Saturday, September 26, 2015

Malaysia's Junk Status

Source: Webpage

Business conditions in Malaysia have deteriorated this year and they are not going to turn the corner any time soon. It does not help that there is a dearth of good policy measures to counter market-related headwinds. Moreover, Najib Razak can’t focus on his job and spends a disproportionate time tenaciously trying to hold on to his prime ministership.
And the credit rating agencies have not been honest with Malaysia because they are all wearing blindfolds. The country gets the thumbs-up even though the economy has been on a descent.
But credit default swap (CDS) traders understand our economy better and so we have been awarded “junk” status. This means the market – whether we care to admit it or not – is now negative about Malaysia.
Bloomberg reported Thursday that two weeks after Brazil's credit rating was lowered, CDS investors are punishing other emerging markets facing similar challenges. The report said Moody's Corp rated Malaysia A3, although traders saw it six levels lower at Ba3. 
The so-called ratings gaps for nine countries – including Malaysia – are some of the biggest among the 65 borrowers tracked by Moody’s implied-ratings model, which is based on CDS prices as of September 21, 2015 compared with peers in the same ratings category.
The report said most developing nations were confronting the same issues that saw Brazil losing its investment-grade rating at Standard & Poor’s – a plunge in commodity prices, a slumping currency and political turmoil.
The rating agencies need to get their act together. Have they forgotten that they were roundly criticized for being slow to react during the 2008 crisis as well as the 2011 euro-zone crisis?
I was in KL’s Brickfields on Wednesday for the MIA Toastmasters meeting. I also delivered my CC #6 speech and again, I found I could have done better. Sigh! I am still not a very good speaker. I am very much a work in progress.


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