Highlight Yeoh warns of economic bubble bursting

by **Cals** Thu 05 Jun 2014, 03:09

Highlight Yeoh warns of economic bubble bursting

Business & Markets 2014

Written by Levina Lim of theedgemalaysia.com

Wednesday, 04 June 2014 08:36

KUALA LUMPUR: Asia’s economic boom could burst in the next two to four years, said YTL Corp Bhd group managing director Tan Sri Dr Francis Yeoh Sock Ping, citing rising inflation following the US quantitative easing (QE) policies.

“I’ve seen different bubbles and the size of our acquisition as I age and I’m seeing this [economic bubble burst] as the biggest ever. It’s six years old, and I don’t know when it will burst — I think within the next two to four years,” he said at a panel discussion on “We Are Family: We Are Global” in conjunction with the Seventh Global Malaysia Series yesterday. The event was organised by the Performance Management and Delivery Unit.

Yeoh was one of the panellists, together with his son, Jacob, who is deputy chief executive officer of YTL Communications Sdn Bhd.

“For those who are thinking that this [economic boom] is going to go on forever, you’d better [exercise caution] because there are horrendous trends on this bubble that people are just ignoring today,” he said.

“If you are an investor today, you have to be quite careful. I think that interest rates will go up if the bubble bursts,” Yeoh said, adding that rates could rise to as much as 22%, as seen in the 1980s when Paul Volcker was chairman of the US Federal Reserve.

He said while most bubbles — from housing to high-tech — had been brought about by the public sector, bigger bubbles were being created by the governments of today through quantitative and qualitative easing, which resulted in ever-rising inflation.

“The inflation has hit many people through rising costs. If we want to have high wages to keep up with the inflation without increasing productivity, we’re going to have a problem,” said Yeoh, likening the situation to “adding fuel to fire”.

“For the average man on the street, [the impact of inflation] is very big. These are the kinds of problems the world is dealing with.”

He said as a result, there is a large Gini coefficient, which measures the degree of inequality in the distribution of family income in a country, disparity in the world today.

“In developed countries, people are sleeping on the streets in

Tokyo and Hong Kong. In Malaysia, if the average wage is RM3,000, how can a wage earner afford a RM700,000 home? It’s 200 times your wage,” Yeoh pointed out.

According to him, YTL has felt the negative impact of the QE, especially in bidding for projects against overseas competitors which pay almost no interest rates on their loans.

“We cannot actually buy anything … the private equity caps have almost zero cost of funding while I borrow at 3% to 5%. At any one time, they can outbid me by 10%.

“We’re in an environment where it is very difficult for me to buy assets. It’s not a real economy. [Rather,] it’s a very inflated economy with very inflated pricing from the property side,” Yeoh said.

He said rather than pumping cash into private equity funds to be invested for short-term gains, more emphasis should be placed on infrastructure development in developing Asian nations.

Yeoh advocated that at least 30% of sovereign wealth funds in Asia be invested in infrastructure development within their respective countries. This is because the level of infrastructure development remains poor relative to the growing wealth in the respective nations.

“We in Asia must not make the same mistake as Europe. Asia must now think about the infrastructure and improve the productivity of the people — Internet, at a competitive price.

“Water and electricity must be given at a very competitive price by vigorous competition of international practitioners. If we don’t, our economy can never catch up,” he said.

On the recent direct tender award by the Energy Commission (EC) for the Project 4A power plant, Yeoh declined to comment.

“I just want to answer questions regarding the event today,” he said.

The EC had over the weekend awarded the project to a consortium consisting of YTL Power International Bhd, Tenaga Nasional Bhd and SIPP Energy Sdn Bhd, which is linked to the Johor royalty.

This article first appeared in The Edge Financial Daily, on June 4, 2014.