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

<ul>
<li>Expansionary fiscal and monetary policy have bolstered growth at the expense of a 13%YoY depreciation of the ringgit and capital flight reflected in shrinking FX reserves amid surging trade surpluses. </li>
<li>Elevated crude-oil and palm oil prices boosted the trade surplus, but the current account surplus shrank to less than 1% of GDP in 1H2022, as foreign-worker remittances soared. </li>
<li>Despite 24 years of current account surpluses, Malaysia's reserves provide just 4.6 months' import cover. Net FPI outflows persisted even when global equities were soaring. Kleptocracy is inducing capital flight.  </li>
</ul>


Expansionary fiscal and monetary policy have bolstered growth at the expense of a 13%YoY depreciation of the ringgit and capital flight reflected in shrinking FX reserves amid surging trade surpluses. 
Elevated crude-oil and palm oil prices boosted the trade surplus, but the current account surplus shrank to less than 1% of GDP in 1H2022, as foreign-worker remittances soared. 
Despite 24 years of current account surpluses, Malaysia's reserves provide just 4.6 months' import cover. Net FPI outflows persisted even when global equities were soaring. Kleptocracy is inducing capital flight.  


Malaysia: Local and Foreign Investors Are Fleeing Despite the Commodity Boom

Pan-Asia Index Rebalances/ Events/ Delta One, Periscope Analytics

Brian Freitas

Pan-Asia Index Rebalances/ Events/ Delta One

Periscope Analytics

Periscope Analytics focuses on event-driven trades across Asia Pacific and provides comprehensive, timely and systematic coverage of index changes to major Asia Pacific indices in a structured manner.

The analysis includes forecasted inclusions and exclusions to all major Asian indices that have significant amount of tracking assets, including estimates of passive buy/sell flow on the stocks. The service also provides commentary and impact of market consultations, ground rule changes, and other events (IPOs, spin-offs, M&A) that could lead to index changes and passive flow.

Periscope Analytics works with multi-strategy hedge funds, proprietary trading firms, stat arb trading groups and long-only investors that invest and trade in the Asia Pacific region with the data being used to trade index rebalances, avoid pre-positioning and passive flow, and to time entry into and exit from stocks.

Event-Driven Trades Across Asia Pacific

Index Rebalance

<ul>
<li>
<a href="https://www.smartkarma.com/entities/ammb-holdings-bhd" target="_blank" data-smartkarma-citation="entities:137:1" rel="noopener">AMMB Holdings (AMM MK)</a> and <a href="https://www.smartkarma.com/entities/ql-resources-bhd" target="_blank" data-smartkarma-citation="entities:11221:1" rel="noopener">Ql Resources (QLG MK)</a> could replace <a href="https://www.smartkarma.com/entities/hartalega-holdings-bhd" target="_blank" data-smartkarma-citation="entities:10230:1" rel="noopener">Hartalega Holdings (HART MK)</a> and <a href="https://www.smartkarma.com/entities/top-glove-corp-bhd" target="_blank" data-smartkarma-citation="entities:20759:1" rel="noopener">Top Glove Corp (TOPG MK)</a> at the December rebalance.</li>
<li>One way turnover is estimated at 2.87% and the impact of passive flows is larger on the potential adds as compared to the potential deletes.</li>
<li>
<a href="https://www.smartkarma.com/entities/westports-holdings-bhd" target="_blank" data-smartkarma-citation="entities:3954:1" rel="noopener">Westports Holdings (WPRTS MK)</a> is a close add and there could be changes over the next few months as we approach the end of the review period.</li>
</ul>



AMMB Holdings (AMM MK) and Ql Resources (QLG MK) could replace Hartalega Holdings (HART MK) and Top Glove Corp (TOPG MK) at the December rebalance.
One way turnover is estimated at 2.87% and the impact of passive flows is larger on the potential adds as compared to the potential deletes.

Westports Holdings (WPRTS MK) is a close add and there could be changes over the next few months as we approach the end of the review period.


KLCI Index Rebalance Preview: The Gloves Could Come Off

<ul>
<li>
<a href="https://www.smartkarma.com/entities/westports-holdings-bhd" target="_blank" data-smartkarma-citation="entities:3954:1" rel="noopener">Westports Holdings (WPRTS MK)</a> will replace <a href="https://www.smartkarma.com/entities/hap-seng-consolidated-bhd" target="_blank" data-smartkarma-citation="entities:13036:1" rel="noopener">Hap Seng Consolidated (HAP MK)</a> in the <a href="https://www.smartkarma.com/entities/kuala-lumpur-composite-index" target="_blank" data-smartkarma-citation="entities:22913:1" rel="noopener">Kuala Lumpur Composite Index (KLCI) (FBMKLCI INDEX)</a> after the close of trading on 17 December.</li>
<li>
<a href="https://www.smartkarma.com/entities/hap-seng-consolidated-bhd" target="_blank" data-smartkarma-citation="entities:13036:1" rel="noopener">Hap Seng Consolidated (HAP MK)</a> is a delete on liquidity and there will be over 5 days of ADV to sell. The impact on <a href="https://www.smartkarma.com/entities/westports-holdings-bhd" target="_blank" data-smartkarma-citation="entities:3954:1" rel="noopener">Westports Holdings (WPRTS MK)</a> is smaller.</li>
<li>
<a href="https://www.smartkarma.com/entities/hap-seng-consolidated-bhd" target="_blank" data-smartkarma-citation="entities:13036:1" rel="noopener">Hap Seng Consolidated (HAP MK)</a> could drop in the short term but underperformance vs its peers could provide a buying opportunity, especially close to implementation date.</li>
</ul>



Westports Holdings (WPRTS MK) will replace Hap Seng Consolidated (HAP MK) in the Kuala Lumpur Composite Index (KLCI) (FBMKLCI INDEX) after the close of trading on 17 December.

Hap Seng Consolidated (HAP MK) is a delete on liquidity and there will be over 5 days of ADV to sell. The impact on Westports Holdings (WPRTS MK) is smaller.

Hap Seng Consolidated (HAP MK) could drop in the short term but underperformance vs its peers could provide a buying opportunity, especially close to implementation date.


KLCI Index Rebalance: Westports Replaces Hap Seng

Malaysia's investment/GDP ratio stagnated at 25.5% in 2012-17, then fell to 21% in 2019 and 19.7% in 2020, with public investment falling below 5% of GDP. Any reversal of this in 2022 remains unlikely with the one-off "prosperity tax" leading corporates and banks to bring forward expenses, hike provisions, and delay income-recognition in order to lower their taxable income. With corporate and bank earnings likely to be anaemic in 2022, we recommend staying Underweight Malaysia. 
A second consecutive expansionary Budget (with deficits above 6% of GDP) barely hid the reality of a steadily declining public investment/GDP ratio since 2012; the rebound in private investment is led by GLCs, while the steady erosion of non-bumiputra companies in Malaysia is reflected in steadily-rising net capital outflows and in declining private non-GLC investment in Malaysia. Despite consistent current account surpluses since 1998, Malaysia's foreign reserves (US$115.4 billion in September 2021) are much lower than they were in 2012 (over US$160 billion). 
No discernible strategy has emerged from the current government to reverse these trends; the one-off tax is instead a further negative for corporates and banks, and UMNO-PAS are doubling down on anti-minority regulations as a means of securing the bumiputera vote at the next election. We are structurally bearish on Malaysia until the next election is held.

Malaysia's investment/GDP ratio stagnated at 25.5% in 2012-17, then fell to 21% in 2019 and 19.7% in 2020, with public investment falling below 5% of GDP. Any reversal of this in 2022 remains unlikely with the one-off "prosperity tax" leading corporates and banks to bring forward expenses, hike provisions, and delay income-recognition in order to lower their taxable income. With corporate and bank earnings likely to be anaemic in 2022, we recommend staying Underweight Malaysia. 
A second consecutive expansionary Budget (with deficits above 6% of GDP) barely hid the reality of a steadily declining public investment/GDP ratio since 2012; the rebound in private investment is led by GLCs, while the steady erosion of non-bumiputra companies in Malaysia is reflected in steadily-rising net capital outflows and in declining private non-GLC investment in Malaysia. Despite consistent current account surpluses since 1998, Malaysia's foreign reserves (US$115.4 billion in September 2021) are much lower than they were in 2012 (over US$160 billion). 
No discernible strategy has emerged from the current government to reverse these trends; the one-off tax is instead a further negative for corporates and banks, and UMNO-PAS are doubling down on anti-minority regulations as a means of securing the bumiputera vote at the next election. We are structurally bearish on Malaysia until the next election is held. 

Malaysia: In a Middle-Income Trap of Low Growth Despite Sustained Fiscal Deficits

Ismail Sabri Yaakob, the third-ranking member of Malaysia's second-largest party in parliament (UMNO, the long-ruling party that was defeated at the 2018 general election) became Malaysia's 9th Prime Minister on Saturday (21 August 2021). Having never been the minister of Education, Trade &amp; Industry or Finance (the 3 traditional stepping-stones to the top job), the new PM is a relative lightweight in Malaysian politics: all previous prime ministers from UMNO have also simultaneously been Presidents of the party (while UMNO Deputy Presidents were Deputy PM).
Continuity in policy is assured, with the line-up of parties exactly the same as the previous government -- except that the Prime Minister is different, from UMNO rather than Bersatu (PPBM). This year's fiscal deficit (projected at 6% of GDP) is still expected to keep real GDP growth at just 2.5% YoY in 2H 2021; given high public debt, the deficit will need to be reined in next year, limiting the government's options. PM Ismail Sabri will also face persistent pressure from the UMNO leadership to drop (or ease up on) corruption cases against UMNO leaders like ex-PM Najib and party president Zahid Hamidi, while Muhyiddin's Bersatu  counters with pressure to keep prosecuting those cases. The Sarawak state election (originally due in June 2021, now likely only in March 2022) could be a crucial destabilizing factor, as the 18 Sarawak MPs (from the GPS group) are crucial to this government's parliamentary majority. 
Opposition leader Anwar Ibrahim has chosen not to make sordid deals with tainted politicians, and instead bide his time until the next (15th) General Election, officially due in May 2023, but likely to be held sooner (mid-2022) if the Covid pandemic eases. On present indications, that will become a straight fight between a purely Malay-Islamist grouping (UMNO, Bersatu and the openly Islamist PAS) and a multi-racial coalition -- comprising two genuinely multi-racial parties (PKR and DAP) with a more ethnically-harmonious vision for Malaysia, supported by two smaller Malay parties (Amanah and Pejuang).  For the past 3 decades, UMNO has never formally aligned with PAS (which nonetheless gained ground in Kelantan and Terengganu, the two states with the largest proportion of Malays). The emergence of an UMNO-Bersatu-PAS alliance at the centre of the current government is shifting Malay politics increasingly in a pro-Shariah direction (including the imposition of hudud-based punishments), which will likely polarize the electorate by 2023. Competence (especially in dealing with Covid) will be a key determinant of the political outcome (and on that, both Muhyiddin and Ismail Sabri will be on the defensive), but the broader debate about Malaysia's future direction will be the key underlying question. That the Anwar-led alliance won the 2013 election (in terms of popular vote) and in 2018 (despite Anwar being in prison) suggests that the electorate will hand PH a clearer victory at the 15th General Election. But until that election is held, slow growth and a more polarized society will make the Malaysian market unattractive.

Ismail Sabri Yaakob, the third-ranking member of Malaysia's second-largest party in parliament (UMNO, the long-ruling party that was defeated at the 2018 general election) became Malaysia's 9th Prime Minister on Saturday (21 August 2021). Having never been the minister of Education, Trade &amp; Industry or Finance (the 3 traditional stepping-stones to the top job), the new PM is a relative lightweight in Malaysian politics: all previous prime ministers from UMNO have also simultaneously been Presidents of the party (while UMNO Deputy Presidents were Deputy PM).
Continuity in policy is assured, with the line-up of parties exactly the same as the previous government -- except that the Prime Minister is different, from UMNO rather than Bersatu (PPBM). This year's fiscal deficit (projected at 6% of GDP) is still expected to keep real GDP growth at just 2.5% YoY in 2H 2021; given high public debt, the deficit will need to be reined in next year, limiting the government's options. PM Ismail Sabri will also face persistent pressure from the UMNO leadership to drop (or ease up on) corruption cases against UMNO leaders like ex-PM Najib and party president Zahid Hamidi, while Muhyiddin's Bersatu  counters with pressure to keep prosecuting those cases. The Sarawak state election (originally due in June 2021, now likely only in March 2022) could be a crucial destabilizing factor, as the 18 Sarawak MPs (from the GPS group) are crucial to this government's parliamentary majority. 
Opposition leader Anwar Ibrahim has chosen not to make sordid deals with tainted politicians, and instead bide his time until the next (15th) General Election, officially due in May 2023, but likely to be held sooner (mid-2022) if the Covid pandemic eases. On present indications, that will become a straight fight between a purely Malay-Islamist grouping (UMNO, Bersatu and the openly Islamist PAS) and a multi-racial coalition -- comprising two genuinely multi-racial parties (PKR and DAP) with a more ethnically-harmonious vision for Malaysia, supported by two smaller Malay parties (Amanah and Pejuang).  For the past 3 decades, UMNO has never formally aligned with PAS (which nonetheless gained ground in Kelantan and Terengganu, the two states with the largest proportion of Malays). The emergence of an UMNO-Bersatu-PAS alliance at the centre of the current government is shifting Malay politics increasingly in a pro-Shariah direction (including the imposition of hudud-based punishments), which will likely polarize the electorate by 2023. Competence (especially in dealing with Covid) will be a key determinant of the political outcome (and on that, both Muhyiddin and Ismail Sabri will be on the defensive), but the broader debate about Malaysia's future direction will be the key underlying question. That the Anwar-led alliance won the 2013 election (in terms of popular vote) and in 2018 (despite Anwar being in prison) suggests that the electorate will hand PH a clearer victory at the 15th General Election. But until that election is held, slow growth and a more polarized society will make the Malaysian market unattractive. 

Malaysia: A Lightweight Takes Over, Setting up a Future Election over the Nation's Soul

Malaysia

The FTSE Bursa Malaysia KLCI Index comprises of the largest 30 companies by full market capitalization on Bursa Malaysia's Main Board. When launched, on July 6, 2009 it replaced the Bursa Malaysia KLCI Index starting at the closing value of the KLCI Index on July 3 2009, also inheriting the full history of the KLCI Index.

Kuala Lumpur Composite Index (KLCI) (FBMKLCI INDEX)

Kuala Lumpur Composite Index (KLCI) (FBMKLCI INDEX)

Malaysia: Local and Foreign Investors Are Fleeing Despite the Commodity Boom

Expansionary fiscal & monetary policy have bolstered growth but induced capital flight. Despite 24yrs of CA surpluses, FX reserves provide just 4.6...

Prasenjit K. Basu

KLCI Index Rebalance Preview: The Gloves Could Come Off

AMMB and QL Resources could replace Hartalega and Top Glove in the KLCI at the December rebalance. Westports is a close add, while Top Glove needs...

Brian Freitas

KLCI Index Rebalance: Westports Replaces Hap Seng

Westports Holdings will replace Hap Seng Consolidated in the KLCI at the December rebalance. HAP MK is a liquidity delete and passive trackers will...

Brian Freitas

Malaysia: In a Middle-Income Trap of Low Growth Despite Sustained Fiscal Deficits

Fiscal deficits of 3-6% of GDP annually have been needed for 20 years to sustain 4.5% avg RGDP growth. The investment/GDP ratio is falling, and...

Prasenjit K. Basu

Malaysia: A Lightweight Takes Over, Setting up a Future Election over the Nation's Soul

PM Ismail Sabri is a lightweight who will struggle with Covid. The economy will decelerate, and society will be more polarized under a coalition...

Prasenjit K. Basu