Thesun 2008-12-30 Page21 A Roller-coaster Year

theSun

21

| TUESDAY DECEMBER 30 2008

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A rollercoaster year by Tan Siok Choo THIS was the year the US economy dominated headlines worldwide. News reports about stunning highs were later overwhelmed by an expanding litany of sobering lows. And in December, press coverage changed from dismal to dire. On Dec 16, in its final meeting for the year, the US Federal Reserve stunned analysts by reducing the Fed funds rate – the rate at which banks lend to each other – by 75 basis points to a record low target range from zero to 0.25%. More important, the Fed also said it would print as much money as necessary to thaw the freeze in US credit markets. The Fed’s unprecedented announcement underscores the failure of previous interest rate cuts to stymie a US recession that is shaping up to be the worst since World War II. One casualty of the US recession was banks. Five major US investment banks have disappeared this year: Bear Sterns was taken over by JPMorgan Chase, the 158-year-old Lehman Brothers filed the biggest bankruptcy in US history with US$613 billion (RM2.1 trillion) in debt, while Goldman Sachs, Morgan Stanley and Merrill Lynch turned themselves into retail banks. Additionally, 25 US banks have failed this year, the Federal Deposit Insurance Corporation says. In the past eight years, 52 banks went belly up – more than half this number collapsed in the ongoing financial turmoil. In October, the US Congress approved a massive US$700 billion (RM2.4 trillion) bank bailout plan. Although some funds have been used to rescue ailing insurance giant, AIG, this bailout plan has failed to inspire confidence in US financial institutions. Another casualty was Detroit’s Big Three. Crushed by fierce competition from Japanese carmakers, high wage costs and hefty discounts to purchasers while high petrol prices prompted Americans to end their love affair with Detroit’s petrol-guzzling cars. US automakers received an early Christmas present when the Bush administration proposed a US$17.4 billion bailout for Detroit. To qualify for aid, the companies must demonstrate their commercial viability. For many countries in Asia – including Malaysia – 2008 was the year exports as an engine of economic growth stalled. In October, Malaysia’s exports fell by 2.6% to RM53.5 billion from a year earlier, the first decline in 15 months and a sharp reversal from the 15.1% year-on-year increase in September. October’s contraction in exports is likely to persist next year. CIMB Research chief economist Lee Heng Guie predicts exports will shrink by up to 3% next year – double the government’s forecast of 1.5%. The export figure suggests this country’s manufacturing output remains firmly tethered to the US economy. Bleak economic data

prompted the government to propose last month a RM7 billion plan to boost growth. However, many economists fear this stimulus package is insufficient to prevent Malaysia from slipping into a recession. Even more worrying, in its East Asia Pacific Update, the World Bank warned stimulus measures announced so far by China, South Korea, Malaysia and Thailand can only “cushion” their economies against the full impact of a global economic downturn but cannot compensate fully for the collapse in exports. Regional economies like Hongkong, Singapore and Taiwan are now in recession while South Korea looks set to join the trio next year. Although Malaysia remains on track to register 5% growth this year, its prospects have dimmed

to 3.1320 against the US dollar on April 23, sparking hopes that it could strengthen to less than 3.00 this year. Instead, in tandem with commodity prices, the ringgit weakened to a low of 3.64 on Dec 4. Volatility was the watchword for the Malaysian stock market. The Kuala Lumpur Composite Index hit an all-time high of 1,516.22 on Jan 11 before sliding to a low of 846.470 on Dec 15 as hopes that Malaysia would be insulated from the US recession faded. For companies like Malayan Banking, this year has proved a chastening experience. It was criticised for buying a controlling stake in Bank Internasional Indonesia (BII) for RM8.6 billion or 4.6 times its book value, a valuation many analysts deemed excessive. Although Maybank’s share price has plummeted from RM9 at the start of the year to RM5.10 on Dec 15, there may be considerable downside. Research house CLSA Asia values Maybank at RM3.60 a share, the first institution to set a target price at below the RM4 mark this year. One positive stock market development is more assertive minority shareholders. At May-

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considerably. Growth next year could slow significantly to 3.5% instead of the earlier forecast of 5.4%. This will be a year of quiet satisfaction for our policy– makers. Measures adopted by Malaysia during the 1998 Asian Financial Crisis – including cutting interest rates, government bailouts, suspending short selling – were heavily criticised a decade ago but are now being copied by US policymakers. This was a roller-coaster year for two major Malaysian commodity exports: oil and palm oil. Prices of oil skyrocketed to a record high of US$147.27 on July 11 and plummeted to a four-and-a-half-year low of US$33.87 on Dec 19 on fears a recession in the US, major European countries and Japan will curb demand. Similarly, the price of palm oil hit a high of RM4,486 a tonne in March and slid to a low of RM1,390 a tonne in October. News that China and India, two major buyers of palm oil, were unlikely to remain immune to the US recession caused market sentiment to turn bearish. Meantime, the ringgit soared

bank’s recent annual general meeting, minority shareholders were forthright in criticising the BII deal. Furthermore, a representative of the Employees Provident Fund warned Maybank directors they would be accountable for any losses suffered by shareholders. Amid the deepening gloom, an audacious glimmer of hope is US President-elect Barack Obama’s inauguration on Jan 20. He has pledged to implement the biggest infrastructure-spending programme since the 1950s, totalling as much as US$1 trillion (RM3.4 trillion) to be spent over the next two years. On the home front, Prime Minister Datuk Seri Abdullah Ahmad Badawi will step down in March and Datuk Seri Najib Abdul Razak is set to become Malaysia’s first premier who is an economist. Opinions expressed in this article are the personal views of the writer and should not be attributed to any organisation she is connected with. She can be contacted at schoo@ noordinsopiee.com

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published in The Sun on 30 December 2008.

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