Recent Visit To Singapore & Malaysia
Weekly Notes With Tiho — Issue 4
Location: Kuala Lumper, Malaysia
Let’s start with a simple question…
What do both of these economies have in common?
Considering their geographical location, maybe the first thing that comes to mind is humidity.
Being a fan of cooler weather, I can tell you that I definitely felt the equator.
Or maybe you're a bit of a foodie like me, so you would have answered with Curry Laska or Satay.
I must admit, one cannot go wrong with either of those!
Being a finance guy, my answer is (unfortunately) linked to economic data.
Consumers & Businesses Are Pessimistic
Both of these economies have been exhibiting negative trends.
Multi-year lows in consumer confidence and slumping business sentiment are all linked to patchy and sluggish economic activity.
Singapore’s consumers have been feeling most pessimistic since the Global Financial Crisis, while their next door neighbors in Malaysia are even more negative.
Business sentiment isn’t anything to write home about, either.
Malaysian business confidence is at similar levels last seen during Asian Financial Crisis of 1998.
So why all the negativity?
Asian Economies Impacted By Rising US Dollar
The rise in the US Dollar since 2011 has pushed down commodity prices, while global trade has remained anemic.
Furthermore, the juggernaut of the region — China — has been going through a multi-year slowdown and economic adjustment phase.
Chinese leaders are trying to rebalance the economy. The move from the old industrial model to the new technology lead and consumer driven model takes time.
A lot of time.
As a result, Asian economies have been struggling.
Moreover, the crash in Oil prices throughout 2014 and 2015 affected Malaysian economy in particular, while the regional slowdown has continued to impact Singaporean financial sector.
Both economies are also going through a two year rising unemployment trend — phenomena not experienced in several years.
Let us turn the focus to Malaysian asset prices, where I see some opportunities and also some risks as well.
Property Prices Might Be Affected
There is a plethora of real estate supply coming online in coming years, primarily due to very high residential starts in 2013, 2014 and 2015.
Construction can be witnessed throughout Kuala Lumper, including the city center.
This is definitely a risk.
For now, real estate prices are still doing decently well in the local currency, rising over 5% year over year.
But that is in local currency… and we all know the story with that.
Malaysian Ringgit has crashed in recent years.
Trading at around 3 MYR per 1 USD in 2011, the South East Asian currency has now declined to a level last seen in 1998.
Over 4.4 MYR per 1 USD.
International investors who purchased Malaysian assets — including condominiums and stocks — years ago are likely to be sitting on losses in USD terms.
US Dollar Still In A Bull Market
Those who regularly follow me on my old blog and my new twitter account know that I still remain bullish on the US Dollar.
Therefore, with potential for further MYR weakness, the local property market might experience a prolonged consolidation.
Few disappointing quarters here and there, but also slight rebounds from time to time.
However, I wouldn’t be too negative.
It is important to put current property market events into a historical context.
As amazing as this might sound, Malaysian real property prices (adjusted for inflation) are still below the 1997 levels.
Stock Market Has Already Been Affected
While the adjustment process might occur in residential real estate, it seems to have already been discounted in stocks.
Investors have panicked out of Malaysia, resulting in a crash which resembles the Asian Financial Crisis of 1998.
Malaysian stocks seem to be starting a base building phase.
Consumers are negative. Businesses are negative.
Headlines in the press are also negative.
So naturally, I am positive because stocks are looking attractive. Personally, I think there is an opportunity to be a contrarian here.
If you would like to know more about my recent trip to Singapore and Kuala Lumper, reach out and have a consultation with me.
We will discuss real estate markets in both cities, as well as the right timing to start accumulating Malaysian shares.
Get in contact by clicking below and filling out the brief survey.
I’ll get back to you within 24 hours.