NOV 13 — Someone recently suggested that I write a thorough analysis on the current economic situation, which I promptly dismissed with LOL and ROTFL. You can ask me about the aerodynamic properties of a duck and we can be locked in an animated and intellectual discussion for hours on end. But I know next to nothing about economics, the economy and how the whole thing really works.
You see, I registered for one elementary economics class at university, and proceeded to spend the best part of the year in some sort of trance at the school refectory.[1] I got completely lost somewhere in the demand-supply curve, law of diminishing returns, and a bloke named Keynes,[2] so there is very little chance that I am going to dazzle you, dear readers, with fancy economic theories and sophisticated insights.
But I also realise that this is an opportunity to sound more intelligent than I actually am, so I suppose I should take a crack at it and try to impress other people with my armchair economist viewpoint.
It all started with the US sub-prime crisis in mid-2007, which last year morphed into a raging financial firestorm that resulted in the worst global economic downturn since the Great Depression in the 1930s. World trade came to a virtual standstill, and the near collapse of the global financial system wiped out a staggering US$40 trillion (RM136 trillion) or approximately 67 per cent of global GDP in 2008.[3]
Governments across the globe rightly responded by pumping in excess of US$2 trillion to stimulate the economy.[4] In true “1MalaysiaBolehTrulyAsia” spirit, we followed suit with the Malaysian government introducing stimulus packages worth RM67 billion to counter the domestic economic slump and stem any impending crisis.
Since then, we have been told that the global slump has reached its trough and things are looking somewhat rosier. The “green shoots” of recovery have been a welcome respite, but we are not out of the woods yet. As you read this ridiculously shallow article, economists are still debating which alphabet best represents the shape and pace of recovery that it’s beginning to feel like an episode of Sesame Street.
Whatever recovery we are going to see in the immediate term is precarious because it is being driven by government largesse. Unfortunately, propping up the economy often triggers a higher national debt, and cushioning the slump with a budget deficit is unsustainable. Protracted liquidity injections on the back of lower revenue projection will limit our fiscal manoeuvrability, push our finances to breaking point, and bite us in very tender places.
The ballooning fiscal deficit also means we can ill afford another stimulus in the event of another crisis or if the current one is prolonged.[5] Unless, of course, we borrow to keep the economy afloat, but future generations will be paying a hefty price. How far has the stimulus package trickled down to the real economy? The pump-priming effort may have had a positive impact, but the overall climate is still pretty dismal and largely mired in a crisis of liquidity, solvency and confidence. So while we are not exactly up to our necks with hot, steaming manure, it is also probably too early to start trumpeting an upturn. Let’s just say that for a supposedly recovering tiger, the beast is strangely muted.
The spectre of declining overall competitiveness looms large, and the sentiment is not helped by the comedy that is our political landscape, where we seem to hopscotch from one crisis to another with alarming regularity. Hardly the kind of stuff which inspires confidence or improves Malaysia’s attractiveness as an investment destination.
Are we turning the corner or are we merrily walking into an economic abyss? Will the economy heal fast enough or is recovery a fast disappearing mirage? Will the sombre climate continue to dominate dinner conversations for moons and years to come?
I suppose I could try to answer that US$40 trillion question it in eight hundred Powerpoint™ slides or less, filled with matrices, framework and models, but the explanation would be extremely boring and I would be wrong anyway.
Worse, I could actually start to sound like a banker, and that brings us neatly to the next part of this essay.
Recently, a bunch of bankers in starched white shirts and even whiter teeth came up with the bright idea that Petronas, the nation’s crown jewel, should be public-listed. I’m not going to mention the name of the bank which came up with this brain-pie of an idea but for the purpose of this article, let’s call it “Deutsche Bank.”
They claimed that Malaysia has been marginalised as an investment destination and the country desperately needs a few large IPOs to draw back attention to the market. And their 1 Answer to our 1 Predicament was to list Petronas, or parts of it, to reinvigorate investor interest.
I am not sure how listing Petronas can/will/might rejuvenate the lukewarm stock market and sluggish economy, but then again, I am not equipped with enough knowledge to come up with a jaw-droppingly refined and persuasive argument against the idea.
So I am going to do what I do best, which is to mock the foreign bankers, point at them and call them names.
If Petronas were listed, there would probably be a brief euphoria in the stock market and the ensuing scramble to get hold of the shares. Why, even banks – foreign or otherwise – are highly likely to join in the scrimmage as institutional investors to grab a slice of the Petronas pie.[6] That ought to push the share prices up for a while but I am not necessarily convinced that it is sustainable. After certain quarters have made a killing by selling off their shares, the market will probably go back to being a timid little veal rather than a bona fide raging bull.
The thing is, Petronas is only one company in Malaysia,[7] and they are performing not too shabbily. But what about other big companies and local giants, especially those which are already listed on Bursa Malaysia? Assuming an efficient market,[8] sterling performance in companies listed on the local bourse will lead to higher share prices and hence, a more vibrant stock market. So maybe – just maybe – wouldn’t a better solution be to focus more on improving the performance of these other companies because even a giant company like Petronas can only do so much.
Why would we want to list Petronas anyway? The company certainly doesn’t need to raise any more money, or at least not so soon after the successful US$4.5 billion bond issue in August 2009. The bonds were heavily over-subscribed, which implies that companies can still tap the international capital markets and borrow at relatively cheap rates. And there’s also the issue of how much of the company should be floated to the public without diluting control, given the significant role and strategic importance of Petronas to the nation’s well being.
So unless someone can properly explain otherwise,[9] I can’t for the life of me see how listing Petronas is a good thing. It’s pure poppycock and preposterous, unless you are clinically insane and/or practice mild Satanism in your spare time. The idea is diabolical but sadly, such short-sightedness is par for the course these days.
Leave Petronas alone, I say. It is not an ever-replenishing reservoir of funds to disburse, so stop flogging it like a piñata. The so-called advisors should go and do something more useful like – I don’t know – stick an ice pick into their occipital lobes.
Excuse me if I sniff the air and wrinkle my nose whenever I come across this kind of ideas. I mean, we all know what happened the last time we listened to the bankers, don’t we?
NOTES:
[1] There were also girls wearing minimal outfits sunbathing and throwing Frisbees in the glorious late Spring-early Summer sun, but that’s another story.
[2] John Maynard Keynes (5 June 1883 – 21 April 1946), British economist.
[3] Erosion of market capitalisation, debt write-offs and decline in real estate values.
[4] Through bailouts, subsidies, cash support and reduction interest rates.
[5] This is especially true if we continue with our over-dependence on oil money.
[6] Financial institutions as energy/oil and gas players are not exactly unheard of.
[7] Actually parts of the company are listed on the stock market viz. Petronas Dagangan Berhad, Petronas Gas Berhad, and their shipping arm, MISC.
[8] Google “Efficient-market hypothesis”
[9] And I’m pretty sure someone will.
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