No economic bubble, says RAM

by **Cals** Thu 05 Jun 2014, 20:15

Business & Markets 2014

Written by Levina Lim of theedgemalaysia.com

Thursday, 05 June 2014 09:16

KUALA LUMPUR: Malaysia’s economy is not in a bubble as high household debt continues to weigh on consumption and spending, RAM Holdings Bhd said.

However, it believes that household debt remains largely contained.

According to Bank Negara Malaysia’s (BNM) Annual Report 2013, household debt in the country at end-2013 was 86.8% of gross domestic product (GDP), from 81.1% in 2012, driven by loans for properties and motor vehicles.

“There is no [economic] bubble. Household debt has also been contained, so it’s no longer a major risk as earlier envisioned,” RAM group chief executive officer Datuk Seri Dr K Govindan told a press conference after the group’s annual general meeting yesterday.

Malaysia’s household debt has the highest household-debt-to-GDP level in Asia, despite various fiscal and supervisory measures implemented by BNM to rein in high household indebtedness and curb property speculation.

On Tuesday, YTL Corp Bhd group managing director Tan Sri Dr Francis Yeoh Sock Ping warned that Asia’s economic boom could burst in the next two to four years, citing rising inflation following the US quantitative easing policies.

Govindan said RAM is optimistic about the country’s economic outlook for 2014, despite a slow recovery in the global economy, due to strong domestic investments and low unemployment driving domestic consumption.

“Broadly, we are optimistic about the Malaysian economy. Globally the recovery is still happening, albeit a little slowly.

“Global growth averages 3%, but you see bright sparks in the US economy [which is] growing by 2% on average,” he said.

“This means that our exports [as the US is Malaysia’s largest trading partner] will actually be stronger this year and in subsequent years too.”

Govindan said in terms of domestic investments, large infrastructure projects are still being implemented, contributing to low unemployment.

“In an economy which has such low unemployment, you find consumption continues to be strong this year and the years to come,” he said.

However, Govindan cautioned that negative geopolitical events will pose a downside risk to the local economy.

“Additionally, there is a possible slowdown in the outer countries in Europe, which are still lingering in terms of high unemployment, slow growth and high debt,” he said.

In Asia, Govindan noted that growth in China’s economy has slowed to 7.5%, which is still “reasonably high” in the present environment, while India is poised for positive developments with its new government.

He said despite Malaysia having strong fundamentals in terms of low inflation, its fiscal space is limited.

However, Govindan expects inflation to rise slightly this year pending the implementation of the goods and services tax in April 2015. “Other than that, we can reasonably be sure about hitting 5.1% to 5.2% [GDP growth] this year.”

RAM is forecasting Malaysia’s GDP will grow 5.1% this year, with total bond issuances ranging from RM90 billion to RM95 billion.

“Up to May this year, total bond issuance is about RM37.4 billion. So we think that it [RM90 billion to RM95 billion target] can still be achievable by end of this year,” said RAM Rating Services Bhd chief executive officer Foo Su Yin.

The local rating agency is also looking at possible tie-ups to develop its credit ratings business in the Gulf Cooperation Council (GCC) region as part of its expansion plan to develop its business.

“We are actually looking at possible tie-ups with relevant parties to develop our business in the GCC region in terms of rating and will work with any relevant party that we think will help us move into the GCC region for collaboration,” said Foo.

As nearly two-thirds of the world’s sukuk have been rated by RAM, Foo believes that RAM will have an edge over its competitors in the business.

RAM Holdings reported a net profit of RM8.30 million in the financial year ended Dec 31, 2013 (FY13), up 8.5% from FY12. Earnings per share rose to 83 sen in FY13 from 77 sen in FY12.

The board declared a first and final dividend of 50 sen per share for FY13.

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Govindan says RAM is optimistic about the country’s economic outlook for 2014, despite a slow recovery in the global economy.

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This article first appeared in The Edge Financial Daily, on June 5, 2014.[/size]