February 2011 Industrial Production

I’m playing catch up again, so I’m skipping some update posts this month (monetary conditions for one). The February IPI report came out two days ago, and while the headline numbers aren’t too impressive we have to factor in the short month and the impact of CNY (log annual and monthly changes; seasonally adjusted; 2000=100):

Sneaking Around Invest Malaysia

Funnily enough, I didn’t get to attend any of the headlining events at the annual Invest Malaysia event yesterday (the PM’s keynote, Pemandu CEO Idris Jala). In fact, this is one event I’ve rarely attended – the audience is primarily analysts, fund managers and the media, and the message is generally tailored to foreigners. I can only recall one other time I’d been there, and that was over a decade ago.

This year, ironically, I got roped in not as a participant but as a presenter. Don’t bother trying to look me up though, we weren’t on the official program – it was a private presentation to a small group of fund managers from China. As I understand it, EPF did the same thing for this group earlier in the day.

I did my damnedest to “sell” Malaysia; not hard with all the foreign interest these days. The timing could of course have been better, the market being what it is right now. But I think that we’re really seeing foreign portfolio investors start taking the Malaysian market more seriously.

Whether that’s good or bad is of course another question.

I’m Back!! A Korean Digression

If you’re wondering on my silence over the past couple of weeks, I’ve been on a trip to Korea as part of the business delegation following the PM.

We were on very short notice for the trip, which necessitated some pretty frantic preparations. Nor was there time at all for sight seeing of any kind – I don’t think I moved more than a block from the hotel the whole time except for a short trip to the Korean Chamber of Commerce and Industry and obviously the airport. I barely saw my hotel room except to sleep.

Having said that, it was a pretty interesting trip – I made a lot of useful contacts, and learned a great deal.

I can’t talk about more than what was publicly revealed, but the trip did involve the creation of a Malaysia-Korea Business Council (on our part) and a Korea Malaysia Business Council (on the Korean side):

The role of these two bodies is to facilitate discussions on business matters between the private sector, beyond the existing government to government framework. The end goal is to basically double trade between the two countries by 2015, which is pretty ambitious even with the ASEAN-Korea FTA, considering it took a full ten years for it to double previously.

Korea is already Malaysia’s sixth largest trade partner and obviously has much to offer in terms of technical and engineering expertise. So what’s in it for the Koreans? Basically, a cheaper production base (not much of an advantage, I’d grant, compared to the alternatives), raw material availability (big one, this), and as a hub for the ASEAN region. We don’t have much of a domestic market yet, and it’s pretty much a toss-up whether all the incentives, regulations and other factors really matter to them.

So even though the PM came back with RM5 billion in investment commitments, long term we’ll have to show we’re a better bet than say Indonesia, where the Koreans have been investing in a big way and don’t mind saying so.

I’ll be writing more about this off and on (about a couple of times a year), as I’m rather deeply involved with this. So stay tuned.

Sorry…

It’s been a while since I posted. There hasn’t been a lack of material to talk about – BNM’s and the Government Transformation Program (GTP) annual reports for starters. But I’ve been inordinately busy this week, and I won’t be able to post until late next week at the earliest.

If I’m allowed (and I can get over the jet lag), you’ll find out why then.

February 2011 CPI: Accelerating

If anybody wants to complain about inflation now, be my guest. For the first time since late 2009, the CPI is now back on its long term trend (log annual and monthly changes):

January 2011 Economic Indicators

Fun, fun, fun. Just like with the CPI, the Department of Statistics has revised the basis of the leading, coincident and lagging economic indicators. The good news is that they’ve rather nicely recalculated the time series for all three based on the new components, and added diffusion indexes. The bad news is that this means a lot of input work for me.

So you’ll just have to read their own take on it, for now.

I’d also call attention to the reference dates for Malaysia’s business cycle, which have been included in the report for the first time. I can’t say enough how important this little nugget is, because it gives researchers and econometricians looking at Malaysia a single point of reference when looking at growth and recession periods, much like the NBER Business Cycle Dating Committee does for the US (note: the term recession here has a different meaning from what it’s usually taken to mean).

You can find the dates at the end of the full report (warning: pdf link), along with information on the construction of the new indices, which are interesting in and of themselves. The fact that seasonal adjustment and HP filters were used (hopefully with the correct cycle parameter), shows DOS are getting confident in their use of best practices. I would have also wished that some of the component indices were also published, like the Retail Sales Index and especially Manufacturing Capacity Utilisation, but beggars can’t be choosers.

Technical Notes:

January 2011 Economic Indicators Report from the Department of Statistics

BNM 2010 Annual Report

I haven’t time to really look at it (run off my feet the past few days), but Bank Negara Malaysia issued their 2010 Annual Report as well as the Financial Stability and Payment Systems Report yesterday (links at the end of this post). I’d get the briefing slides as well, as they usually contain a bit more info.

There’s my weekend reading all sewn up!

Technical Notes:

1. BNM 2010 Annual Report
2. Financial Stability and Payment Systems Report 2010
3. Briefing Slides

Econophysics: Markets And Economies As Complex Systems

Via Wired Magazine comes this paper with a unique take on market behaviour (abstract):

Predicting economic market crises using measures of collective panic
Dion Harmon, Marcus A. M. de Aguiar, David D. Chinellato, Dan Braha, Irving R. Epstein, Yaneer Bar-Yam

Predicting panic is of critical importance in many areas of human and animal behavior, notably in the context of economics. The recent financial crisis is a case in point. Panic may be due to a specific external threat, or self-generated nervousness. Here we show that the recent economic crisis and earlier large single-day panics were preceded by extended periods of high levels of market mimicry --- direct evidence of uncertainty and nervousness, and of the comparatively weak influence of external news. High levels of mimicry can be a quite general indicator of the potential for self-organized crises.

The modelling approach used here takes cues from physics as well as behavioural economics, blending the two. I’ll admit I’m a neophyte at both – I’m completely unfamiliar with the approach used in this paper. But the premise, and the results are intriguing, despite the brevity of the paper (17 pages, including references).

Technical Notes:

Dion Harmon, Marcus A. M. de Aguiar, David D. Chinellato, Dan Braha, Irving R. Epstein, Yaneer Bar-Yam, "Predicting economic market crises using measures of collective panic", Feb 2011

January 2011 Employment Report: A Mixed Bag

I thought the January unemployment rate was likely to rise, as temporary jobs during the year end sales lapsed. Well, I was kinda right:

Housing and Credit Cards: Cross Purposes

Probably long overdue:

New Measures on Credit Cards to Promote Prudent Financial Management and Responsible Business Practices

Bank Negara Malaysia wishes to announce new measures on credit cards in continuous efforts to inculcate sound financial and debt management among credit card users. These measures are also aimed to promote fair and responsible business practices by credit card issuers with further enhancements in the cards security infrastructure.

But I do wonder whether this might be shutting the stable door after the horse has bolted. Or maybe I’m getting my metaphors mixed. In any case, what’s clear to me is that you’re not going to teach adults how to manage their financial affairs by just putting in rules and regulations on credit. What I think is really needed is putting financial literacy on par with language, math and science skills right at the point where it would be most effective – when budding citizens are in school.

Developing Entrepreneurs: What’s Working, What’s Not

After watching the ongoing drama and tragedy in Japan this past week, it’s hard to focus on purely local concerns. It’s fairly obvious there’s been an enormous amount of damage to the country and the human toll is likely to be horrific. There’s also going to be a lot of repercussions around the region, not least with respect to disaster recovery and the future of nuclear energy.

But the Japanese are a resilient and industrious people, and I’m confident they’ll overcome this crisis, as they have many another in the past. Japan in the post-Meiji restoration era is a case in point: making the transformation from an isolationist, largely agrarian economy into a full-fledged industrial world power in under two generations is an incredible national achievement.

Which provides me a sideways segue into today’s topic – entrepreneurship. We’ve got a lot of programs here in Malaysia to help entrepreneurs, from financial to marketing to educational assistance. There’s no shortage of government programs or money being thrown at developing entrepreneurs – yet we’re hardly known as a hotbed of entrepreneurial activity. So the question is: what’s holding back entrepreneurial development in Malaysia?

MPC Statement: OPR Stays At 2.75%, SRR Up 1%

In a move that took nobody by surprise, the Monetary Policy Committee opted to keep the Official Policy Rate at 2.75% (excerpt; emphasis added):

Monetary Policy Statement

At the Monetary Policy Committee (MPC) meeting today, Bank Negara Malaysia decided to maintain the Overnight Policy Rate (OPR) at 2.75 percent...

...Global inflation is increasing primarily due to the rising energy and commodity prices. For several countries, this has been exacerbated by domestic demand conditions which have prompted policy responses. Meanwhile, most emerging economies, particularly in Asia, continue to be affected by significant shifts in global liquidity, which have increased the risks to macroeconomic and financial stability.

In the domestic economy, latest available indicators suggest continued expansion in private consumption and sustained business spending activity amid more modest growth in external demand. Going forward, economic growth is expected to be moderate in the earlier part of the year and to improve during the course of the year, driven by strong expansion in domestic demand...

...Domestic headline inflation has increased to 2.4% in January 2011. Driven primarily by the significant increases in global commodity and energy prices, domestic prices are expected to continue to rise. There are, however, some incipient signs that domestic demand factors could result in possible upward pressure on prices in the latter part of the year in line with the sustained expansion in economic activity.

Moving forward, while the stance of monetary policy is expected to remain supportive of growth, the degree of monetary accommodation may be reviewed given the sustained growth in the economy and risks to inflation. This is to ensure the sustainability of the growth prospects of the Malaysian economy.