Malaysia Plans to Borrow Money from Japan Amid 1 Trillion National Debt - What You Must Know

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1. Malaysia prime minister Tun Dr Mahathir has expressed his intention to borrow from Japan to lighten the financial stress on the Finance Minister. The move is expected to trim down the interest payable on current national debt.

2. It is normal for governments to borrow money to develop their countries. In most cases, the borrowing are deemed beneficial as long as the economic stimulation from the borrowed money overweights the cost of borrowing.

3. Compare Singapore and Malaysia, GDP of Singapore is at USD 297Bil while Malaysia stood at USD 296.4Bil, which was similar (latest data available, year 2016). Singapore debt estimated at USD 532Bil, while Malaysian new government claimed the national debt to be USD 272Bil. The charts below shows a clear comparison between the debts of Malaysia vs Singapore, and their GDP. If you have no economic background, GDP simple means how much value of goods and services the country people has produced for the year.

Figure 1

Figure 2

4. Refer to Figure 1, the GDP of Singapore was slightly more than Malaysia, despite having much smaller land, no resources, and smaller population. Something is very wrong but it's not today's focus. Now the new government is telling the people that Malaysia debt is in a very bad shape, citing that the debt is already at 80% of current GDP according to their estimates.

5. Comparing the current debt estimation against the 2016 reported GDP, Malaysia debt to loan ratio was 92%. What does this percentage mean? Do you think that once a nation's debt reach 100% of  GDP, it will go bankrupt? If you think it will, please look carefully again at Singapore's national debt to GDP ratio. It's at whopping 179%. Did Singapore go bankrupt? No, they are doing very well, even better than Malaysia in terms of average income per person.

6. How does this happen? I give you a simple example:
You have a food stall that sell RM 10,000 food a month.
From there, you make around RM 3,000 net profit a month.
You borrow RM 10,000, for 30 years from ABC bank to buy ingredients and machine.
Bank requires you to pay RM 60 a month for next 30 years until the debt and interest is cleared.
Does owing RM 10,000 to bank make you bankrupt? 

NO.

7. While it's good to keep the national debt low, a higher national debt or 100% national debt to GDP ratio does not guarantee national bankruptcy. IT IS NOT A DIRECT EQUATION.

8. Tun Dr Mahathir borrow from a low interest nation is a strategic move. From current debt portfolio, there are some debts with high interest up to 6.66% per annum. Japan policy rate is now at -0.1%. If Malaysia is able to secure a USD 5Bil(apprx RM 20Bil) loan from Japan at 1% interest rate to settle the high interest debt, that will save 5.66% interest for the amount, which could be apprx USD 283mil (RM 1.13B), ideally.

9. However, if Malaysia were to borrow from Japan, Japan will have the says on the allocation of the fund. We might not be able to offset the high interest loan with all moneys borrowed. In this case, with little interest written off from the debt, we are actually pilling up more debt. If we can only use USD 1Bil to settle the existing debt, that would add USD 4Bil to our existing debt portfolio.

10. Not all political moves should be viewed numerically. With this loan, we might see increased  trades and technical support from Japan. This is very beneficial to Malaysia in the long run. The money borrowed can be spent on infrastructures and fiscal loosening. The key objective here is not so much to reduce the debt of the country to 0, but more on increasing Malaysian's productivity and our spending power.

11. The main reason to postpone the RM55B HSR project shouldn't be the national debt level. This is misleading. With inflated project costing, be it at high or low national debt, the project need to be re-assessed.  The affordability of the expensive ticket is one thing, the time taken for the project to break even is another argument. Consider from the government financial perspective, the ticket fee vs construction cost break even period calculation model has underestimated the domino effect of economic impact it might bring.

12. Government gets tax income one way or another when there is a good or services created, whenever there is a value creation process. Don't underestimate the power of RM1 note. When the note is transacted for 4000 times in a year, it creates RM 4,000 GDP. Along the 350km railway, imagine property developers build and sell RM 300B worth of property in 10 years to come from the spillover effect of HSR, government would have generate hell lot of taxes from there (eg, company and staff income tax, import tax for materials, SST,  etc ). What about the tourist spending? Singaporean weekend visit to spend and have fun? New jobs created, new business opportunity, new technical and technological exchanges. Think independently, HSR is not a bad project at all. Re-tendering the project to involve more local, at lower cost, it will be a game changer for Malaysia.

13. Malaysian debt is not as scary as the political propagandist want you to believe. As long as we can increase our productivity, work harder, create more wealth and value, Malaysia will have no problem paying the debt and WILL NOT GO BANKRUPT. Even with RM 1 Trillion debt, with 32 million malaysian, each will bear only RM 31,250 of debt . Today if you buy a Toyota Vios with RM 25k D/payment, you already owed more than RM 31,250. So you get the concept?

14. The government should prepare a platform for domestic business to grow. Elevating the competitiveness and productivity of local businesses against international player is a must. Empowering the people with knowledge and technical competency is a must. Educating the people with the right value, culture and mindset is a must. Finding excuses to buy time for delaying manifesto, is a shame. Do what you must, and lead the rakyat by example, and create a high competitive nation. Happy New Malaysia, Happy New Merdeka.

15. If you love Malaysia, if you want Malaysia to be great again, if you want to have New Malaysia where people is the boss to their government, spread the awareness to more people. Knowledge and awareness is the key. If people are still easily manipulated by political lies, Malaysia will never change. Changes start from Rakyat. Share this out!

You Need to Know This Before You Invest In Property

1. Property investment is a long term commitment.

Common Mistake

2. Not all property purchase are good investment. A good property investment make cash for you. You need to minus costs such as :

i) Bank Interests
ii) Maintenance Fees
iii) Quit Rent
iv) Assessment
v) Insurance
vi) Periodical repair
vii) Legal Fees
viii) Agent Fees
ix) Stamp Duties
x) RPGT
xii) Title Transfer Fees

3. Alright. Don't be scared by the long list. Gone are the days when you can flip and make a fortune in property market. People no longer buy a property based on speculated news. Some people call this property market slowdown, I call it re-positioning and consolidation/normalization.

4. If you own a business, it has to give you income from time to time. When the income increase over the year, your business increase in value. This is why shares with higher dividend fetch better price - the same reason why you look for FD with higher interest.

Rule of Thumb

5. If your rental return is lower than the interest you pay to the bank and your ongoing maintenance, it is not a good investment. You could be betting for nearby amenities upgrade, but unless your get insider news, chances is that your seller has factored that in. If you rely on insider news, it's nothing official until it's announced. Your risk is high especially on high leverage investment like buying a property.

6. Running Airbnb is a good idea, but pay close attention to the location you choose and the matrix of the surrounding development. Your neighborhood might not welcome such activities and it might depreciate your property value. Property are bricks and mortars but each community is different. You should view them differently.

7. Do not jump in buying a property just because it is cheap. If the property generally remain cheap even after many years of vacant possession, check out the developer background and the property management issues. If the developer has bad reputation for delivering poor workmanship, your property might not appreciate for years to come.

8. Do not rush in to buy a secondhand property below market value. Hang around and investigate the immediate neighbor and look out for possible nuisance. Do check with property management, make sure there is no serious outstanding issues with the property. Buy a good property at market price is better than buying a problematic property below market price.

9. Buy a property like a property tenant. How much are you willing to pay to rent there? How convenient is this property if you are working nearby? How much can you afford to rent here, if you are working nearby? Ask these killer questions. One day, you need to answer that to your tenant. If your property is not rented out, you are making a bad investment. Now imagine your cash flow is stuck.

10. The above law is exceptional when you have holding power and you are offered a rare property in an island where land is limited, and the economy is improving that you see airport undergoing expansion, roads becoming wider, and more businesses is setting up. Buy and wait patiently for at least 6 to 10 years, then you will be heavily rewarded. Best is when you can find a property like that with a high rental value.

Easy Way Out

11. Do you know nowadays you no longer need to find tenant, collecting rentals, monitor your housekeeping contractors? It's very tiring. Are you aware that you no longer need to worry that your property management ruin your investment? You can invest in a property managed by 5-star hotel chain. Imagine you can sit back and relax, and watch the cash flowing into your bank statement rather than paying mortgage from your pocket and make banks richer. Be an intelligent investor, not a bank feeder.

12. Use that rentals collected to invest in another property like this, and keep the dollar ball rolling.

13. Now you get the idea? If you don't, read from point No.1 again.

Investing 101: Fundamental Vs Technical Analysis

Fundamental Vs Technical Analysis

There are two major analysis method to assess stocks and predict the future price movement. Fundamental analysis look into the economic factor of a stock, whereas technical analysis studies the history market activity statistics of a stock through charting and uses the data obtained to predict the future movement of the underlying stock price.


Two Different Assumptions

In technical analysis, it is assumed that the market is efficient, that the price of a stock at any point of time has already factored in everything that could affect the price of a stock, including the fundamental factors and the market psychological factors. However, in fundamental analysis, it is believed that the price may be differ from the intrinsic value of an underlying stock due to human emotions and error, therefore the market is not efficient. When a stock price is below the intrinsic value, it is called an undervalued stock, and the reverse is called an overvalued stock.

Technical analysis assumed that the price move in trends. Once a certain price movement pattern has been formed, the chart is expected to follow the trend rather than against it. In fundamental analysis, the price is believed to be affected by the change in the economic, financial and market factors and therefore the future price movement cannot be predicted by studying the historical price.

Technical analyst assumed that history tends to repeats itself and price patterns will repeat the same way to the same market stimuli. The market is thought to be a simple if A, then B equation. On the other hand, the fundamental analyst do believe in another philosophy that past performances does not guarantee future results. A stock that peaked at $104 per share two years ago does not mean that it will go back to $104 few years later.

The Research Materials

The technical analysis looks at the price and volume movements of a stock, and analyze the changes of two data. Data can be presented in the form of charts and graphs. indicators derived from the price and volumes of the stock is also analyzed to predict the price movement. For fundamental analysis, investors has to dip into the financial statements of a company to understand the quality of the business. On top of that, investors also need to understand the macro economics of the business and the nature of the business. Related market info such as the market price of the goods sold are also taken into account. For example, if it is a oil and gas company, the price movement of the crude oil is expected to affect the revenue of the company, and therefore the price movement of a company

The Time Frame

Technical analysis can analyse and "predict" the price movement for as short as minutes, up to as long as years (though it is rarely relevant). On the other hand fundamental analysis often applies to longer term investments. This is also coherent to the fact that the fundamental analysis takes time to perform, and the the fundamentals represent the actual nature of a business. Imagine a company's revenue will not increase right away after, for example, the setting up of a new plant. Even the commodity price surge due to a supply shortage report, it does not guarantee that the earning for the next quarter will increase to the same degree for the commodity company. Generally, technical analysis is used for short term trading whereas the fundamental analysis is applied to long term investment.

How to get the best of both world?

This depends on your investing goals and your financial + psychological strength. Traders buy a stock and hope to sell it to another buyer at a higher price soon. Investor picks the undervalued stocks and hold it until the real intrinsic value has been realized.

If your investment objective is to make fast money and you are willing to take a higher risk, you can use the technical analysis for fast trade, and be ready to perform cut lost when the price is not moving the direction you predicted. Trading is a game of probability. You must be ready to accept losing trades.

If you aim to achieve a long term, sustainable wealth growth, you are advised to study and understand the fundamental of the business. This is because by investing in a company, you must aware that you are in a partnership with the rest of the shareholders of the company. You own the business and therefore you must know what you own. Find a good company by using your knowledge, and buy it at the right price. You can incorporate the technical data into your buying decision, such as whenever the price drop too much and reached oversold position.

More tips to choose the right counter to invest and the right time to enter the market will be shared in a more advanced articles. Please subscribe to us and follow us on Facebook to stay tuned!