit into a portfolio?

    Bonds offer investors a fixed rate of interest so investors can better estimate their returns before investing in a bond. This is in contrast to stocks, which typically do not offer such predictability. The principal amount and annual coupons should theoretically be paid regardless of how the value of the bond fluctuates. It is important to note that a company could possibly default or file for bankruptcy resulting in a loss of investment sum for investors in reality. Despite this, investors can limit their risk by researching a company’s bond rating to gauge if the company can repay its debt. Such ratings are clearly indicated in Bondsupermart’s bond factsheet.

    Or consider this scenario: suppose you are well versed with the company but rather not hold a stake in its growth. But, you feel confident they can meet the repayment and think that the bond is trading at a fair value. In that case, individual investors can choose to add these fixed income instruments to their portfolios.

    If you would like to explore bonds further, check out Bondsupermart’s website (https://www.bondsupermart.com/bsm/home), where you can explore the bond market or read up on insights in the bond world.

    For bond-related news within your fingertips, follow Bondsupermart on their socials – Telegram, Facebook, and Twitter!

    References: 

    Reuters. 2021. Malaysian securities regulator charges Serba Dinamik, seeks arrest of CEO. [online] Available at: <https://www.reuters.com/business/aerospace-defense/malaysian-securities-regulator-charges-serba-dinamik-seeks-arrest-ceo-2021-12-29/> [Accessed 4 January 2022].

    Fernando, J., 2021. What Is a Bond?. [online] Investopedia. Available at: <https://www.investopedia.com/terms/b/bond.asp> [Accessed 4 January 2022].

    Cummans, J., 2014. BondFunds.com. [online] BondFunds.com. Available at: <http://bondfunds.com/education/a-brief-history-of-bond-investing/> [Accessed 4 January 2022].

    Serba Dinamik SDHMK 6.300% 09May2022 Corp (USD) factsheet : https://www.bondsupermart.com/bsm/bond-factsheet/XS1900582476

    Researcher: Muhammad Bahari

    Editor: Natalie Eng

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  • Simplifying Supply Chains

    Simplifying Supply Chains

    Reading time: 9 minutes

    Introduction

    By now, you may have heard that the world has run short of everything from coffee to coal. You personally may have been caught off guard by the shortage of toilet paper in the supermarket. Perhaps, you’ve also felt the pinch of rising computer prices due to the price increase of semiconductors. Second hand cars have gone up in value, as businesses dismantle the tires of used cars. The immensely intricate and interconnected global supply chain is in disarray, with little end in sight (although, recently the Biden Administration has released 50 million barrels of oil to reduce the price of oil).

    This article will first uncover the complexities of global supply chains, and explore the factors that contributed to the “supply chain crisis” of 2021.

    Supply Chain: A Look at How iPhone Is Made

    The global supply chain crisis has shone the light on the usually unseen processes of manufacturing, shipping, warehousing and distribution. While we have grown accustomed to clicking and waiting for the orders to appear on our doorstep, or simply dropping by the shop to pick up items, the supply chains operating behind the scenes are always taken for granted. Apple, the most valuable company (by market capitalisation) has also felt the brunt of the global semiconductor shortage despite being well-known for its excellent supply chain. Tim Cook, Apple’s CEO, revealed in an interview that the supply chain crisis cost $6 Billion in lost sales (Serrano, 2021). 

    Every new iPhone is designed at Apple’s headquarters in Cupertino, California, but the resources required to make the design a reality are largely dependent on manufacturers from around the globe. According to Apple’s 2021 Supplier List report, it has 200 suppliers in 30 countries to procure ready-made components, which are sent to factories to be assembled. The iPhone you hold has its chip made in Taiwan, camera and glass screen built in Japan, accelerometer manufactured in Germany, final test of chipset done in Philippines before being assembled into the iPhone in China.

    Unfolding Factors behind the Supply Chain Crisis

    The supply chain disruptions which have wreaked havoc around the world can be traced back to the early phases of the pandemic. With the outbreak of Covid-19, people and businesses were compelled to limit their activities, driving the world economy into a deep freeze. While January 2020 seems ages ago, disruptions to the global supply processes were inevitable considering the fact that China, the ground zero of the novel coronavirus, is the world’s second largest economy, the largest manufacturing country, and a massive purchaser of goods and services ranging from raw materials to the latest gadgets. Factories were shut down, production was suspended, and a large number of employees were laid off. Shipping companies anticipated a steep decline in demand and trimmed their schedules as fewer goods were manufactured and fewer people had paychecks to spend.

    Despite fears that spending in many nations would be devastated, the pandemic merely led to a shift in consumer demand patterns. Purchasing surgical masks, kitchen appliances, furniture, electronics, home gadgets replaced demand expenditures for eating out, travelling to vacation destinations and attending social events. As a result of the pandemic, online shopping, a trend that has been fast rising for years, saw a boom. From April to June 2020, Amazon reported 57 percent more items sold than the previous year.

    At the same time, a string of competing shortages exacerbated the situation. In early 2020, China delivered huge volumes of protective gear all around the world, even to regions with minimal trade with China such as West Africa and South Asia. Accordingly, empty cargo vessels piled up in many parts of the world – having delivered their imports, there was nothing for them to bring back to China. A shortage of shipping containers has ensued as Chinese exports rebounded with unexpected strength, leaving many containers stranded in Europe and North America. Factories that depend on Chinese-made components faced difficulty producing more to meet the pandemic-induced spike in demand. Meanwhile, as surging orders outstripped the availability of containers, the freight rates skyrocketed, with the cost of transporting a container of cargo from Shanghai to Rotterdam increasing by 547% compared to the average over the last five years, according to Drewry Shipping. 

    Even when items were shipped and unloaded at their destinations, another crisis arose:  there were insufficient truck drivers to transport goods to warehouses, leaving them unclaimed. Truck drivers have long been in short supply, with wages continuously declining over the years amid arduous working conditions. Due to changing demographics like ageing and retiring workers, border controls and immigration quotas, as well as demands for higher pay and better protection for workers, the manufacturing and supply chain industries experienced a labour shortage, placing additional strain on the system. Major ports faced a staggering backlog of cargo, leading to lengthy queues of ships marooned at sea and delayed shipments. Shortages breed further shortages, and a breakdown anywhere along the supply chain has the potential of bringing output to a halt.

    Effects of the Supply Chain Crisis

    The interconnection of the global supply chain has long been an asset for increasing productivity, allowing specialisation, innovation, and cost-effectiveness. However, recent events have shown that disruptions in these intricate chains can be equally disastrous, as they are so intertwined, resulting in a domino effect.

    On the front end, there have been two significant categorical effects. Firstly, the widespread shortages. 

    The most notorious example is the shortage of toilet paper, which has become particularly sensational and newsworthy due to the absurdity of the lack of necessity. However, the extent of the issue stretches far beyond just toilet paper. According to Sager (2021), it is becoming increasingly challenging to restock shelves with basic food necessities such as wheat, not because of an actual food shortage but because of disruptions in the supply chain. Hospitals around the globe have also been struggling to provide relief to the public. The lack of qualified medical workers, disturbances in the production and distribution of medicine, and limited access to personal protective gear and ICU beds have hampered the medical system’s ability, putting the lives of millions at risk. The global supply shortages have likewise led to power blackouts in leading economies like China. The severe shortage of electricity has halted the busy lives of millions of homes and businesses. (Hoskins, 2021).

    As a result of these supply side shortages, consumers are paying significantly more for the same goods than in 2020. The Consumer Price Index (CPI), which measures the price changes in commonly purchased goods and services, has risen by 5.4% year on year, the most significant increase since 1991 (Adamczyk, 2021). The breakdown revealed gas prices increased by 42.1%, rental cars by 42.9%, meat and dairy by 10.5%, appliances by 7.1%, electricity by 5.2%, and rent by 3%. 

    The lower-income class is particularly hard struck by these price increases since they do not have consistent sources of income or large savings to tap into. Accordingly, the Raw Material Index has risen by 18% over the last year (Baffes, 2021). This index accounts for the increase in prices of materials such as metals, rubber, cotton, fuel, electricity, and more. Consequently, the cost of production and transportation have suddenly skyrocketed while supply reliability has plummeted. 

    On the back end, the supply chain crisis has detrimental effects on trade and foreign direct investment. There has been a significant decline in global trade, with imports and exports contracting by 32%, and as a result, foreign direct investment has fallen by 40% in 2021 (ILO, 2021). However, the issue does not end there. Businesses are under a lot of pressure because many are struggling to generate revenue and meet costs, especially small and medium-sized enterprises (SMEs), which usually have low capital reserves to buffer unforeseen expenses and businesses that operate in industries with high fixed costs. 

    Conclusion

    Manufacturing, shipping, warehousing and distributing have long been regarded as seamless and invisible in the eyes of the consumer. But it is not! The supply chain is highly intricate and reliant on all components working well. The Covid-19 pandemic has shed some light on the vulnerabilities of the globalised supply chain system. With the infectious virus prompting authorities to impose domestic and international mobility restrictions, business operations of essential sectors have slowed, factories have shut down, transportation agencies are struggling to mobilise goods, workers can’t go to work, and so on. All of this is happening while consumer demand patterns are changing. Consumers are demanding more household and technology related products, in addition to personal protective equipment. As a result of this supply chain crisis, there is a severe shortage in almost every sector. Food is not being distributed timely, hospitals are understaffed, and an energy crisis has emerged leading to widespread blackouts. In accordance with basic economic principles, the shortage has skyrocketed prices. The CPI and Raw Material Index have had the largest jumps in the last 30 years.  

    The ILO (2021) has forecasted the crisis will have long lasting structural effects that will reshape the design of the global supply chains. Countries like the United States have repeatedly expressed their over-reliance on China and desire to become more self-sufficient. Therefore, we can expect many economies to start partially reshoring business operations and diversifying their suppliers in order to lessen their vulnerabilities. Some analysts have also indicated that there is a possibility businesses may accelerate the development of automation to conduct business operations even in dire situations. 

    References:

    Adamczyk, A. (2021, October 13). Prices continue to rise—here’s what’s getting the most expensive. CNBC. https://www.cnbc.com/2021/10/13/prices-continue-to-riseheres-whats-getting-the-most-expensive.html 

    Apple Inc., 2021. 2021 Apple Supplier List. [Online] Available at: https://www.apple.com/my/supplier-responsibility/ [Accessed 8 December 2021].

    Baffes, J. (2021, June 17). Raw material commodity prices continue rising amid stronger demand. World Bank Blogs. https://blogs.worldbank.org/opendata/raw-material-commodity-prices-continue-rising-amid-stronger-demand 

    Beaman, J. (2021, December 26). Here’s how much energy prices rose in 2021. Restoring America. Retrieved December 30, 2021, from https://www.washingtonexaminer.com/restoring-america/faith-freedom-self-reliance/how-much-energy-prices-changed-in-2021 

    Bloomberg, 2021. Apple Set to Cut iPhone Production Goals Due to Chip Crunch. [Online] Available at: https://www.bloomberg.com/news/articles/2021-10-12/apple-poised-to-slash-iphone-production-goals-due-to-chip-crunch [Accessed 8 December 2021].

    Bloomberg, 2021. Surge in Shipping Costs Globally Could Cause Price Hikes From Coffee to Toys. [Online] Available at: https://time.com/6073233/shipping-costs-surge-price-hike-goods/ [Accessed 2 January 2022].

    Ellyatt, H., 2021. There are millions of jobs, but a shortage of workers: Economists explain why that’s worrying. [Online] Available at: https://www.cnbc.com/2021/10/20/global-shortage-of-workers-whats-going-on-experts-explain.html [Accessed 14 December 2021].

    Hoskins, B. P. (2021, September 30). China power cuts: What is causing the country’s blackouts? BBC News. https://www.bbc.com/news/business-58733193 

    ILO. (2022, June). Research Brief – The effects of COVID‑19 on trade and global supply chains. International Labour Organization. Retrieved December 30, 2021, from https://www.ilo.org/wcmsp5/groups/public/—dgreports/—inst/documents/publication/wcms_746917.pdf 

    Petrova, M., 2018. We traced what it takes to make an iPhone, from its initial design to the components and raw materials needed to make it a reality. [Online] Available at: https://www.cnbc.com/2018/12/13/inside-apple-iphone-where-parts-and-materials-come-from.html [Accessed 16 December 2021].

    Serrano, J., 2021. Supply Chain Crisis Cost Apple $6 Billion in Lost Sales. [online] Gizmodo. Available at: <https://gizmodo.com/supply-chain-crisis-keeps-apple-from-selling-all-the-pr-1847961450#:~:text=Supply%20Chain%20Crisis%20Cost%20Apple%20%246%20Billion%20in%20Lost%20Sales>

    Researcher(s): Muhammad Usama Zahid and Tee Jia Rou

    Reviewer(s): Muhammad Bahari

    Editor(s): Jessie Gan

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  • Interest Rates Explained : How central banks can move markets with one decision

    Interest Rates Explained : How central banks can move markets with one decision

    Reading time: 3 minutes

    Interest Rates Explained : How central banks can move markets with one decision

    You may have heard about the term “interest rates” in the news lately.  If you are unsure what that means, check out this article as we explain what these key “interest rates” refer to, and why a single decision on setting the rate has huge ramifications on the economy at large.

    In simple terms, an interest rate is the amount charged on top of the principal by a lender to a borrower.

    The interest rate that the finance world is interested in is a “bank rate”. In Malaysia, it’s known as the “Overnight Policy Rate”, which is the interest rate set by our central bank, Bank Negara Malaysia (BNM).

    BNM determines the rate of interest for financial institutions that lend each other money overnight.

    But how does BNM determine this “bank rate”? 

    In the short run, if the Monetary Policy Committee (MPC) of BNM wishes to decrease the interest rate, it engages in expansionary monetary policy.

    Essentially, the central bank increases the “supply of money”  in the economy by purchasing bonds from the open market. All things being equal, an increase in the money supply leads to a fall in interest rates.

    In 2020 itself, BNM  cut the OPR rate  4 times, the timeline is:

    But why would Bank Negara want to set a “high” or “low” interest rate?

    A low interest rate could increase consumption. If the interest rate is lower, loans are cheaper. People are more willing to take out loans to make big purchases such as houses or cars. A low interest rate could mean businesses take out more loans to purchase new machines, which could reduce costs, which in turn increases their profits. It could even affect the exchange rate. Ceteris Paribus, say if the Malaysian interest rate is lowered, there would be “hot money outflows”.

    Say foreigners take their money “saved up” elsewhere and out of the country, due to a decrease in the incentive to save as the interest rate is lower. With foreigners “selling” the Malaysian Ringgit (as they convert it to their home currency), the Malaysian currency would weaken under the selling pressure. This may not be all bad, as a “weaker” currency makes Malaysian exports more attractive as they are cheaper.

    All of these points sound good, so why don’t the central banks keep interest rates low all the time?

    The aforementioned points are simply “theoretical”. The economy could “overheat” if interest rates are too low. There is a general tendency for interest rates and the rate of inflation to have an inverse relationship.

    In general, when interest rates are low, the economy grows, and inflation increases. With inflation, which is the steady rise of prices for goods and services over a period, it erodes consumer purchasing power. In other words, we become poorer because our money is worth less every year.

    In summary, interest rates are one of the most important aspects of the economic system. They affect consumers, businesses and foreigners alike.

    As the world battles escalating inflation pressures due to interest rates at an all time low, most analysts expect central banks across the globe to increase the interest rate. With the rise in interest rates, you should expect to see increased cost of borrowing, followed by reduced investments. However, there is also an increased incentive to save rather than spend. Higher interest rates make it more attractive to save in a deposit account because of the interest gained.

    Reference List 

    Property Guru. 2021. Overnight Policy Rate (OPR) In Malaysia: Why It’s So Important. [online] Available at: <https://www.propertyguru.com.my/property-guides/what-is-opr-overnight-policy-rate-malaysia-14728> [Accessed 1 December 2021].

    Bankofengland.co.uk. 2021. Interest rates and Bank Rate. [online] Available at: <https://www.bankofengland.co.uk/monetary-policy/the-interest-rate-bank-rate> [Accessed 1 December 2021].

    Researcher(s): Vanessa Wong

    Reviewer(s): Muhammad Bahari

    Editor(s): Johanna Lok

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  • Financial Health Vs Mental Health. Which one should we prioritise? What can we do to care for them?

    Financial Health Vs Mental Health. Which one should we prioritise? What can we do to care for them?

    8 min read 

    Financial Health Vs Mental Health. Which one should we prioritise? What can we do to care for them?

    Exploring the relationship between financial health and mental health, as well as tips on how we can look after ourselves better.

    Our world is evolving at an alarming rate. Today’s society is vastly different from that of a decade ago. At present, unforeseen circumstances and societal issues may pose significant disruptions to the norm, therefore impacting our mental health and finances directly or indirectly. Thus, it is advisable that necessary precautions are taken so that the youths are prepared when adverse situations befall.  

    According to the National Survey on Drug Use and Health from 2008 to 2017, researchers found that the greatest increase in psychological distress occurred among younger adults aged 18-25 (Twenge et al., 2019). 

    Moreover, studies from Lee (2020) highlighted the rise in youth unemployment among 20-24 year-olds, particularly in urban areas. This dilemma stems from structural issues such as deficiencies in the quality of education, graduate and skills mismatch in the labour market as well as the lack of quality jobs in recent years. 

    As youths, these questions may come to mind when we are in our working years: “Why do I still have such little savings after years of working” or “How am I going to pay off my debt!”. Therefore, it’s worth exploring how various questions related to our financial life could affect us moving forward.

    Ultimately, this article aims to examine the academic literature on the correlation between mental health and financial wellbeing, as well as the ways to find a balance between these two extremities. Further along the article, we will also be discussing the solutions pertaining to government interventions that can help alleviate poverty among the B40 community.

    Here’s how our finances and mental health correlate

    The association between mental health problems and financial issues was found in the study by Money and Mental Health Policy Institute (2019), whereby 46% of those who are in debt have a mental health diagnosis; 86% of persons who have mental health issues and are in debt believe that their debt is worsening their mental health condition. Thus, these research findings demonstrate that debtors are more likely to suffer from mental health disorders, and that poor financial management will exacerbate their health problems.

    Furthermore, the research indicated that approximately one-fifth (18%) of people with mental illnesses are in debt. People with mental health issues are 3.5times more likely to be in debt than people who do not have mental health issues. Moreover, 72% of respondents reported that their mental health issues had further deteriorated their financial situation. 

    The mental health challenges faced by people who are in debt 

    Like any other source of overwhelming stress, financial problems can take a huge toll on our mental and physical health, relationships, and overall quality of life.

    According to HelpGuideOrg (2021), financial stress can potentially lead to:

    • Insomnia or other forms of sleep deprivation. Worrying about overdue debts or a loss of income will keep you awake at night more than anything else.
    • Weight gain (or loss). Stress can affect your appetite, leading to overeating or meal skipping to save money.
    • Depression. With reference to a study conducted at the University of Nottingham in the United Kingdom, living in a financial quagmire may make anyone feel sad, despondent, and unable to concentrate or make decisions. Thus, people who are in debt are more than twice as likely to suffer from depression.
    • Anxiety. Money may provide a sense of security. However, we may feel insecure and anxious without it. Therefore, worrying about overdue debts or a loss of income can induce symptoms of anxiety such as sweating, shaking, heart palpitations or even panic attacks. 
    • Relationship issues. Money is regarded as the most common source of conflict between spouses. Financial stress, if left uncontrolled, may make you irritable and furious, resulting in the erosion of trust, loss of intimate interest, and communication breakdown in a relationship.
    • Withdrawal from social situations. Financial troubles can lead you to withdraw from friends, limit your social interactions, and retreat into your “shell”, all of which will exacerbate your stress levels.
    • Physical illness. For instance, headaches, gastrointestinal symptoms, diabetes, high blood pressure, and heart disease. As universal health coverage may not be provided in every nation, financial concerns may drive those who are unable to afford healthcare to delay or avoid seeing a doctor due to the incurrence of high medical charges.
    • Indulgence in unhealthy coping mechanisms, such as alcohol and drug abuse, gambling, or overeating. Financial difficulties might even lead to self-harm or suicidal intentions. 

    Prevention is better than cure 

    To not get caught up in the vicious cycle of financial predicaments and mental health suffering, we must first acknowledge the importance of financial education and awareness, especially among the youths.

    Here are some of the tips given by the American Psychological Association (2020) to deal with financial stress:- 

    1. Take it one step at a time when it comes to making financial decisions. People’s willpower can easily be sapped when they are faced with several, back-to-back decisions that put their willpower to the test. Instead of making too many decisions at once and being overwhelmed, spread out your financial decisions.
    2. Keep in mind what’s vital. The actual spirit of the holiday season might be overshadowed by commercialism. Scale back when your holiday cost list exceeds your monthly budget. Remember that family, friends, and connections are more important than material possessions.
    3. Create a plan and stick to it. 
    • Determine the sources of your financial stress. It’s possible that you have too much credit card debt, not enough money, or that when you’re stressed or concerned, you overspend on unneeded goods. Or it could be a combination of issues. Make a different strategy for each one.
    • Come up with a solution. Consult a free financial counselling service or brainstorm solutions with your family or a trusted friend.
    • Make your plan a reality. Be precise about how you’ll implement the solutions you’ve come up with. Cutting up credit cards, networking for a new career, registering at a local food bank, or selling items on several online platforms to pay off bills are all examples of ways to do so.
    • Keep an eye on your progress. With the spike of Covid-19 pandemic, we’ve all experienced that there are events that can impact our financial health in a sudden way. Therefore, it is critical to check our financial strategies implemented on a frequent basis. 

    All in all, setbacks should not hinder your progress. We’re all human, and no matter how well-planned our strategy is, we may wander off or be derailed by the unexpected. Don’t be too hard on yourselves, but get back on track as soon as you can.

    The role of the government in breaking the poverty cycle among the poor

    It was observed that Malaysians who emphasised on savings as one of their financial strategies are effective in escaping poverty as compared to those without this capability. Furthermore, income savings was found to contribute to lasting gains in net worth over a seven-year period and that 81% of household wealth accumulation is attributed to savings (Gopal and Malek, 2015). 

    As a result, the economic outlook of a household or an individual can improve with proper financial education and effective financial management. In addition, the provision of financial education is supported by the Chief Executive Officer of Credit Bureau Malaysia, K.C Wong, who accentuated the need for structured financial literacy programmes to be incorporated into the Malaysian education system, specifically the Sijil Pelajaran Malaysia (SPM) curriculum.

    According to a 2020 Star Newspaper report by Chonghui, most Malaysians find it difficult to regulate their finances during hard times. A survey found that 52% of Malaysians struggle to raise RM1,000 during an emergency. The 2018 Financial Capability and Inclusion Demand Side Survey also revealed that nearly half of Malaysians are not confident that they will have adequate funds to sustain themselves in retirement age, and one in ten are not disciplined in managing their finances too.

    At this juncture, home-taught financial education is no longer sufficient for youths to thoroughly grasp financial concepts as the parents may not be practising appropriate financial management themselves. Hence, it is important to inculcate financial literacy  through school curriculums, whereby equal significance is given just as other compulsory subjects As mentioned by K.C Wong, this initiative can be made possible with the help of subject matter experts to devise a structured syllabus on financial literacy. He also highlighted the need to instil the art of managing money – spending, saving, investing and borrowing, to students.

    Despite efforts to increase financial literacy among youths through education, it is still a challenge to introduce these approaches to those who are financially struggling and those who live paycheck to paycheck. Hence, the government and various NGOs should take a more proactive role in ensuring inclusivity and accessibility to financial education.

    Conclusion

    In summary, the studies cited above have supported the notion that poor financial management can adversely affect one’s mental wellbeing and vice versa, poor mental health can lead to one slacking on their financial management. Therefore, it is imperative to consider both of these factors hand-in-hand as they closely correlate with one another.

    In terms of mental health, the author believes that many issues stem from peer pressure, the strive for perfection, and the desire to excel in anything and everything. In reality, things don’t always turn out as we want them to be. Our life is truly precious because of the limited time available to pursue things that are meant for us. Ultimately, we need to start understanding ourselves, our needs, our priorities, and our inner motives that drive us towards meaningful pursuits (it can definitely be something substantial to us but not for others). 

    Besides, to lead a happier life is also by recognising and understanding the lifestyle that we desire. Therefore, crafting the financial goals that align with what we need to achieve. Be it a simple or a more luxurious lifestyle, it’s just our own choice and our own life. 

    With regards to financial education, we should empower ourselves with knowledge from various sources, such as from mainstream education or verified online sources. FLY: Malaysia is always an online platform suitable for youths to develop their basic financial knowledge. On the other hand, it is also important to reach out for help (e.g. financial advisory) to other trusted organisations should the need to seek professional advice arise. 

    In short, mental health awareness should be done as vigorously as financial health awareness!

     

    Reference List 

    Twenge, J., Cooper, A., Joiner, T., Duffy, M. and Binau, S., 2019. Age, period, and cohort trends in mood disorder indicators and suicide-related outcomes in a nationally representative dataset, 2005–2017. Journal of Abnormal Psychology, 128(3), pp.185-199.

    Lee, H., 2020. Unemployment among Malaysia’s Youth: Structural Trends and Current Challenges. [online] Available at: <https://www.iseas.edu.sg/wp-content/uploads/2020/05/ISEAS_Perspective_2020_65.pdf> [Accessed 27 November 2021].

    HelpGuide.org. 2021. Coping with Financial Stress. [online] Available at: <https://www.helpguide.org/articles/stress/coping-with-financial-stress.htm> [Accessed 27 November 2021].

    Apa.org. 2021. Dealing with financial stress. [online] Available at: <https://www.apa.org/topics/stress/holiday-money> [Accessed 27 November 2021].

    Moneyandmentalhealth.org. 2021. The Facts: Money and Mental Health. [online] 

    Available at: <https://www.moneyandmentalhealth.org/wp-content/uploads/2019/03/debt-mental-health-facts-2019.pdf> [Accessed 27 November 2021].

    Gopal, P. and Malek, N., 2015. Breaking away from the cycle of poverty: The case of Malaysian poor. The Social Science Journal, 52(1), pp.34-39.Chonghui, L., 2021. Structured syllabus for financial literacy a must in schools, says credit bureau. [online] The Star. Available at: <https://www.thestar.com.my/news/education/2020/11/08/structured-syllabus-for-financial-literacy-a-must-in-schools-says-credit-bureau> [Accessed 27 November 2021].

    Researcher(s): Lim Yan Ting

    Reviewer(s): Muhammad Bahari 

    Editor(s): Natalie Eng

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  • An introductory lesson into international trade, the role of the US and China, and how Malaysia fits into it

    An introductory lesson into international trade, the role of the US and China, and how Malaysia fits into it

    An introductory lesson into international trade, the role of the US and China, and how Malaysia fits into it. 

    The Republic of China and The United States of America hold the two largest economic powers in the world. In 2019, President Donald Trump announced tariffs of 25% on $250 billion worth of imports from China, which created the largest trade war in history. Till today, US-China trade relations remain tense and continue to bring about much uncertainty to the world. But how did this start and how are ordinary Malaysians affected?

    Key Term: Tariffs: a tax on imports. 

    Check out this article as we guide you on the story behind the world of international trade, how these ‘superpowers’ fit in and the effects on Malaysians at large.

    Let’s Talk About the Two Largest Economic Powers Shaping the 21st Century.

    The United States of America

    The United States of America is the world’s leading economic power. For illustration, the US’s gross domestic product (GDP) in 2015 was $17.97 trillion, which was ¼ of the world’s wealth. The US also has the third-largest population in the world, at 325 million, and accounts for 41.16% of the world’s imports – the largest in the world.

    The People’s Republic of China

    Since the initiation of economic reforms and trade liberalization by President Deng Xiao Ping in 1978, China has been among the world’s fastest-growing economies with an average growth rate of 9.5% through 2018, a pace described by the World Bank as “the fastest sustained expansion by a major economy in history.” 

    China has become the world’s largest economy on a purchasing power parity basis (PPP). In simple terms, PPP is a theoretical exchange rate that allows the people to buy the same amount of goods and services in every country.

    China is also the largest manufacturer, merchandise trader, and holder of foreign exchange reserves.

    A story of globalization and economic capitalism: The creation of the WTO helps usher in the trading world.

    The World Trade Organization (WTO) is a global trade rule-setting institution. It aims to promote freer trade by requiring all the member countries to adhere to certain principles and promotes low and predictable trade barriers. In exchange, members are guaranteed better deals with other WTO member countries.

    In December 2001, upon the US’s approval of normalizing trade relations with China, China joined the WTO and committed to bind all import tariffs at an average of 9%. 

    Why a trade “arbiter” is important

    It has been argued that the protectionist trade measures imposed by countries in 1930 have deepened the effects of the Great Depression, giving way to the rise of political extremism, like Adolf Hitler in Germany.

    After the stock market crash of 1929, the Smoot-Hawley Tariff Act was proposed by the US in June 1930 to increase tariffs, which would protect US farmers and other industries from foreign competition, thereby securing the nation’s economy.

    As a result, imports became largely unaffordable, and unemployed people could only afford to buy domestic products. Global trade declined by 65%. In addition, other countries responded to the US’s tariffs by setting up restrictions on international trade, making it harder for the US to pull out of the depression.

    How did the US stand to benefit from increased trade?

    With China’s entry to the WTO, the US manufacturing price index fell by 7.6% between 2000 and 2006.

    With a lower tax, China was able to lower the cost of goods and therefore the price. US consumers were able to purchase goods, and US producers who use Chinese parts to make larger products also benefited from the lower cost.

    How did China stand to benefit from increased trade?

    WTO accession has led to an eight times increase in Chinese exports, resulting in greater economic growth. 

    From 2002 to 2007, the net exports as a share of GDP in China increased from 2.6% to 7.7%, becoming the largest exporter in 2009. 

    Trade in goods between the US and China increased from less than $100 billion in 1999 to $558 billion in 2019. China’s exports have primarily been labor-intensive manufactured goods due to China’s abundance of inexpensive labor. As more labor-intensive products are manufactured, there is a greater demand for labor to continue production. 

    Where It All Went Wrong?

    In 2017, the Trump Administration launched a Section 301 investigation of China’s innovation and intellectual property policies, which were deemed harmful to U.S. economic interests. 

    It subsequently raised tariffs by 25% on $250 billion worth of imports from China.

    China retaliated by increasing tariffs ranging from 5% to 25% on $110 billion worth of imports from the United States. 

    The Phase One Agreement signed in January 2020 between the two countries only led to minor reductions in the tariffs.

    The trade conflict has caused a sizable reduction in trade between the US and China in 2019. Moreover, when products are hit with tariffs, it raises production costs and translates into higher prices for finished goods. 

    Therefore, it is accompanied by considerable trade diversion to imports from other regions, leading to a reorganisation of value chains in Asia. 

    Where is the US’s position now, under President Biden?

    The Biden Administration is still holding the country to Trump’s Phase One Agreement and is considering taking other punitive measures as China has failed to meet prior commitments. In many ways, China has appeared to have doubled down on trade practices that the US deems unfair. This includes state support for Chinese companies in insensitive industries such as semiconductors and solar panels.

    However, to provide some relief to the supply chain crisis, in November 2021, the Biden administration agreed to ease tariffs on European steel and aluminium. This lowered costs on goods like cars and washing machines and reduced carbon emissions

    How is Malaysia impacted?

    Malaysia is a small and open economy with a relatively high dependence on trade. On top of that, Malaysia has a high degree of exposure to the Chinese economy, with China being both its largest trading partner and a top source of tourists. As a result of the disruptions to the Chinese supply chain and softening global demand, the US-China trade war caused a significant decline in the output of key exports for Malaysia.

    Based on Malaysia’s trade openness, tariffs could hike the costs of raw materials and intermediate goods. 

    Chemicals

    Malaysia is an alternative to China when it comes to supplying the US with chemical products. Western exporters could turn to Malaysian producers as it is cheaper.

    Solar Panels

    Southeast Asian countries (Malaysia, Thailand and Vietnam) are benefitting from US purchase of Solar Panels, as Chinese Solar Panels are subject to be more expensive due to the tariffs

    Researcher(s): Jih Yih

    Reviewer(s): Muhammad Bahari

    Editor(s): Nadiah Mohd Sobri

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