The valuable lesson taught by GREECE... (For Malaysia...)

Ever since the beginning of the whole episode of the GREECE problem which caught the attention of the world, do you really know what's the root of the problem? Is it the people? Or, the lack of natural resources? Or, politicians?

Let's have a read here...

Yup. Many people are saying that the people there are lazy (working less hours) if compare to other European, yet they are enjoying the same quality of living or benefits like counterparts.

Then, many analysts said that the lack of natural resources resulting the GDP growth of the country being dampened. Currently, Greece's GDP is mostly based on their shipping business, tourism and production of fine wine and olive oil. But, this is not enough to generate sufficient tax revenue to cover the social benefits provided by government.

The root of the problem is this...

In order to continue enjoying the great lifestyle, Greece are "financing" it with borrowings from IMF and ECB. Why do so if Greece knows that they can't afford it? Who make the decision to do so?

Obviously, politicians or the empowered government was the one to blamed. Previous politician candidates are lauding the feel good election campaign by dishing out all the goodies and perks to win votes. Yes, they succeed eventually with the belief from voters. Yet, they created the bomb which exploded few years back, which until now still can't defuse it.

"It's always easy to give hopes to people, but it's hard to convince people to accept the reality."

Lesson Learn: We need politicians whom can govern our country properly, not those who can only simply give hopes and then went into troubles. Voters should not vote based on how much goodies they can get during election campaign. We should think rationally what's good for the country in the long run, not only during or after one election. In the end, who will suffers the most as experienced by Greece currently? It's the people...

Do you want Malaysia to be another Greece?

*** Disclaimer: NO political comments or feedback here. It's just a pure blog post for everyone to ponder. ***

Belfast's FinTech Industry

I recently was a panel member on a BBC radio show called Inside Business. The topic for discussion was Belfast's booming FinTech industry. You can listen to the show's podcast here.

Farewell Widener - Here Comes the Summer!

I must apologise to all readers of my Blog for my relative blogging inactivity over the past year. The principal reason for this inactivity has been my role as acting Head of Queen's Management School. I've just signed up to do another year so my blogging activity won't improve any time soon!

The best part of the job has been working with my colleagues to develop the School's unique research, education and engagement agenda. The chief downside to the job is that I have less direct contact with students in the classroom. In addition, my research and blogging have taken a huge hit. I've been attempting to remedy the former over the past couple of weeks by working at Harvard University. I've met up with old friends, a PhD student, and a co-author, but most of my time has been spent in the fantastic Widener Library, which is celebrating its 100 year anniversary.  Today is my last day in the library before my summer holiday.

There is a very close connection between the Widener Library and Belfast. Harry Elkins Widener was a US businessmen, bibliophile and Harvard graduate who died when the built-in-Belfast Titanic sank on its maiden voyage. Shortly after Widener's death, his mother donated the library in his memory.

    

What's Boutique Fund Manager ?

Good news to all young and talented fund managers in the country. Securities Commission of Malaysia (SC) further liberalize the capital market by introducing a new category of fund management license recently called "boutique fund management" license.

What's so exciting about it?

Citing encouraging entrepreneurship and competition within the industry, this new license could propel the fund management business to another height. Below table shows the major differences between full-fledged vs boutique fund management firm:

Difference between Full fledged and Boutique fund management frim

What's sophisticated investors?

It's referring to high net worth individuals and high net worth entities. Gross income must have at least RM 300,000 or net tangible assets of RM 3 million excluding own stay property.

Candy Law Lam's Photoshoot

Candy Law Lam,  a mother of 3, released her photoshoot book ... and first run of 3,000 copies sold out immediately. A model and sometime actress 25 years ago... she has made her comeback in movies in two memorable movies recently. She had her divorce finalised two years ago. Oh, by the way she is 50 years old ... stunning!!!

Countries Stock market's Capitalisation As A % Of GDP

Someone twitted to us during our BFM show about the veracity of the figures of a country's stock market as a percentage of GDP. Why is the figure important ... if you can strip out foreign listings and non related listings (inclusive of SPACs) and maybe some REITs that are foreign or regional in nature, you get a good grasp of how much of your economy is listed. 


The higher the figure, the higher the importance of the stockmarket in feeling and shrinking economic activity. IN a super bull, Malaysian domestic economy would flourish as most people will see a lot of funds swishing around, the same when its a bear market when restaurants business dwindles sharply. The higher the figure, the more attention will the central banks and authorities pay to major fluctuations in share markets.

China, though has a lowly figure of GDP that is listed, is important this time owing to the exuberant amount in leverage/margin.






http://data.worldbank.org/indicator/CM.MKT.LCAP.GD.ZS/countries


The latest figures were for 2012. There are still discrepancies because many markets have "outside interests" being listed as well on their markets. It could be REITs, foreign listings, etc...

Bahrain  52%
Belgium 60.2%
Bolivia 27%
Brazil 51%
Canada 110%
Chile 118%
China 43.7%
Colombia 71%
Denmark 69%
France 68%
Germany 42%
Greece 18%
HK 421%
India 69%
Indonesia 43%
Ireland 49%
South Korea 96%
Malaysia 156%
Mexico 44%
Holland 79%
Philippines 105%

Russia 43%
Singapore 143%
South Africa 154%
Spain 73%
Thailand 104%
UK 115%
USA 115%
Vietnam 21%

Kenanga ASEAN Tactical Total Return Fund

Being a part of ASEAN, we living in Malaysia has seen the growth of the region for the past so many years. Would you like to participate in it? If yes, you should continue read on...

How good is ASEAN ???

ASEAN is a dynamic, fast growing group of economies. The ASEAN nations are committed to regional economic integration by 2015, in the form of the ASEAN Economic Community - a trade bloc that envisions transforming ASEAN into an economic entity with free movement of goods, services, investment and skilled labour, with a freer flow of capital.

Investing in the fund offers investor geographical diversification whilst leveraging on the growth potential of ASEAN as an economic community.

The fund is suitable for investors who are seeking long-term capital growth on the amount invested, who are willing to accept equity risk to obtain potentially higher returns and who want to have investments in the ASEAN region.

What can this fund offering you?

Click here to download the fund prospectus.

Loyalty, Tolerance, Empathy, Leadership

There was a king. He had 10 wild dogs...
He used them to torture and eat all the ministers who made mistakes.

Once, one of the ministers gave an opinion which was wrong, and which the king didn’t like at all… 
So he ordered for the minister to be thrown to the dogs.

So the minister said, 
"I served you 10 years and you do this..?

Please give me 10 days before you throw me in with those dogs!"
So the king agreed… 

In those 10 days the minister went to the guard that was guarding the dogs and told him he wants to serve the dogs for the next 10 days… 

The guard was baffled… 
But he agreed… 
So the minister started feeding the dogs, cleaning them, washing them, providing all sorts of comfort to them.

When the 10 days were up… 

The king ordered that the minister be thrown in to the dogs as his punishment. 

But when he was thrown in, 

Everyone was amazed at what they saw..
They saw the dogs licking the feet of the minister!

So the king, baffled at what he saw, said:” what happened to my dogs. !!!” 

The minister then said;” 
I served the dogs for 10 days and they didn’t forget my service…
Yet I served you for 10 years and you forgot all on the first mistake!”… 

Anniversary of Banking in Crisis

This very day last year, my book Banking in Crisis was published by Cambridge University Press. Since its publication, I have given talks about it at the Bank of England, Schroders, the Library of Mistakes in Edinburgh, University College Dublin, and Lund University. I also enjoyed launching the book back in September at Queen's Management School.

It was great seeing my book go into the top 10,000 books in Amazon and I enjoyed getting my first royalty cheque - nowhere near a 'living wage' could be obtained from authoring academic books in case you are wondering! The year ahead will bring academic reviews in scholarly journals - I'm interested to see what my academic peers will have to say about my book. It has already been reviewed favourably on a few book websites (Goodreads and the Page 99 test).

Unfortunately, the aftermath of the 2008 crisis is still with us - witness Greece, near-zero interest rates, QE, low economic growth etc.. Unstable banking has a huge economic cost. Because of this, we need to make sure that banks don't bring down the economy again. How can this be achieved? At the minute, we have financial repression of banks, but as this eases off over the next decade, what will stop bankers taking excessive risk? The lesson of UK banking history is that stable banking can only exist when bankers have 'skin in the game'.

  

Northern Ireland's Finance Sector

I've just recorded a BBC Inside Business broadcast on Northern Ireland's fintech sector. Just before the interview, I came across this intersting infographic by TheCityUK on the importance of N. Ireland's financial sector. 

China's Baby Steps Into Capitalism

There is market support practiced by most countries financial authorities, usually with things such as circuit breakers, etc... but what the Chinese authorities have been doing is tantamount to meddling, acts of desperation, runs afoul of free market principles or proper capitalism. 

Here are the things China has done for the past 10 days to stop the sell down:

1) drop interest rat


es by 75 basis points
2) ban IPOs
3) ask state own firms not to sell shares
4) ask securities firms to buy shares (this one is so puzzling)
5) allow companies who wish to suspend their own shares, for basically any reason ... now its close to 50% of all listed companies in China having requested and being suspended from trading
6) restricted short bets on index futures

as if thats not enough, today they announce that anyone holding at least 5% shares in any listed company CANNOT sell their shares for 6 months.

BUT ... wait for it ... this one takes the cake ..."Under new rules announced last week by the country’s securities regulator, real estate has become an acceptable form of collateral for Chinese margin traders, who borrow money from securities firms to amplify their wagers on equities. That means if share prices fall enough, individual investors who pledge their homes could be at risk of losing them to a broker." To allow punters to literally bet the house on it ... soon securities firms will be the biggest house owners!!!

The ChinaSecurities Regulatory Commission has done more than what is deem proper in order to prop up the market. But markets are in panic mode and is fuelled mainly by passions and not rational thinking. Two things guide markets trend, FEAR & GREED. There is now too much panic and fear, and every additional step taken by CSRC are being viewed of acts of desperation and add fuel to fear.

The cascading effects of China's correction lies not with just punters betting on the markets but rather companies themselves using their shares as collateral for margin lines to play the market themselves. Much of the funds has gone to manipulate, support or push their own share prices higher, and/or bet on other companies. The cascading effect is due to margin facilities being cut, stop or collateral being sold down.

However when you can willy nilly suspend your counter to evade a sell down, the selling can only build up, not abate.

China isn’t the only market with a history of state intervention. During the Asian financial crisis in 1998, Hong Kong’s government bought shares worth $15 billion to prop up the market. In the U.S., the Securities and Exchange Commission temporarily banned short selling on some shares during the global financial crisis in 2008.

Xi Jinpeng has a bigger vested interest to prop up the markets. Thanks to his anti corruption drive, and a deliberate move to divert hot money from property, he has fast tracked the popular HK Connect which allows China investors to buy HK shares and vice versa. In a way, its also a good way to channel hot or laundered money out of the country. This was seen as an OK signal from the government to the public that its OK to buy shares. The anticipation that the HK Connect train would also apply to Shenzhen shares soon cause massive speculation especially in Shenzhen's already frothy and more speculative market.

The Grexit situation was a good reason for some big players to start taking chips off the table, what was unexepected was the domino effect and the many banks and financial firms holding collateral shares acted first, to start the dump rolling. With foreign investors exiting as they regard more and more intervention sound like a really iffy stock market place - they sold and sold with little intention to come back anytime soon.

Lessons here - recognise bubble when it is bubbling. Central banks must make sure banks are well capitalised and their exposure have limited consequences. Margin limits must be enforced religiously. Then bubbles will still burst, but we want to minimise the downside effects as much as we can. 

Welcome to the world of capitalism. Live and learn.

How Valuable Are Connections?

Daron Acemoglu, Simon Johnson, Amir Kermani, James Kwak and Todd Mitton have written a paper on whether firms connected to Timothy Geithner benefited from these connections. They do so by looking at how stocks of these firms reacted to the announcement that he was a nominee for Treasury Secretary in November 2008. They find that there were large abnormal returns for connected firms.

Below is the paper's abstract and the full paper is available here.

The announcement of Timothy Geithner as nominee for Treasury Secretary in November 2008 produced a cumulative abnormal return for financial firms with which he had a connection. This return was about 6% after the first full day of trading and about 12% after ten trading days. There were subsequently abnormal negative returns for connected firms when news broke that Geithner's confirmation might be derailed by tax issues. Excess returns for connected firms may reflect the perceived impact of relying on the advice of a small network of financial sector executives during a time of acute crisis and heightened policy discretion. 

The Failure of Herstatt Bank

As an undergraduate, I was taught about the failure of Herstatt Bank in 1974 and Herstatt risk. This bank was only the 35th largest bank in Germany at the time so why would anyone be interested in studying its failure? Herstatt failed because of its involvement in risky foreign exchange business. When it closed its doors on 26 June 1974, counterparty banks (mainly in New York) had not received dollars due to them because of time-zone differences - this is known as settlement risk. The cross-jurisdictional implications of its failure resulted in the Bank for International Settlements setting up the Basel Committee on Banking Supervision and Herstatt's failure was a key reason for the establishment of real-time gross settlements systems, which ensures that payments between two banks are executed in real time.

The Bank of England's Ben Norman has an interesting post on Herstatt over at the Bank's new blog (Bank Underground). As well as giving an excellent overview of the Herstatt affair, he asks whether a bank failure today could affect the payments system even with a real-time gross settlement system. He suggests that had it not been for the rescue of banks back in 2008, the UK payments system may well have encountered major problems.

IKEA Malaysia Whatspp Survery? Phishing Scam?

Recently, there is a purported IKEA survey and contest which promises FREE IKEA gift card worth RM5,000 spreading across social media, particularly Whatsapp messaging application.

It's just another phishing scam survey?

Yes. This was confirmed by IKEA Malaysia via their Facebook page, stating that they are not associated with such activities and advising public not to share their personal info via the link.

How was the message like?

1. You will receive a Whatsapp message stating: "Look http://...... /ikea-giftcards" from your friends
2. Once you clicked the link, you will be landing in a page like above.
3. Answer a few very simple questions.
4. Then, you will need to share this survey with 10 friends via Whatsapp and fill up your shipping details in order to get the gift card.

So, don't become the victim and spreading the fake survey. Instead, you should share this message to your friends. Thanks.

Brave New World

Brave new world ... or just platforms masking as the middlemen, bringing buyer and seller of services on the one platform.

New Fund: PB Dividend Builder Equity Fund

Dividend funds have been the favour of investors when uncertainty of markets take place. The current situation of the market is just like that.

What's the strategy of the fund?

This new fund seeks to provide income by investing in a portfolio of stocks which offer or have the potential to offer attractive dividend yields. The fund maintains equity exposures within a range of 75% to 98% against its Net Asset Value (NAV). Meanwhile, the balance of the fund's NAV will be invested in fixed income securities and liquid assets which include money market instruments and deposits.

How about foreign exposure?

To achieve increased diversification, the fund may invest in equities and fixed income securities of selected foreign markets of up to 25% of fund's NAV. In the other hand, the benchmark of the fund are as follows:

• 90% FTSE Bursa Malaysia Top 100 Index (FBM 100); and
• 10% 3-month KLIBOR

Having said so, this fund is meant for medium to long term investment is suitable for those investors with moderate risk appetite and scared of the global uncertainties. Happy investing !!!

Click here to view the prospectus.

Source: Public Mutual

Does Democracy Cause Growth?

A month ago I met an alumnus in Shenzhen who told me that the problem with N. Ireland's economy was, and I quote, "too much democracy"! Is too much democracy bad for growth? A few years ago, Wenwen Zhan I published a paper (click here) which looked at the extension of the electoral franchise in the UK in 1867. We found that investors reacted negatively to the passage of this legislation because of fears about the protection of property rights. In other words, there might well be a non-linear relationship inverted U-shaped relationship between democracy and growth - there can be too much democracy!

However, Daron Acemoglu and co-authors have recently published a paper entitled Democracy Does Cause Growth. In this paper, they argue that democracy causes growth and it does so by encouraging investment, increasing schooling, inducing reforms, reducing social unrest, and improving the provision of public goods. Here is the paper's abstract:

We provide evidence that democracy has a significant and robust positive effect on GDP per capita. Our empirical strategy relies on a dichotomous measure of democracy coded from several sources to reduce measurement error and controls for country fixed effects and the rich dynamics of GDP, which otherwise confound the effect of democracy on economic growth. Our baseline results use a dynamic panel model for GDP, and show that democratizations increase GDP per capita by about 20% in the long run. We find similar results when we estimate the effect of democratizations on GDP year-by-year, controlling for the GDP dynamics linearly or using the estimated propensity to democratize based on past GDP dynamics. We obtain comparable estimates using regional waves of democratizations and reversals to instrument for democracy. Our results suggest that democracy increases future GDP by encouraging investment, increasing schooling, inducing economic reforms, improving public good provision, and reducing social unrest. We find little support for the view that democracy is a constraint on economic growth for less developed economies. 

Greek Voters - Choice between Scylla and Charybdis

Greece is in a mess. Who is blame? The Troika or Greece's politicians?  I don't blame either. For me, the blame rests squarely on the shoulders of the political architects of the euro (monetary union) project. The European Union was established to promote peace and democracy in Europe and bind European states together. Mutual trading ties and the free movement of good and services helped to achieve this. However, the European political (and oftentimes unelected) elite wanted ever closer union between member states and thought that monetary union would be the way to achieve this. The problem with this idea is that it put the cart before the horse - political (and therefore fiscal and banking) union is a precondition for monetary union.

Any deal or extended bailout package agreed over the next few days simply postpones the inevitable (and creditor nations may want to do this to give their banks more time to repair their balance sheets). A YES vote in the referendum means more austerity and a stranglehold on economic growth for a couple of decades. A NO vote and Greek ejection from the euro will result in chaos, which may or may not be long lasting. Ultimately, the big danger now is that Greece joins Argentina in the middle-income club and that its young democracy begins to unravel. The resultant political and economic instability could be contagious and infect other vulnerable parts of the Eurozone. The euro project could therefore undermine the very reason the EU was established in the first place!