Is real estate still a viable investment asset?

 While Malaysia remains a nation of growing young working population, the main challenge with regard to homeownership is the lack of wage growth rather than the lack of affordable products.

In the case of real estate, it has its own merits because it is tangible and with the title of the property under your name, it is physically yours.

FOR the longest time real estate is the preferred investment asset class for many people. There are fond memories when it comes to making the right investment and more so for property owners who have enjoyed capital appreciation or significant rental yield by investing in real estate.

We also frequently hear of stories on how ordinary working and middle-class families successfully provided education for their children through the refinancing or selling of their own real estate assets.

Even in the grander scheme of things, real estate constitutes 7% of the total RM1 trillion in asset under management of our Employees Provident Fund.

How is it that this popular asset class has fallen out of favour with so many investors today?

Whenever I speak to clients on investments and their allocation, I would hear all kinds of unconventional investments schemes (regardless of whether legitimate or not) but at the mention of real estate, they would tell me that the golden days are long over.

It is rather demotivating to hear such comments, especially when I have been involved in this sector for a large part of my professional career while witnessing its heydays.

Economic cycles come around

The study of economics and its application may be subjective at times but there is one single theory that holds true over the course of time – that is the economic cycle.

Every asset class goes through a cycle, including real estate. From boom to bust and boom again, various factors play a part throughout the cycle.

If at all we look deep into the real estate cycle, we would easily realise the trend or pattern through each cycle.

Many decades before, real estate was scarce and buying property was a very expensive affair due to the high interest rates on loans.

In the 1990s, the loan interest rate per annum is close to double digits.

In addition, there are no full flexible or auto balance reduction loan offerings unlike today.

Coupled with very low margin of financing, mortgages are costly becoming the main barriers to homeownership. Then there is the issue of the law on property development which is not as comprehensive as it is today hence from a project commencement to completion, it was largely an unpredictable timeline.

Today, the laws are extensive both in terms of the development process as well as for the protection of property owners.

As a result, we have seen many companies with unrelated expertise or core business in property venture into development.

At last count, there are close to 200 companies listed on Bursa Malaysia which has property development or construction related businesses.

Coupled with the Strata Title Act, landbanks can be unlocked vertically rather than just horizontally unlike how it was before. This contributed to an oversupply.

On demand side, while Malaysia remains a nation with growing young working population, the main challenge towards homeownership is the lack of wage growth rather than the lack of affordable products.

In the residential segment, National Property Information Centre data shows that the unsold units have largely fallen in the past year from 36,863 units worth Rm22.79bil at the end of 2021 compared with 27,746 units worth Rm18.41bil as of December 2022.

There are also substantial number of units of residential overhang in the country with units totaling 14,000 units worth Rm4.63bil (which is 53% of total unsold inventories) within the affordable price range of less than RM500,000.

This means the stagnant wage growth in the face of global inflation has seen the people’s purchasing power weaken.

When disposable income falls, debt level rises, naturally big-ticket purchases with long term monthly commitment fall on the back burner.

Accommodative measures and policies

Real estate cycle is highly susceptible to changes in economic policies and government regulations including tax regimes.

When there is an accommodative policy such as a low interest rate environment or in Malaysia’s case when Developer Interest Bearing Scheme (DIBS) was allowed, it spurred huge demand for real estate because holding on to cash has little value.

Funds would either move into equity markets or real estate markets and other instruments to generate yield.

When the policies started to tighten with higher interest rates making borrowing cost higher, or removal of DIBS and even imposing higher Real Property Gains Tax amongst others, there was a flight of capital from the real estate sector.

We are now beginning to see some ray of lights at the end of the tunnel following eight years of market oversupply since the peak in 2014.

The flood of newly completed projects and unsold inventories in the balance sheet of developers which naturally became a bane for the industry is seeing some improvement following the auto correction in the economy cycle due to two years lost to the pandemic.

In addition, higher raw material costs, inflationary pressure and the diminishing value of our currency has slowly helped the market adjust to the property price as what was once deemed expensive becomes more tenable. This will help with the rejuvenation of the real estate market with the exception for commercial office segment.

Hedge against inflation

When we talk about investment, we need to consider the underlying assets’ ability to hedge against inflation apart from its absolute return.

Ultimately, so long as the underlying asset over a duration of time can beat inflation and preserve the value of your money, that would make it a viable investment asset.

Apart from that, it is important to make comparisons across asset classes to determine what best suits your personal need.

Everyone has their own risk tolerance and investment horizon.

Subject to your individual preference, one should choose the asset class that one is most comfortable with. Some may find insurance products pragmatic, some may prefer to invest in safe-haven commodities like gold or silver, others may prefer equities or bonds.

In the case of real estate, it has its own merits because it is tangible and with the title of the property under your name, it is physically yours. This makes it a highly acceptable asset class to most people including some who are not particularly financially astute or do not fancy complex capital markets products.

Any time is a good time for own use

No doubt when it comes to investing, everyone wants to make money. Otherwise, it defies the objective of investment.

If investments do not reap returns, might as well leave the money in fixed deposit.

However, real estate is a one of-a-kind asset class that has tangible benefits and allows enjoyment of the assets with the benefits of investment value.

Unlike gold or silver, the enjoyment is limited to seeing it glitter in your safe deposit or alternatively, melting it to design custom jewelry.

For real estate, specifically residential, one can move in and reside in it while for commercial or industrial properties, one can use it for business purposes.

This makes the investment thesis in real estate different from other asset class such as equities or fixed income.

The benefit of tangible use and enjoyment makes the timing of investment less significant if one has actual use for it.

Quoting Li Ka-shing, if you are looking to buy property for your own stay and not for speculation purposes, anytime is a good time. 

Ng ZHU HANN Ng zhu Hann is the CEO of tradeview Capital. He is also a lawyer and the author of Once Upon a time in Bursa. the views expressed here are the writer’s own.

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Is Real Estate Still A Good Investment?

 

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The strong dollar should not become a sharp blade to cut the world, THE NEED FOR BRETTON WOODS III

Is the Dollar the key to US hegemony?

 

Illustration:Chen Xia/Global Times

The US Federal Reserve will hold a new policy meeting on Tuesday and Wednesday, with the decision on interest rate growth being the limelight. It is widely anticipated that the Fed will deliver at least another 75-basis-point interest rate hike to tame inflation. This might further increase the value of the US dollar against other currencies, which is at its 20-year high. Driven by the Fed's aggressive rate hikes, the US dollar is viewed as "experiencing a once-in-a-generation rally." For many countries in the world, this might be the beginning of another nightmare.

The meeting will witness the fifth time that the Fed will raise interest rates. The direct reason is to ease the high pressure of inflation in the US. But if people dig the root cause, this is an inevitable consequence of US' blind and unlimited money printing to temporarily maintain "prosperity." In other words, in the face of the deep-seated problems exposed by the 2008 financial crisis, Washington has been powerless, and unwilling as well, to solve them. Instead, it was extremely short-sighted to cover up the crisis and curry favor with the Wall Street, while taking advantage of the hegemony of the US dollar to quietly treat the crisis like dumping wastewater - draining it to the world.

A super strong US dollar and the fall of other currencies will, to a certain extent, ease the scorching inflation in the US economy, but the world will have to pay for it, which is often referred to as "when the US is sick, the world has to takes pill." The ensuing severe inflation, economic recession and other problems have already appeared on a large scale in many countries. Thirty-six currencies around the world have lost at least one-tenth of their value this year, with the Sri Lankan rupee and Argentine peso falling by more than 20 percent, since the dollar strengthened.

This has not only worsened the already weak economies of Europe and Japan, but also forced a large number of developing countries to swallow the bitter pills of the economic recession caused by imported inflation. Countless families were impoverished overnight. This is a very abnormal situation that is not supposed to occur, but it is the cruel truth behind the US "containment of inflation."

In fact, since the end of World War II, the US has used dollar hegemony to carry out "financial looting" or "export crises" against other countries several times. As a widely popular phrase in the West goes, the US enjoys the exorbitant privileges created by the dollar and the deficit without tears, and used the worthless paper note to plunder the resources and factories of other nations.

Each round of dollar appreciation in the past decades has been accompanied by extremely bad memories: The Latin American debt crisis broke out in the first round, Japan suffered from the "lost two decades" during the second round and the Asian financial crisis took place during the third. Particularly in the Asian crisis, which is still fresh in many people's memories, more than 100 million middle-class people in Asia fell into poverty, according to the World Bank estimation. The strengthened dollar, time and again, cuts the world like a sharp blade.

Therefore, while the political elites in Washington boast of the "myth of the American system" and take credit for "alleviating the crisis," thousands of poor families around the world are being trampled by them. They are not unaware of this, but still collectively choose to be indifferent and arrogant, as if this is the privilege that the "hegemon" should enjoy. As US former treasury secretary John Connally put it in the 1970s, "The dollar is our currency, but it's your problem." Today, the dollar is once again the world's problem. In a sense, it's hard to believe that the "prosperity" of the US is clean and moral.

However, the crisis cannot be covered up forever. Washington keeps laying mines but never removes them, which will eventually explode the US itself. The incompetence of US financial policymakers has been exposed by the consecutive interest rate hikes that have contributed to the abnormal appreciation of the US dollar with the purpose of defusing the severe inflation.

For the US itself, what will rise accordingly are the cost of corporate financing, the pressure on residents to repay their loans, and the price of export production among others. Meanwhile, the credibility that the US dollar has as a global currency is being continuously exhausted by the US "beggar-thy-neighbor" policy. Now the anxiety and insecurity brought by the US dollar to the world has heralded the beginning of the decline of its hegemony - regarding Washington's insatiable exploitation, Europe, Asia, the Middle East and other regions have explored the path of "de-dollarization," leading to the inevitable diversification of the international monetary system.

The best way to restrain the rampaging hegemony is to practice true multilateralism. Whether it was the Asian financial crisis in 1997 or the global financial crisis in 2008, the world seemed to have stumbled more than once by the same stone, which, however, is not that firm anymore. The instability and fragility of international financial markets have once again become prominent. It is precisely at such times that the international community should be more determined to cooperate and build a reliable, systemic and long-term multilateral international financial system. This cannot wait. 

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 THE NEED FOR BRETTON WOODS III

World Affairs – Non-Partisan and Objective

 

Why the US Needs to Destroy Russia and China — The Need for Bretton Woods III

The United States of America is in big trouble, short term and long term. In 2022, the stock market is crashing, bond market is down the most in 40 years, housing bubble is bursting, inflation is skyrocketing, debt is exploding, and GDP is shrinking. These are not temporary crises. Instead, they reveal systemic flaws in the American economy that is propped up by a rigged global financial system. 

However, that fraudulent system is starting to crumble and the primacy of US dollar is in serious trouble, thanks to an emerging multipolar world. (Don't believe the nonsense that the US can keep printing infinite amount of dollars).

US central government’s debt is now $31 trillion, amounting to 130% of GDP. Soon, the interest payments on the debt alone will be $1 trillion per year. Of course, the principal amount will never get paid off. Then, add in the unfunded liabilities — like future payments for social security — the debt is staggering over $200 trillion.

Furthermore, there are not enough buyers of US treasuries. Thus, since the 2008 financial crisis, the Federal Reserve Bank has been creating trillions of dollars literally out of thin air and buying the US debt (treasury bonds). This is voodoo economics and not sustainable.

What’s the end game? The US needs to default on its debt and start new. The goal is to declare bankruptcy and … yet remain the #1 country. This will be the “Bretton Woods III” agreement.

The US needs to default on its debt and start new. Declare bankruptcy and yet remain the #1 country. This will be the "Bretton Woods III" agreement.

Sounds ridiculous? Well, it's possible only if all the other countries are weak and nobody is strong enough to challenge the US.

This is why the US must not only crush Russia and China — its two biggest geopolitical rivals, but also weaken Europe. This paves the way for the US to establish a new global order which is similarly rigged and just as deceitful and corrupt — in order to prolong the American Century.

Dollar Hegemony

America's extraordinary power comes from the power of US dollar, which is the established global currency for trade. This also means that countries around the world have to accumulate US dollars in their foreign exchange reserves. But the US has been abusing its power by weaponizing the dollar through sanctions and confiscations of hard-earned reserves.

No wonder that China, Russia and others are seeking ways to circumvent the dollar in trade. Since 1999, the share of US dollar assets in central bank reserves has dropped by 12 percentage points—from 71 percent. Hence the share of US dollar in global reserves is now only 59%. When that number falls below 50%, the tectonic shifts in global finance will become more apparent to Americans.

To fully grasp the nature of the current world order, let's see how the US established the dollar as the world currency, carried about the biggest gold heist in human history, then defaulted on its obligations, but revived the moribund dollar with a clever deal. That's the story of Bretton Woods I and II.

Bretton Woods I - Gold-backed Dollar

WW2 was a wonderful thing for the US. First, it took the US economy out of the Great Depression. The US played the role of arms supplier and gladly watched European empires destroy themselves. Even before the war was over, the US brought in all the allies to Bretton Woods, New Hampshire, and said, "When the war is over, you will all be weak and broke. I will be the new empire and my dollar will be the global currency. And it will be as good as gold -- a guaranteed rate of $35 per ounce of gold."

This meant that if you have $35, you can go to a bank and get an ounce of gold!

The world agreed. When the war was over, everyone bought US dollar with gold and used it for trade. Huge amounts of gold were also physically transferred from Japan, Germany and other parts of the world into the vaults of the Federal Reserve Bank in New York.

This system worked until 1971 when the US suddenly declared that, "Oops, the dollar is not backed by gold anymore. If you have US dollars, they are just pieces of paper now. You cannot get your gold back!" People called it the "Nixon Shock."

1970s - When Fiat Dollar almost died

This was also the biggest gold theft in human history. But what could the world do? America had nuclear weapons and the mightiest military.

Of course, the switch to a fiat currency caused havoc. The value of US dollar fell precipitously and inflation skyrocketed. Oil price quickly doubled and grew five-fold by 1979. The oil shock and gas shortage rocked American politics.

 

The US economy was in deep trouble. That's when the US elites came up with a clever idea to rescue the dollar and restore its primacy.

Bretton Woods II - The Birth of Petrodollar

How to make the dollar relevant? Hmm...What if everyone needed US dollar to buy something essential?

Like ... OIL. Brilliant!

This was the birth of Petrodollar.

Basically, the U.S. used Saudi Arabia’s oil to save the dollar. That is, Saudi Arabia (and other smaller producers) would sell oil only for US dollars. And to make sure that the Saudis don't get too powerful, they will be forced to recycle most of their profits back into the US economy. It was also a protection racket, which meant the US military would occupy Saudi Arabia and protect it from enemies. 

 Saudi King Faisal with Kissinger. Birth of Petrodollar

But why would the Saudis agree to this? Because the U.S. make Saudi Arabia the new king of oil and the most influential Middle East power ... after crippling Iran.

Win-win for the US.

Thus, the U.S. armed and funded Saddam Hussein of Iraq to wage a decade-long war on Iran. US provided arms/intelligence. Germany and France provided deadly chemical/biological weapons to Iraq. Here’s Donald Rumsfeld with Saddam in 1983. 

Of course, the same Rumsfeld would bomb Iraq and kill Saddam twenty years later.

Thus, the Petrodollar deal with Saudi Arabia could be called as Bretton Woods II. It extended the life of the American Empire by a few more decades.

Bretton Woods III -

For the last four decades, countries around the world have been foolishly working hard for US dollars, buying US treasuries, and funding the American Empire. But within the next decade, those U.S. treasury bills and bonds might be worthless. Deja vu all over again.

The U.S. needs Bretton Woods, Version 3. Somehow, the world needs to write off all American debt and start the racket anew. But … with America still as #1 How the hell could this happen?? This is how:

If the world is full of weak countries, they will accept the new rules -- just like they did in 1944 and 1974. Imagine a world where Russia and Europe destroy one another. Imagine a world where Japan and India attack China … and they all get destroyed. A world on fire, destroyed by passion and bombs.

In that world, America will come in as the savior at the last moment, stop the war, and make everyone a happy vassal.

Great Reset. Bretton Woods III. New World Order. Call it what you will.

Conclusion

The wheels are in motion. After eight years of provocation, the US successfully forced Russia to invade Ukraine. And the US also brilliantly pulled Europe into the mess. Europe's economy is being crushed and de-industrialized.

As for China, the U.S. is trying its best to start a war using Taiwan as the pawn. Japan is being asked to re-militarize and procure 1000 long-range missiles. The US needs a few more years to manufacture this mother of all wars. A lot depends on India, since Japan wouldn't want to be the only Asian country to attack China.

Four years ago, I predicted all this in the article "The Most Dangerous Decade." However, much of the world is still happy to be mesmerized and led into the slaughterhouse.

Only Russia and China can change how this story evolves. If Putin can quickly and decisively win the Ukraine war, he can force a peace settlement with Europe.

And China needs to accelerate the internationalization of Yuan. There is no de-dollarization without a robust alternative financial system. China also needs to muster the greatest diplomatic efforts to make peace with Japan and India, the two most potent adversaries and puppets of the US.

In the most optimistic scenario, the Global South or the people of the developing nations can bring into fruition a new fair world without catastrophic wars or financial devastation. As Sun Tzu said, "The supreme art of war is to subdue the enemy without fighting."

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A matter of Cost: Stretching their ringgit further

 

Janet Chia, 48, watering the lettuce plants at her house compound in Seri Kembangan, Selangor. Chia and her husband have planted several vegetables in their garden for their own consumption. 

Rise in prices pushes Ipoh folk to think of alternative ways to live within means

The hike in prices of essential items such as chicken, eggs, flour and vegetables has compelled ordinary folk in Perak to plant their own greens and herbs. Some are trimming their grocery bill or dining out less frequently by cooking simpler meals at home to better manage their household expenses. LIKE the rest of the nation, consumers in Ipoh, Perak, are feeling the pinch from the rise in the prices of goods, especially essential items.

The increase in prices is taking a toll on the people, leaving those in the low and middle-income groups struggling to cope.

Retiree Joginder Kaur Jessy, 67, said she had started to grow some vegetables in her house compound to help cut cost of buying greens.

She said eating out had always been expensive but cooking at home was no longer cheap either.

Expressing dismay at the rise in the prices of oil, vegetables, fish, chicken and eggs, she felt it necessary to cut back on some items as she was a pensioner.

“I have to be more prudent now and use less ingredients when cooking.

“I will probably have to look for a cheaper type of fish, eat less chicken, try to cook smaller portions, avoid wastage and make leftover food stretch over a few days,” she said.

Among the vegetables and fruits that Joginder has planted are chillies, okra, brinjal, lemon, mint, banana and papaya.

“Most of the prices of vegetables, fish and other seafood have tripled.

“Some fishmongers and vegetable and fruit sellers have taken this opportunity to raise the prices even further,” she added.

Holly Lai, 60, a marketing manager, said that at times cooking at home was more expensive than eating out.

Lai, who is single, said she used to cook at home, but after the increase in prices, she discovered it was not worth the effort.

Preferring fish and eggs in her diet, she noted that the prices of these items were not affordable.

“For me to cook a meal consisting of fish, rice and a vegetable, it will easily cost about RM15, not including the spices and other ingredients.

“In comparison, I can get a meal consisting of three dishes and rice for between RM5 and RM7 from a stall.

“During these trying times, I must choose wisely and cannot simply eat at expensive restaurants,” she added.

Teacher Ambiga Pillay, 60, said the government should step in to counter the increase in prices. 

 

Ambiga says she cuts down on daily costs by cooking more often at home.

Many including herself, she said, were saving on daily living costs by cooking more often as well as cutting back on luxury expenditures and travel.

“I always cook at home although it is a challenge as I work full-time.

“People think that grocery prices are lower in Ipoh compared to Kuala Lumpur, but it is not true.

“Prices here are higher because there is less variety compared to other places,” she said, adding that some also looked for cheaper alternatives to save money.

“I plan my finances based on priority as well,” said Ambiga.

Family Wellness Club president P. Mangaleswary also noted that people had been complaining about the rising prices of essential items.

She said some members of the non-governmental organisation (NGO) complained about how prices of vegetables had gone up in wet markets.

Members were saying that 1kg of tomatoes now cost RM9 when it used to be about RM5 before, she told StarMetro.

“Just last weekend at a get-together, some said they were feeling the burden of rising food prices as other expenses such as transport and house rental were also going up.

“The government’s cash aid for the B40 group is hardly enough for them to cover the rising costs.

“The government needs to look into some concrete measures to increase the supply of food such as vegetables and chicken,” said Mangaleswary. 

 

Mangaleswary suggests that the government give food suppliers some form of subsidy.

She said it was important to have control on prices of essential food items such as rice, sugar, flour, vegetables, fruits and chicken. To keep the supply chain going, she suggested that the government give suppliers some form of subsidy to help them overcome difficulties such as rise in price of chicken feed and transport cost.

“Of course, people must be reminded to be prudent and not to waste food,” she stressed.

Dr Richard Ng, president of NGO Ipoh City Watch, said although the country was transitioning into the Covid-19 endemic phase, the B40 folk in particular had little to cheer about. 

 

Ng says government assistance must reach the target group on a more consistent basis.

He said those who had been jobless might have heaved a huge sigh of relief as they would be able to earn a basic living.

He highlighted that a chain reaction had been triggered with the implementation of the minimum wage, the war between Russia and Ukraine taking a toll on the world’s economy, and the government’s announcement on the removal of subsidy on cooking oil and other essential items.

“These events have caused the prices of petrol, gas, cooking oil and essential food items to go up by at least 30%.

“This diminishing purchasing power not only impacts the B40 group, but also those in the M40.

“Each time such a crisis happens, the government can ask the people to tighten their belt, take less sugar, grow their own vegetables, provide one-off monetary assistance and groceries.

“But in reality, these efforts cannot really address the hard times faced by the people,” said Ng.

Instead, he said political leaders should set an example by going down to the ground and checking if the efforts made by them were effective.

He said government assistance must reach the target group on a more consistent basis, instead of just providing one-off aid.

“One way to solve this is to ensure some sort of prepaid card is given for the poor to buy groceries and other essential items from authorised outlets selling goods at lower prices.

“Of course, the mechanism must be monitored strictly to ensure there is no abuse and products sold must be of a certain minimum standard,” Ng added.

• StarMetro By MANJIT KAUR manjit@thestar.com.my

Stretching their ringgit further 

 Like the rest of the nation, consumers in Ipoh, Perak, are feeling the pinch from the rise in the prices of goods, especially essential items.

The increase in prices is taking a toll on the people, leaving those in the low and middle-income groups struggling to cope. 

Joginder showing the brinjal growing in her garden.Joginder showing the brinjal growing in her garden.

Retiree Joginder Kaur Jessy, 67, said she had started to grow some vegetables in her house compound to help cut cost of buying greens.

She said eating out had always been expensive but cooking at home was no longer cheap either.

Expressing dismay at the rise in the prices of oil, vegetables, fish, chicken and eggs, she felt it necessary to cut back on some items as she was a pensioner.

“I have to be more prudent now and use less ingredients when cooking.

“I will probably have to look for a cheaper type of fish, eat less chicken, try to cook smaller portions, avoid wastage and make leftover food stretch over a few days,” she said.

Among the vegetables and fruits that Joginder has planted are chillies, okra, brinjal, lemon, mint, banana and papaya.

“Most of the prices of vegetables, fish and other seafood have tripled.

“Some fishmongers and vegetable and fruit sellers have taken this opportunity to raise the prices even further,” she added.

Holly Lai, 60, a marketing manager, said that at times cooking at home was more expensive than eating out.

Lai, who is single, said she used to cook at home, but after the increase in prices, she discovered it was not worth the effort.

Preferring fish and eggs in her diet, she noted that the prices of these items were not affordable.

“For me to cook a meal consisting of fish, rice and a vegetable, it will easily cost about RM15, not including the spices and other ingredients.

“In comparison, I can get a meal consisting of three dishes and rice for between RM5 and RM7 from a stall.

“During these trying times, I must choose wisely and cannot simply eat at expensive restaurants,” she added.

Teacher Ambiga Pillay, 60, said the government should step in to counter the increase in prices.

Many including herself, she said, were saving on daily living costs by cooking more often as well as cutting back on luxury expenditures and travel.

“I always cook at home although it is a challenge as I work full-time.

“People think that grocery prices are lower in Ipoh compared to Kuala Lumpur, but it is not true.

“Prices here are higher because there is less variety compared to other places,” she said, adding that some also looked for cheaper alternatives to save money.

“I plan my finances based on priority as well,” said Ambiga. 

Ambiga says she cuts down on daily costs by cooking more often at home.

 

Family Wellness Club president P. Mangaleswary also noted that people had been complaining about the rising prices of essential items. 

 

Mangaleswary suggests that the government give food suppliers some form of subsidy.

She said some members of the non-governmental organisation (NGO) complained about how prices of vegetables had gone up in wet markets.

Members were saying that 1kg of tomatoes now cost RM9 when it used to be about RM5 before, she told StarMetro.

“Just last weekend at a get-together, some said they were feeling the burden of rising food prices as other expenses such as transport and house rental were also going up.

“The government’s cash aid for the B40 group is hardly enough for them to cover the rising costs.

“The government needs to look into some concrete measures to increase the supply of food such as vegetables and chicken,” said Mangaleswary.

She said it was important to have control on prices of essential food items such as rice, sugar, flour, vegetables, fruits and chicken. To keep the supply chain going, she suggested that the government give suppliers some form of subsidy to help them overcome difficulties such as rise in price of chicken feed and transport cost.

“Of course, people must be reminded to be prudent and not to waste food,” she stressed.

Dr Richard Ng, president of NGO Ipoh City Watch, said although the country was transitioning into the Covid-19 endemic phase, the B40 folk in particular had little to cheer about. 

 

Ng says government assistance must reach the target group on a more consistent basis.

He said those who had been jobless might have heaved a huge sigh of relief as they would be able to earn a basic living.

He highlighted that a chain reaction had been triggered with the implementation of the minimum wage, the war between Russia and Ukraine taking a toll on the world’s economy, and the government’s announcement on the removal of subsidy on cooking oil and other essential items.

“These events have caused the prices of petrol, gas, cooking oil and essential food items to go up by at least 30%.

“This diminishing purchasing power not only impacts the B40 group, but also those in the M40.

“Each time such a crisis happens, the government can ask the people to tighten their belt, take less sugar, grow their own vegetables, provide one-off monetary assistance and groceries.

“But in reality, these efforts cannot really address the hard times faced by the people,” said Ng.

Instead, he said political leaders should set an example by going down to the ground and checking if the efforts made by them were effective.

He said government assistance must reach the target group on a more consistent basis, instead of just providing one-off aid.

“One way to solve this is to ensure some sort of prepaid card is given for the poor to buy groceries and other essential items from authorised outlets selling goods at lower prices.

“Of course, the mechanism must be monitored strictly to ensure there is no abuse and products sold must be of a certain minimum standard,” Ng added. 

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Experts urge removal of US extra tariffs, Elimination of China tariffs will be key

Expert: U.S. is damaging itself for putting tariffs on China

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Removing additional tariffs on Chinese goods will significantly ease the pressure on companies in both China and the United States, and help the world to curb inflation, experts said on Wednesday (May 4).

Their remarks followed the Office of the United States Trade Representative, or USTR, announcement on Tuesday of the commencement of the statutory four-year review of the continuation of the US "Section 301" tariffs on Chinese products.

In the four-year review, the USTR will examine the tariff actions on Chinese-origin products from July 6, 2018 to Aug 23, 2018.

Based on this review, the US government can determine whether to maintain the tariffs, change the tariff rates, or remove the tariffs.

In the first quarter of this year, China-US trade grew 12 percent year-on-year to $185.92 billion, data from China's General Administration of Customs showed.

According to Tu Xinquan, dean of the China Institute for WTO Studies at the University of International Business and Economics in Beijing, the additional US tariffs on Chinese products have put heavy burdens on US companies and aggravated inflation levels in the country.

In the US, many businesses involved in trade have been seeking rollback of the additional tariffs on Chinese products.

Besides, many of the tariffs were levied through administrative orders rather than being based on relevant laws. This led to a series of complaints and lawsuits that challenged the authority of those orders issued by the former administration, he said.

In the two-step review process, the first step is for the USTR to offer an opportunity for US domestic industries that benefited from the tariffs to request their continuation. Legally, the tariffs are to terminate four years after their application, if no US party submits a request that they be continued.

If there are requests to continue, the tariffs are received, under the statute the following step requires the USTR to undertake a review of the effectiveness of the "Section 301" tariffs on achieving their objectives and their impact on the US economy and consumers.

Cancelling the additional tariffs on Chinese products will also help many parts of the world to curb inflation, because stable product and commodity supplies from China and the US – the world's two largest economies – will facilitate the world to build strong industrial and supply chains, said Zhang Yongjun, deputy chief economist with the China Center for International Economic Exchanges.

As the US dollar is a global currency, the increase in its supply, which far outpaced that of other global currencies like the euro, directly pushed up prices in the US, besides fueling inflation worldwide, which has been exacerbated by the Russia-Ukraine conflict, he noted.

Amid global inflation and growing pressures on the global supply chain, tariffs have become an inconvenient factor that inhibits enterprises from conducting international trade cooperation, said Zhou Mi, a senior researcher at the Chinese Academy of International Trade and Economic Cooperation in Beijing.

China and the US, he said, should not only remove additional tariffs imposed during their trade disputes, but even further reduce tariffs to make them even lower than the pre-dispute levels. That will significantly boost expectations on normal global supply chain operations, bolster market confidence and facilitate global economic recovery.

"As the world's two largest economies, healthy bilateral relations between China and the US are important not only to them but the world, as the global economy has been facing a number of uncertainties in recent years," he said.

Woody Guo, president for China unit at Herbalife Nutrition, a US-based manufacturer of nutrition products, said it is beneficial for China and the US to enhance their ties in the area of trade and economic cooperation.

"In China, consumption upgrade and domestic demand expansion will help the country to grow its consumer base under the dual-circulation development paradigm, providing huge growth potential for foreign enterprises, including Herbalife Nutrition," Guo said. 

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Elimination of China tariffs will be key 

Easing restrictions: The US and Chinese flags outside a hotel in Beijing. American tariffs on hundreds of billions of dollars of Chinese imports are due to expire in July, but could be extended if enough industries ask for an extension. — AFP

WASHINGTON: The United States government should eliminate or at least reduce additional tariffs on Chinese imports imposed during the Trump administration, a US trade expert says, arguing that such trade liberalisation measures will help lower elevated inflation and stabilise inflation expectations.

“Here, we’re running a red hot economy. So anything you can do to reduce that cycle is good news,” Gary Hufbauer, non-resident senior fellow at the Peterson Institute for International Economics (PIIE), told Xinhua in a recent phone interview.

In a research published on PIIE’s website, Hufbauer and his colleagues Megan Hogan and Yilin Wang argued that “a feasible trade liberalisation package” could deliver a one-time reduction in consumer price index (CPI) inflation of around 1.3 percentage points. That would save US$797 (RM3,467) for every US household.

He said the direct effect of eliminating additional tariffs on Chinese products would be a 0.3 percentage point reduction in the CPI, but there would also be indirect effect, which will add “substantially” to the 0.3 percentage point.

“It would be a pretty big signal to US firms that they are going to face more competition and that might cause them to moderate their price increases as inflation rolls forward,” said the long time trade expert.

“We’re in a world now where inflation expectations are really quite high,” Hufbauer said, noting that US Federal Reserve’s (Fed) interest rate hikes would have some effect on inflation expectations, and trade liberalisation measures “would have an additional effect.”

Stabilising inflation expectations is important, he said, because when expectations are that inflation is going to continue, “that then feeds into wage demands and that then keeps the cycle going.”

According to the latest data from the US Labour Department, the CPI in March surged 8.5% from a year earlier, the largest 12-month increase since the period ending December 1981. That followed a 7.9% year-on-year gain in February.

US personal consumption expenditures price indexes, the Fed’s preferred inflation measure, soared by 6.6% in March over the past year, the Commerce Department reported on Friday.

In reaction to the argument that reducing the China tariffs would not lead to a meaningful reduction in prices, Hufbauer said it doesn’t completely eliminate the inflation problem, “but it’s better than doing nothing.”

“So there’s raising interest rates, there’s cutting back federal spending, there’s reducing tariffs, all of those things have some impact,” he said. “I would say it’s something where every little bit counts.”

Regarding the current political environment, Hufbauer said he thinks it will be difficult for the administration to reduce or eliminate additional tariffs on Chinese imports before the mid-term elections, but he hopes that it will do that.

The trade expert said he is “very encouraged” by a recent statement by Deputy National Security Adviser Daleep Singh, who said the Biden administration could lower tariffs on non-strategic Chinese goods such as bicycles or apparel to help curb inflation.Hufbauer noted that the Biden administration could be reluctant to remove the Trump-era tariffs, because it would have to face criticism for being “soft” on China.

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Malaysia's 1Q18 to 4Q21 GDP performance, International scenario likely to affect trajectory

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International scenario likely to affect trajectory

“Hopefully we will start to see private investments gaining traction, but this depends very much also on what is going on in the international front, especially in terms of the Russia-ukraine war and global inflation.” Carmelo Ferlito

Despite being on a recovery path, the country’s economic growth trajectory could be affected by uncertainties on the global front. 

PMalaysia’s gradual and controlled easing of Covid-19 restrictions as it transitions into edemicity is set to give the country’s economy a much needed boost.

Despite being on the recovery path, economists have however cautioned that Malaysia’ economic growth trajectory could still be affected by uncertainties on the global front.

Malaysia University of Science and Technology professor Geoffrey Williams said the ongoing Russia-ukraine war, China’s lockdowns and likely austerity in the United States and Europe are key factors that could have an impact on Malaysia’s gross domestic product (GDP) growth.

“The expected negative outlook of the international economic scenario will determine the outcome of Malaysia’s second quarter GDP, not Covid-19 and borders reopening, which we expect to play a marginal role in this phase,” he told Starbiz.

In a base case scenario (which refers to a set of basic assumptions where the results would lead to the most realistic outcome), Williams said Malaysia’s second quarter GDP is forecast to increase 1.3% quarter-on-quarter and 2.6% year-on-year.

“This scenario implies that the GDP will be flat over the first half of 2022. This is in contrast to the consensus view of a rampant recovery with a yearly growth figure close to 5.5% and 6%. In our base scenario, we think that a 3.5% year growth is more likely.” 

 Malaysia University of Science and Technology professor Geoffrey Williams said the ongoing Russia-Ukraine war, China’s lockdowns and likely austerity in the United States and Europe are key factors that could have an impact on Malaysia’s gross domestic product (GDP) growth.

In a risk scenario, Williams said he foresees Malaysia’s GDP “going into slightly negative territory”.

“In our base scenario, we expect to see a systematic and progressive recovery, consistent with the potential rate of growth of the economy only in the second half of 2022.

“The contribution of the external demand is expected to be close to zero, reflecting the international cyclical weakness we are already observing in the US, European Union and China,” he said.

Malaysia, which has been gradually easing its Covid-19-related standard operating procedures since late last year, finally reopened its borders to international travellers from April 1.

Last week, Health Minister Khairy Jamaluddin announced a slew of relaxations to Malaysia’s Covid-19 restrictions.

Centre for Market Education chief executive officer Carmelo Ferlito said the relaxation measures announced recently would be a good incentive for the tourism industry.

However, he said the impact of the relaxations would likely be better reflected in the third quarter of this year, rather than in the current (second) quarter.

“We can still expect a good momentum for export, pulled by a weaker currency (which is temporarily good for export but harmful for the economy in general).

“Hopefully we will start to see private investments gaining traction, but this depends very much also on what is going on in the international front, especially in terms of the Russiaukraine war and global inflation.”

Malaysia’s GDP expanded 3.1% in 2021, after posting a 3.6% year-on-year growth in the fourth quarter of last year.

In a base case scenario, HELP University economist Dr Paolo Casadio said Malaysia’s first quarter 2022 GDP is projected to shrink 1.5% quarter-on-quarter and contract 0.7% year-on-year. 

 

Centre for Market Education chief executive officer Carmelo Ferlito said the relaxation measures announced recently would be a good incentive for the tourism industry.

“This would be due to contraction in investments, negative net external demand and stagnation in private consumption.

“We do not see a clear pattern in private consumption and investments, which would be consistent with a positive transition of the economy toward a systematic and sustained recovery.”

Casadio added that the current phase of recovery is “a delicate transition”.

“There are plenty of weaknesses and risks of a new recessionary phase, although the risk of a recession is only around 25%. Disposable income and wealth among households are not recovering due to weak real wages growth, slow increase in employment and continuing withdrawals from the Employees’ Provident Fund to finance current expenditure, even among the middle-income population.”

Ferlito, meanwhile, said he was “not a big fan of GDP forecasts” when asked about his projections for Malaysia’s economic performance for the first quarter of 2022.

“It’s because they fail to ignore how an eventual growth or decline is built. For example, GDP grew in 2021 by 3.1%, but that growth was mainly driven by government spending and private consumption.

“This means that growth is resting on very unstable pillars, being basically financed by household and government debt and inflation.”

Ferlito emphasised that private investments remained “quite stagnant” in 2021.

“The key drivers of a sustainable growth path are savings, which are not measured by GDP and private investments. “I think that beyond the GDP figure, which in itself is pretty useless, we should look at the microfoundations behind it. We will be on the right path if private investments grow, while a closer look should also be devoted to the savings dynamics, which is not captured by the GDP.”Ferlito noted that Bank Negara foresees a good rebound in private investments for 2022.

“This is what we need to hope for, although I believe that a lot of elements of uncertainty are still weighing on that, in particular for the first quarter of 2022.”

Ferlito said the political situation in Malaysia could also have an impact on the country’s GDP performance.

“Hopefully we will have elections with the emergence of a strong majority supported by a reformist agenda. Then there is the big issue of China, which in 2021 accounted for 15.5% of Malaysian exports. China is Malaysia’s first trade partner and therefore their utopic approach to Covid-19 will surely have an impact on our economy.”

Ferlito added that geopolitical uncertainties in Europe could also have an impact on Malaysia’s economic performance.

“Europe accounts for around 7% of the international trade of Malaysia, both in terms of import and export. Troubles there will lead to repercussions here.”

Williams said the focus at the moment should be on price stability and maintaining expansionary credit conditions.

“The government has managed the containment of inflation well up to now, through the control of petrol and other prices. But it was an error to allow the hike of the electric tariffs for the non-residential users in March. This is adding perhaps 0.5% to the outlook of inflation in a very critical phase.”

Williams said this hike should be reversed to guarantee a low level of inflation, which is necessary to support the purchasing power of salaries.

“This would be possible by redistributing the gains and costs of the increase in oil and gas that the different government-linked companies are experiencing and avoids penalising firms and households.”

Casadio meanwhile said he expects Bank Negara to maintain the current expansionary conditions and not revise the official interest rate of the monetary policy until the second half of 2022. 

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