Chief Economist & Political Strategist, CrossASEAN Research

Prasenjit K. Basu

Chief Economist & Political Strategist

CrossASEAN Research

At CrossASEAN Research we strive to produce unbiased and differentiated on the ground insights on companies across South East Asia. Our Research is produced for the most part after face to face meetings and conversations with company management to dig deep into the long term vision and strategy of the companies we cover. We seek to deliver investable and actionable themes on sectors and markets across SE Asia, often in collaboration with other Insight Providers across the region, pooling the vast experience of the analysts within the Smartkarma Ecosystem. We also offer bespoke work and tailor made trips for our clients. 

Insights across South East Asia

Macroeconomics

Malaysia has demonstrated the strengths of constitutional monarchy at a time when its northern neighbour, Thailand, is undergoing convulsions over King Rama X's consolidation of power in a de facto absolute monarchy (although Thailand too is a de jure constitutional monarchy since 1932). On 25th October, Malaysia's king (Agong) rejected Prime Minister Muhyiddin's advice (given 2 days earlier) to declare a state of Emergency (which would have suspended parliament, and been a significant blow to Malaysian democracy). After a sudden spurt in Covid cases, the Agong declared the incumbent government needed stability to deal with the challenge. Thus the Agong prolonged the life of Muhyiddin's weak, fraying coalition while preserving Malaysia's democracy. While the Agong's actions preserved democracy, he clearly did everything to ensure that Leader of the Opposition Anwar Ibrahim could not become Prime Minister -- delaying meeting him for 3 weeks, then sending a clear signal to UMNO (the former ruling party, which had indicated it would support Anwar's bid) that it should stay neutral. The upshot is that the Islamist PAS, which had been isolated by most other parties in the past, is now in a strong bargaining position relative to the main constituents of the rickety ruling coalition -- Muhyiddin's Perikatan Nasional (PN, of which PAS is currently a member) and UMNO-led Barisan Nasional (BN).At the next general election (not due before May 2023, but likely to be held sooner), PAS is likely to align more with UMNO, although some of the latter's members will defect to Anwar's PKR beforehand. Muhyiddin's party PPBM (with 31 seats in a parliament of 222 currently) appears to be unpopular, mainly because Azmin Ali (its effective deputy leader) is seen as having betrayed PKR (Anwar's party, of which he was effective deputy leader previously). If BN-PAS are to allow PPBM into their alliance, the latter will receive a lower allocation of seats, PAS more than it has currently. While an UMNO-PPBM-PAS alliance of Malay Muslims could be electorally potent, it will drive Malaysia very far away from the non-racial (or at least multi-racial) vision on which PH (Pakatan Harapan) fought and won the 2018 election. Despite the short-term relief from the non-declaration of Emergency, the direction that Malaysian politics is now taking (with PAS increasingly in the ascendant) is deeply negative for the country's future.

Malaysia has demonstrated the strengths of constitutional monarchy at a time when its northern neighbour, Thailand, is undergoing convulsions over King Rama X's consolidation of power in a de facto absolute monarchy (although Thailand too is a de jure constitutional monarchy since 1932). On 25th October, Malaysia's king (Agong) rejected Prime Minister Muhyiddin's advice (given 2 days earlier) to declare a state of Emergency (which would have suspended parliament, and been a significant blow to Malaysian democracy). After a sudden spurt in Covid cases, the Agong declared the incumbent government needed stability to deal with the challenge. Thus the Agong prolonged the life of Muhyiddin's weak, fraying coalition while preserving Malaysia's democracy. While the Agong's actions preserved democracy, he clearly did everything to ensure that Leader of the Opposition Anwar Ibrahim could not become Prime Minister -- delaying meeting him for 3 weeks, then sending a clear signal to UMNO (the former ruling party, which had indicated it would support Anwar's bid) that it should stay neutral. The upshot is that the Islamist PAS, which had been isolated by most other parties in the past, is now in a strong bargaining position relative to the main constituents of the rickety ruling coalition -- Muhyiddin's Perikatan Nasional (PN, of which PAS is currently a member) and UMNO-led Barisan Nasional (BN).At the next general election (not due before May 2023, but likely to be held sooner), PAS is likely to align more with UMNO, although some of the latter's members will defect to Anwar's PKR beforehand. Muhyiddin's party PPBM (with 31 seats in a parliament of 222 currently) appears to be unpopular, mainly because Azmin Ali (its effective deputy leader) is seen as having betrayed PKR (Anwar's party, of which he was effective deputy leader previously). If BN-PAS are to allow PPBM into their alliance, the latter will receive a lower allocation of seats, PAS more than it has currently. While an UMNO-PPBM-PAS alliance of Malay Muslims could be electorally potent, it will drive Malaysia very far away from the non-racial (or at least multi-racial) vision on which PH (Pakatan Harapan) fought and won the 2018 election. Despite the short-term relief from the non-declaration of Emergency, the direction that Malaysian politics is now taking (with PAS increasingly in the ascendant) is deeply negative for the country's future.    

Agong Asserts Himself, Preventing Change of PM but Disallowing Emergency Rule

Malaysia's Leader of the Opposition, Anwar Ibrahim, who was Deputy Prime Minister (and Finance Minister) during and immediately after the Asian Financial Crisis (1997-98), but then spent many years in prison on trumped-up charges of "sodomy" (which is illegal in Malaysia), has announced at a press conference on 23 September that he has the support of a majority of MPs, and hence has informed the King (Agong) that he is ready to form a government. The normal procedure would be a Vote of No-Confidence in the Dewan Rakyat (parliament), but the King had picked Muhyiddin as PM at the beginning of March 2020 based on a list of MPs, so Anwar is following the same route. The Sabah state election on Saturday (26th September) will be an important barometer of the national political tide. Sabah and Sarawak had traditionally constituted the "fixed deposit" for the erstwhile ruling coalition, Barisan Nasional (National Front). But in 2018, Sabah narrowly voted for a PH slate led by Warisan (Sabah Heritage Party), a new party established by Shafi Apdal, a former Vice President of UMNO who had resigned in 2015 over Najib's corruption. In this week's Sabah state election, Warisan and its PH (Pakatan Harapan) allies appear to have the upper-hand, with Warisan's "Sabah-nationalist" campaign gaining strong support -- especially at a time when the Philippines' House of Representatives had re-staked a historical claim to Sabah. If the Warisan-led PH coalition wins the state election in Sabah, it won't change the federal equation, but will strengthen PH's hand -- and likely lead to more defections to Anwar's side. A number of uncertainties remain: Mahathir hasn't declared support for Anwar, and he is close to Shafi Apdal, so there could be yet another twist if Mahathir again throws his hat into the prime ministerial ring. But if Anwar truly has statutory declarations from more than 112 MPs, then he will become Prime Minister. Anwar's government will be more inclusive of all the races and religions in Malaysia, but he has stressed that it will have a Malay-Muslim majority. Anwar is a more experienced figure with an international reputation, and has built Malaysia's first truly multi-racial party (PKR) in alliance with multi-racial (but Chinese-Malaysian-dominated) DAP. An Anwar government thus promises to be fundamentally different from all that came before -- holding out the prospect of transforming Malaysia into a more meritocratic and race-neutral nation, a massive long-term positive for the country and its economy. Substantially greater integrity and reduced corruption will be the main positive from an Anwar administration. But Penang and its electronic sector (including <a href="https://www.smartkarma.com/entities/inari-amertron-bhd" target="_blank" data-smartkarma-citation="entities:10265:1" rel="noopener">Inari Amertron (INRI MK)</a>, <a href="https://www.smartkarma.com/entities/malaysian-pacific-industries-berhad" target="_blank" data-smartkarma-citation="entities:18893:1" rel="noopener">Malaysian Pacific Industries (MPI MK)</a> and <a href="https://www.smartkarma.com/entities/globetronics-technology-bhd" target="_blank" data-smartkarma-citation="entities:10571:1" rel="noopener">Globetronics Technology (GTB MK)</a> ) will be beneficiaries, and the cash-rich Hong Leong group (closely associated with Anwar throughout his career) are likely to benefit too, likely investing much more in Malaysia (having invested mainly in Hong Kong, Singapore and the UK over the past two decades).

Malaysia's Leader of the Opposition, Anwar Ibrahim, who was Deputy Prime Minister (and Finance Minister) during and immediately after the Asian Financial Crisis (1997-98), but then spent many years in prison on trumped-up charges of "sodomy" (which is illegal in Malaysia), has announced at a press conference on 23 September that he has the support of a majority of MPs, and hence has informed the King (Agong) that he is ready to form a government. The normal procedure would be a Vote of No-Confidence in the Dewan Rakyat (parliament), but the King had picked Muhyiddin as PM at the beginning of March 2020 based on a list of MPs, so Anwar is following the same route. The Sabah state election on Saturday (26th September) will be an important barometer of the national political tide. Sabah and Sarawak had traditionally constituted the "fixed deposit" for the erstwhile ruling coalition, Barisan Nasional (National Front). But in 2018, Sabah narrowly voted for a PH slate led by Warisan (Sabah Heritage Party), a new party established by Shafi Apdal, a former Vice President of UMNO who had resigned in 2015 over Najib's corruption. In this week's Sabah state election, Warisan and its PH (Pakatan Harapan) allies appear to have the upper-hand, with Warisan's "Sabah-nationalist" campaign gaining strong support -- especially at a time when the Philippines' House of Representatives had re-staked a historical claim to Sabah. If the Warisan-led PH coalition wins the state election in Sabah, it won't change the federal equation, but will strengthen PH's hand -- and likely lead to more defections to Anwar's side. A number of uncertainties remain: Mahathir hasn't declared support for Anwar, and he is close to Shafi Apdal, so there could be yet another twist if Mahathir again throws his hat into the prime ministerial ring. But if Anwar truly has statutory declarations from more than 112 MPs, then he will become Prime Minister. Anwar's government will be more inclusive of all the races and religions in Malaysia, but he has stressed that it will have a Malay-Muslim majority. Anwar is a more experienced figure with an international reputation, and has built Malaysia's first truly multi-racial party (PKR) in alliance with multi-racial (but Chinese-Malaysian-dominated) DAP. An Anwar government thus promises to be fundamentally different from all that came before -- holding out the prospect of transforming Malaysia into a more meritocratic and race-neutral nation, a massive long-term positive for the country and its economy. Substantially greater integrity and reduced corruption will be the main positive from an Anwar administration. But Penang and its electronic sector (including Inari Amertron (INRI MK), Malaysian Pacific Industries (MPI MK) and Globetronics Technology (GTB MK) ) will be beneficiaries, and the cash-rich Hong Leong group (closely associated with Anwar throughout his career) are likely to benefit too, likely investing much more in Malaysia (having invested mainly in Hong Kong, Singapore and the UK over the past two decades).    

Anwar Makes His Move at Last; Election in Sabah This Week Should Bolster Him Too

Silver Point

Thomas J. Monaco

Silver Point is a boutique research firm that focuses on the broader financial services sector, with a particular focus on troubled institutions globally. 

Asia Ex Japan

Equity Bottom-Up

*Awful Bottom-line: Malayan Banking (MAY.MK) [Maybank] reported 2Q20 NPAT of MYR 923 mn, declining MYR 127 mn (55%) linked quarter. If the stated result weren’t ugly enough, we find that core operating results declined MYR 2.1 bn or 133.1% linked quarter to an operating loss of MYR 518 mn; and *Unbelievable Credit Figures and Weak Coverage: During 2Q20, we note that problem loans for Maybank actually declined by MYR 1.1 bn (7.7%) and now amount to MYR 13.0 bn. Given the late stage implementation of COVID-19 measures and the loan classification system used which is discretionary, we have a very difficult time believing the improved result. By our calculation, Maybank’s loan loss reserve of MYR 2.7 bn is not nearly enough to absorb the known and potential loss on balance sheet. We find Maybank earnings would be even more challenged given the MYR 7.7 bn shortfall  - which amounts to nearly 2.5 years of NPAT based on the latest quarterly result.

*Awful Bottom-line: Malayan Banking (MAY.MK) [Maybank] reported 2Q20 NPAT of MYR 923 mn, declining MYR 127 mn (55%) linked quarter. If the stated result weren’t ugly enough, we find that core operating results declined MYR 2.1 bn or 133.1% linked quarter to an operating loss of MYR 518 mn; and *Unbelievable Credit Figures and Weak Coverage: During 2Q20, we note that problem loans for Maybank actually declined by MYR 1.1 bn (7.7%) and now amount to MYR 13.0 bn. Given the late stage implementation of COVID-19 measures and the loan classification system used which is discretionary, we have a very difficult time believing the improved result. By our calculation, Maybank’s loan loss reserve of MYR 2.7 bn is not nearly enough to absorb the known and potential loss on balance sheet. We find Maybank earnings would be even more challenged given the MYR 7.7 bn shortfall  - which amounts to nearly 2.5 years of NPAT based on the latest quarterly result.  

Malayan Banking – Tapped By The Ugly Stick

* Don’t Be Fooled: Oversea Chinese Banking Corp. (OCBC.SP) [OCBC] reported 2Q20 results of SGD 730 mn, increasing SGD 52 mn (7.7%) linked quarter. Despite the improvement, there were a disappointing set of results. Nevertheless,several factors led to the improving bottom-line: a) provisions declined SGD 93 mn or 14.2% despite weaker overall credit quality; b) Great Eastern Life (GE.SP) improvement SGD 125 mn or 79.6%; and c) a SGD 259 mn ( 161%) increase in non-interest income;  and* Higher Credit Risk &amp; Weak Reserves: The moratorium portfolio amounts to 10% of total loans, of which half is attributed to Malaysia. In Singapore, moratorium loans amounted to 6.4% of outstandings. Inclusive of NCOs, we find that that net new NPLs amount to 46.7% on an annualized basis or nearly 6x that of DBS Group Holdings (DBS.SP). By our calculation, we find that OCBC’s reserve falls short by close to SGD 2.2 bn which is equivalent to four quarters of PBT and 2/3’s of its current reserve.

* Don’t Be Fooled: Oversea Chinese Banking Corp. (OCBC.SP) [OCBC] reported 2Q20 results of SGD 730 mn, increasing SGD 52 mn (7.7%) linked quarter. Despite the improvement, there were a disappointing set of results. Nevertheless,several factors led to the improving bottom-line: a) provisions declined SGD 93 mn or 14.2% despite weaker overall credit quality; b) Great Eastern Life (GE.SP) improvement SGD 125 mn or 79.6%; and c) a SGD 259 mn ( 161%) increase in non-interest income;  and* Higher Credit Risk &amp; Weak Reserves: The moratorium portfolio amounts to 10% of total loans, of which half is attributed to Malaysia. In Singapore, moratorium loans amounted to 6.4% of outstandings. Inclusive of NCOs, we find that that net new NPLs amount to 46.7% on an annualized basis or nearly 6x that of DBS Group Holdings (DBS.SP). By our calculation, we find that OCBC’s reserve falls short by close to SGD 2.2 bn which is equivalent to four quarters of PBT and 2/3’s of its current reserve.

Cross Asset Strategy

Having precluded the need for a Confidence vote by winning a parliamentary contest on ousting the Speaker (111-109), the Muhyiddin cabinet has successfully defeated Covid-19 (with just 3 deaths in the past 6 weeks, and a daily average of just 15 new cases in the past 7 days). With Goldman Sachs paying Malaysia US$3.9 billion, and ex-PM Najib Razak convicted on all 7 counts, Muhyiddin will win plaudits from the voting public. After a sharp contraction in March-May 2020, exports (+8.8% YoY in June 2020) began leading a 2H 2020 economic revival. Buy Malaysia.  Prime Minister Muhyiddin Yassin has had an incredible fortnight. First, he pulled off a parliamentary coup by replacing the Speaker of parliament (elected by the previous PH coalition that he had ousted on 1st March 2020). Muhyiddin won that vote 111-109, thereby demonstrating that he retained majority support. Then, in rapid succession, Goldman Sachs announced on Friday (24 July) that it had agreed a settlement with Malaysia (confirmed and agreed by the Malaysian government on 27 July), and the courts announced today (28 July) that former-PM Najib Tun Razak was guilty of all 7 charges against him, and hence must serve at least 12 years in prison. PM Muhyiddin is also winning plaudits for dealing with the Covid-19 pandemic with quiet competence. Malaysia has successfully flattened the curve of new infections, and has had just 3 deaths from the Coronavirus in the past 6 weeks. Having thus contained the impact of the pandemic (which appeared to be raging out of control just before he became PM) Muhyiddin has built a reputation for quiet competence--although survival in office has entailed a series of sordid compromises with various corrupt members of his coalition, and attacks on journalists and Opposition MPs who attempt the slightest criticisms of this government. The economic impact of containing Covid is that Malaysia is well-positioned to see a robust recovery in 2H 2020. Real GDP decelerated to just 0.7% YoY growth in 1Q 2020, as the manufacturing sector succumbed to movement-restrictions imposed in March 2020. But after contracting sharply in April and May, exports rebounded to 8.8% YoY growth in June 2020. Industrial growth too is likely to have returned to modest growth in June. With the economy able to confidently return to normalcy in July, real GDP should return to solid growth in 2H 2020 despite the massive hit being taken by the tourism-facing sectors.

Having precluded the need for a Confidence vote by winning a parliamentary contest on ousting the Speaker (111-109), the Muhyiddin cabinet has successfully defeated Covid-19 (with just 3 deaths in the past 6 weeks, and a daily average of just 15 new cases in the past 7 days). With Goldman Sachs paying Malaysia US$3.9 billion, and ex-PM Najib Razak convicted on all 7 counts, Muhyiddin will win plaudits from the voting public. After a sharp contraction in March-May 2020, exports (+8.8% YoY in June 2020) began leading a 2H 2020 economic revival. Buy Malaysia.  Prime Minister Muhyiddin Yassin has had an incredible fortnight. First, he pulled off a parliamentary coup by replacing the Speaker of parliament (elected by the previous PH coalition that he had ousted on 1st March 2020). Muhyiddin won that vote 111-109, thereby demonstrating that he retained majority support. Then, in rapid succession, Goldman Sachs announced on Friday (24 July) that it had agreed a settlement with Malaysia (confirmed and agreed by the Malaysian government on 27 July), and the courts announced today (28 July) that former-PM Najib Tun Razak was guilty of all 7 charges against him, and hence must serve at least 12 years in prison. PM Muhyiddin is also winning plaudits for dealing with the Covid-19 pandemic with quiet competence. Malaysia has successfully flattened the curve of new infections, and has had just 3 deaths from the Coronavirus in the past 6 weeks. Having thus contained the impact of the pandemic (which appeared to be raging out of control just before he became PM) Muhyiddin has built a reputation for quiet competence--although survival in office has entailed a series of sordid compromises with various corrupt members of his coalition, and attacks on journalists and Opposition MPs who attempt the slightest criticisms of this government. The economic impact of containing Covid is that Malaysia is well-positioned to see a robust recovery in 2H 2020. Real GDP decelerated to just 0.7% YoY growth in 1Q 2020, as the manufacturing sector succumbed to movement-restrictions imposed in March 2020. But after contracting sharply in April and May, exports rebounded to 8.8% YoY growth in June 2020. Industrial growth too is likely to have returned to modest growth in June. With the economy able to confidently return to normalcy in July, real GDP should return to solid growth in 2H 2020 despite the massive hit being taken by the tourism-facing sectors.  

Malaysia: PM Muhyiddin Steadily Gains a Reputation for Quiet Competence

United States

iShares MSCI Malaysia ETF is an exchange-traded fund incorporated in the USA. The ETF's objective seeks to provide investment results that correspond to the performance of the Malaysian market, as measured by the MSCI  Malaysia Index. The ETF invests in a representative sample of index stocks using a  "portfolio sampling" technique.

iShares MSCI Malaysia ETF (EWM US)

Agong Asserts Himself, Preventing Change of PM but Disallowing Emergency Rule

Constitutional monarchy saved Malaysian democracy by ruling out an Emergency. But Agong's tilt against Anwar has implicitly made the Islamist PAS...

Prasenjit K. Basu

Anwar Makes His Move at Last; Election in Sabah This Week Should Bolster Him Too

Anwar Ibrahim, who was Deputy Prime Minister (and Finance Minister) during and after the

Prasenjit K. Basu

Malayan Banking – Tapped By The Ugly Stick

*Awful Bottom-line: Malayan Banking (MAY.MK) [Maybank] reported 2Q20 NPAT of MYR 923 mn, declining MYR 127 mn (55%) linked quarter. If the stated...

Thomas J. Monaco

OCBC – Malaysia Remains A Headache

* Don’t Be Fooled: Oversea Chinese Banking Corp. (OCBC.SP) [OCBC] reported 2Q20 results of SGD 730 mn, increasing SGD 52 mn (7.7%) linked quarter....

Thomas J. Monaco

Malaysia: PM Muhyiddin Steadily Gains a Reputation for Quiet Competence

Having precluded the need for a Confidence vote by winning a parliamentary contest on ousting the Speaker (111-109), the Muhyiddin cabinet has...

Prasenjit K. Basu