#66 Repatriation of foreign investment earnings
To Malaysia On Geoeconomics
With the ringgit (MYR) remaining subject to volatility despite the ongoing, and various, coordinated measures conducted by the governing authorities, the facts of the matter are that:
1] Malaysia’s largest trading partners are China, Singapore, Europe and US where 80% of the nation’s exports and imports are in the greenback US$. In reality, only between 4% and 5% of Malaysian trade are conducted in the ringgit.
2] There is a slow policy implementation process to call GLCs (government-linked companies) and GLICs (government-linked investment companies) to repatriate their overseas earnings and begin to adopt an economic nationalism ethos by converting them into ringgit towards supporting the national currency. Indeed, if implemented effectively, these gains could be significant.
According to ANZ Research: “Not only is Malaysia a net creditor economy, the stock of such non-reserve external assets is significant.”
The move to repatriate foreign earnings by the government-linked companies (GLC) and government-linked investment companies (GLIC) in response to Bank Negara Malaysia’s (BNM) call to relieve pressure on the ringgit has since paid off when several institutions are returning unspecified amounts consistently on a daily basis.
The status situation is that GLICs have a total assets worth RM$1.84 trillion which is almost equal to the size of Malaysia’s nominal gross domestic product (GDP).
3] The other GLIC is Employees Provident Fund (EPF) which as at end June 2021, its investment assets stood at RM$989.14 billion, of which 37% was invested overseas. By the Q3 2023, the EPF’s overseas investments generated RM$6.55Billion, or 45%, of its total investment income recorded, (kwsp.gov, December 2023).
Indeed, during a 2024 dividends payment presentation on the 2023 EPF performance, it was stated that some 62% of the EPF’s RM$1.136 trillion investment assets are invested domestically, generating RM$31.71 billion, or 47% of total investment income. Global assets — which include those US tech stocks that boosted shariah dividends — generated RM$35.28 billion, or 53% of total investment income, while making up only 38% of investment assets in 2023, (theedgemalaysia 17/03/2024).
4] Present national economy scenario is compounded by contrary to net foreign inflow of RM$6.1 billion in Malaysian equities year-to-date, the local bond market recorded net foreign outflow of RM$3.23 billion. Heightened uncertainty and tightening global financial conditions are some of the factors that have had contributed to portfolio outflows from domestic bond markets and reduced inflows into the equity market in recent months.
Then we have the condition where country’s revenue is not rising as fast as the increase in operating expenditure which is more than 95% of revenue since 2008.
In fact, from past records and datasets, total government debt and liabilities as of June 2022 was estimated to be at RM$1.42 trillion (total debt and liabilities were then about 82 per cent of GDP) . By 2023, Malaysia's national debt stood at RM$1. 5 trillion which represents more than 60% of the debt-to-GDP ratio, (ceicdata, 29 Jun 2023).
Historically, by 2022, it was already assessed that likely, there shall be many Uncertainties in Malaysia’s Economic Recovery, Cassey Lee, ISEAS, Singapore, 19/05/2022.
5] The fifth problematic measure policymakers should be focusing upon is to deal with the more persistent selling pressure. This process is to encourage exporters to convert their foreign currency proceeds on reversible basis with Bank Negara Malaysia to shore up the central bank’s reserves, rather than these values being a hold-up in foreign vaults.
Malaysia’s international reserve assets amounted to US$112.94 billion (RM$523 billion) in mid-2023, while other foreign currency assets stood at US$1.7 million, according to Bank Negara Malaysia (BNM), in 29 Aug 2023. By 29 February 2024, the international reserves of Bank Negara Malaysia amounted to USD$114. 3 billion. The reserves position is sufficient to finance 5.4 months of imports of goods and services, but is only 1.0 times of the total short-term external debt.
6] We are also in an era when odious outshore transferrence of wealth generated in the country that have had looted and leaked out, (icij January 2024). A Malaysian politician under the Pandora Papers probe was linked to US$52 million offshore trust and UK, US property investments.
If the Bank Negara Malaysia estimate of US$6 billion-US$7 billion (RM$28.3 billion-RM$33 billion) of potential annual income can be converted to help offset negative outflows and to be an active stabiliser for the ringgit, then the arduous tasks ahead are definitely due.
7] Again, to be clearly understood is that a stronger correlation to the Chinese yuan (CNY) would only turn into a tail-wind for the MYR as the CNY is widely expected to rebound in 2H24. Hence, the market is projecting USD/MYR to re-cover at a measured pace to 4.65 in Q24 and 4.60 in 4Q24, (with the 10 June's closing of 4.7230).
8] It is a battle against the onslaught of financialisation capitalism domination in the state of nation; last few weeks, the outflow of funds was temporarily deaccelerated when Global North monopoly-capital Infrastructural platform players (Microsoft, Google, Nvidia) swoop to purchase various properties to warehouse their cloud servers, (STORM June 2024, data servers and land oligarchy).
However, there were local capital compradore beneficiaries where shares of ViTrox Corp Bhd climbed as much as 19% on Tuesday, on 11/06/24
extending a rally after being associated
with Nvidia Corp and Foxconn Industrial Internet Co Ltd.
Penang-based ViTrox is a producer of
machinery and equipment designed to
automate the rigorous testing of semi-conductor devices.
The other case company is Sunway Construction Group Bhd which charted another new all-time high also on Tuesday 11/06/24 after one of its data centre contracts was upsized to RM$3.2 billion, from RM$1.7 billion.
The capital accumulation by land oligarchy through real estate's dealings and the wealth and opulence of monarchy are not foreign to most Malaysians, as expressed by Fadiah Nadwa Fikri in a #54 On Geoeconomics blog. Indeed, many country elites openly display and present their gains on multimedia for the public to see and admire. The prevalence acts by this segment of society are often translated as important socio-politico broadcasts of the country's wellbeing. This belief strengthened the culture of wealth-worship ethos among the general public.
Postings published during the week:
1] The golden age of Ismalic Science, archived @firestorms
2] Trump’s conviction, Meng Weizhan (孟维瞻),
3] Chiquita found liable for Columbia paramilitary killing, National Security Archive
4] Data Servers, Land Oligarchy and REIT in the financialization capitalism of infrastructural platforms, STORM
5] MOMENTUM #203 and FRIDAY FILES