Category: Investments

Strategic petroleum reserves exist in the care of governments around the world. The largest and unheard of by most retail investors is the U.S. Strategic Petroleum Reserve. Today, we will look closer at the oil market and your investment.

The U.S. Strategic Petroleum Reserve (SPR) is one of the world’s largest crude oil stockpiles. Conceived as a defensive weapon against geopolitical crises in the ’70s, the SPR’s purpose and function have evolved. It is a massive stockpile of crude oil based mostly in four major locations around the Gulf Coast.

The SPR is a “tremendously unique asset” and argues that U.S. Congress-mandated sales are ill-conceived. The SPR is a defensive weapon against geopolitical crises, and its purpose and function have evolved. Energy investors need to know about today’s volatile oil market and how it affects the SPR.

The Oil Market And Your Investment: Why Is US SPR Important?

The SPR is important because it provides a strategic and economic advantage for the United States. It is a defensive weapon against geopolitical crises, and its purpose and function have evolved. The SPR’s importance lies in its ability to cushion against sudden oil supply disruptions and price spikes. It also provides a strategic advantage by allowing the U.S. to respond to global oil market disruptions with greater flexibility and speed.

The SPR has been used to mitigate the impact of oil supply disruptions caused by geopolitical crises. For example, it was used during the Gulf War in 1991 and Hurricane Katrina in 2005. During the Gulf War, the U.S. released oil from the SPR to offset the loss of oil supplies from Iraq and Kuwait. During Hurricane Katrina, the SPR was used to help refiners in the Gulf Coast region affected by the hurricane to maintain operations.

The Oil Market And Your Investment: How Does US SPR Work?

The SPR works by storing crude oil in underground salt caverns in four major Gulf Coast locations. The SPR has a current capacity of 713.5 million barrels of crude oil. The Department of Energy (DOE) manages the SPR and is responsible for maintaining the stockpile. The DOE also has the authority to release oil from the SPR in response to supply disruptions or other emergencies threatening the U.S. economy or national security.

The Oil Market And Your Investment: Difference Between SPR and OPEC+

The U.S. Strategic Petroleum Reserve (SPR) is a massive stockpile of crude oil based mostly in four major locations around the Gulf Coast. It was conceived as a defensive weapon against geopolitical crises in the ’70s, and its purpose and function have evolved.

On the other hand, OPEC+ is a group of oil-producing countries that includes members of the Organization of the Petroleum Exporting Countries (OPEC) and non-OPEC countries. The group was formed in 2016 to coordinate oil production and stabilize prices.

The SPR is a stockpile of crude oil owned by the U.S. government and used to help stabilize oil prices during times of crisis. OPEC+ is a group of countries working to coordinate oil production and stabilize prices.

Read: Lessons From Silicon Valley Bank (SVB) and Lehman Brothers: How Islamic Financial Principles Offer More Robust Risk Management In Investments

The Oil Market And Your Investment: Weakening US Dollar May Further Impact Price Of Oil & Inflation

The weakening of the US dollar can lead to an increase in commodity prices, especially crude oil prices. This can lead to inflation as higher oil prices can lead to higher transportation costs and higher prices for goods and services. The Federal Reserve aims to keep inflation under control by adjusting interest rates. The Federal Reserve may increase interest rates to slow economic growth and reduce inflation if inflation rises too much. However, if inflation remains low, the Federal Reserve may keep interest rates low to encourage economic growth.

So, a weakening US dollar can lead to higher commodity prices and inflation. The Federal Reserve aims to keep inflation under control by adjusting interest rates.

Carley Garner, Senior Commodity Strategist discussed on Bloomberg Television recently, has put US$80 oil price is pivotal. A close above US$81 likely leads prices into the high US$90.00s. Such as positive seasonality and speculators having plenty of buying power. In such an environment, the fundamental stories everyone has been talking about will matter.

The Oil Market And Your Investment: Rising Inflation And Your Investment

Inflation can affect investment returns. Inflation also impacts the returns that an investor earns on the investments he or she makes. Therefore, the concept of inflation-adjusted or real returns is important for all investors to comprehend.

Put simply, real return = nominal return less inflation.

Inflation lowers your returns and has led some investors to favor high-return investments and investments with inherent value, like real estate. It also has some investors keeping as little money as possible in the bank because money constantly loses value.

Read: SPY vs SPUS: A 2023 Comparison of S&P 500 ETFs

The Oil Market And Your Investment: What Should You Do?

Asset allocation is an investment strategy that balances risk and reward by dividing an investment portfolio among asset categories such as stocks, bonds, and cash. The goal of asset allocation is to minimize risk while maximizing returns. It is important because it helps investors diversify their investments and reduce the impact of market volatility on their portfolios. By investing in a mix of assets that have different levels of risk and return, investors can achieve a more stable return over time.

Asset allocation can be done differently depending on an investor’s goals, risk tolerance, and investment horizon. Some investors prefer a more aggressive approach with a higher percentage of stocks in their portfolio, while others prefer a more conservative approach with a higher percentage of bonds and cash.

It is important to note that asset allocation does not guarantee a profit or protect against loss. However, it can help investors achieve their long-term financial goals by reducing risk and increasing returns over time.

Rather than putting everything into the oil market and your investment, perhaps it is time to look at other commodities as an alternative. One such alternative is investing in gold, where Carley Garner further adds the price of gold could potentially break out the US$2,100 level with the best target towards US$2,600 by or before 2024. She projected that such a move is possible with two main factors, the weaker dollar and political uncertainty.

Well, there you have an update about the oil market and your investment.

Read: Investing With Recession Fears Looming, Are We Nearing Market Bottom?

About the Author

Mukhriz Mangsor is currently the Head Global Market Strategist at Quantdynamic Research Company. His expertise includes financial education, financial institutions, and property trading with clients, including Brunei, Canada, Malaysia, Singapore, and the United States firms.

The Institute for Capital Market Research Malaysia (ICMR) today launched its latest research report titled “New Age Vulnerabilities: Understanding Investor Vulnerability within the Malaysian Context”. Based on its findings, the report highlights that Malaysians experience overlapping vulnerability drivers that impair their ability to make sound financial decisions. As a result, they are more likely to fall victim to scams, be inadequately prepared for retirement, and face everyday difficulties while investing. 

ICMR’s research was motivated by the need to develop a comprehensive and empirically informed understanding of how Malaysians experience vulnerability in their investment journeys. Many investors today are at risk of suffering fraud, financial exploitation, or the effects of unsuitable investments due to the changing nature of financial services, financial decision-making, and access to information. Indeed, 84% of surveyed respondents said they had received advice on financial products that turned out to be a scam and 36% had lost monies to a scam.

ICMR groups the key drivers of investor vulnerability into three broad categories based on their characteristics: situational (changing circumstances), investor behaviour and accessibility to financial products and services, as well as issues related to the industry. These categories were informed by a benchmarking exercise that compared definitions used by local and global regulators. A nationwide quantitative survey was then implemented alongside qualitative focus group discussions to better understand the investing experiences of Malaysians.

The study found a wide majority of respondents being exposed to behavioural and access drivers (93%), followed by situational drivers (54%) and industry-related drivers (51%). Within the first category, 64% felt either financially unstable or living paycheck-to-paycheck, hence experiencing mental stress. As for situational drivers, 61% felt negatively impacted by difficult events like job loss, income shock, or the deaths of close relatives. Meanwhile, 70% experienced difficulties in engaging with financial service providers, including unsuitable pricing or terms.  

Nonetheless, the findings also indicate that different types of vulnerability are frequently overlapping and closely interconnected – meaning that financial distress is not always attributable to a particular cause. The experiences within each vulnerability category are as diverse as the experiences of vulnerability across the group as a whole. Moreover, financial or investment scams have cut across all groups of the surveyed population, with those susceptible driven greatly by greed and herding behaviour from the influence of family or friends.

The third Capital Market Masterplan (CMP3) launched by the Securities Commission Malaysia (SC) in 2021 mentions the “identification and assessment of vulnerable investors” as a top priority over the next five years for “enhancing focus on protecting investors against vulnerabilities”. As such, ICMR’s research seeks to assist the SC’s enhancement of investor frameworks and protection efforts for reducing the harm experienced by vulnerable investors, as well as provide context for firms to deal with vulnerable clients and provide appropriate levels of care.

In this regard, ICMR recommends a dual and systematic approach to address investor vulnerability in the Malaysian context. Firstly, there is a need to build financial resilience across the population by addressing intersectional vulnerabilities, which include both structural and behavioural barriers. This must then be complemented with a targeted approach to deal with vulnerable investors, including enhanced suitability assessments and regulatory oversight as well as educational and training programmes.

“Our research has shown that vulnerability drivers can impact Malaysian households and individuals at many different life stages, situations, health levels, even different investment experiences. The combination of behavioural and structural issues goes beyond the ambit of any single regulator or agency, which is why there is a need for a whole-of-nation approach across jurisdictions. In line with this, behavioural insights including the trigger points identified by ICMR should be incorporated into every stage of a policy cycle for more effective implementation”, said Datin Azleen Osman Rani, Director of ICMR.

ICMR’s survey was distributed from April to June 2022 to 2,019 respondents across East and West Malaysia, aged between 18 – 70 years old. Hard recruitment quotas were used to ensure a representative sample of age, racial, and monthly household income distribution akin to the Malaysian Department of Statistics’ Census. To provide additional context to the quantitative survey responses, qualitative interviews were conducted from July to September 2022 with five targeted focus groups between the ages of 25 – 66 years old.

For more information about ICMR’s research findings, methodology, and recommendations, please download the full report at https://www.icmr.my/new-age-vulnerabilities-understanding-investor-vulnerability-within-the-malaysian-context/.

Young people matter. With older generations increasingly reaching retirement age, millennials and Gen Z are becoming increasingly important to the economy. They are now the largest generational cohorts, with the power to influence consumer and market trends over the next decade. But these younger generations face challenges, including digitalization and a fast-changing job market.

Given the sheer size and potential of millennials and Gen Z, the Institute for Capital Market Research Malaysia (ICMR) recently conducted a nationwide study to understand better their issues, challenges, and behaviours regarding personal finance and investing. This article looks closely at ICMR’s research data and what it tells us about the next generation of Malaysian investors.

Not All Young Investors Are Alike

As with any generation, young investors are not a monolithic group – their individual needs and preferences differ due to various factors, from life stage to upbringing to income. ICMR’s survey, distributed to 1,500 respondents, found that millennials and Gen Z Malaysians can be categorized into three groups, each with unique characteristics.

22% of respondents formed Group A, comprised of those not investing in investment products. Meanwhile, Group B, making up 33% of respondents, only invests in Amanah Saham Nasional Berhad (ASNB) funds and/or unit trusts. The remaining 45% making up Group C, invests in various other investment products not limited to just ASNB and unit trusts.

Although millennials and Gen Z investors generally share attitudinal and cultural similarities that separate them from older generations – there are also distinct demographic and behavioural differences between the three groups of young investors identified by ICMR. These differences can be understood in demographics and income, financial literacy and risk tolerance, and income allocation.

Demographics And Income

Regarding demographics, there are more females in Group A and B, whereas 60% of Group C are males. A higher proportion from the East Coast does not invest (Group A), while Group C has a higher proportion from the Central region. Moreover, although Malays comprise only 58% of total respondents, they form the majority of those who do not invest (63%).

More notably, there are differences in household income levels between all three groups. While 69% of Group A earn less than RM5,000 in monthly household income, 56% of Group B earn between RM3,000 – RM7,000. Meanwhile, respondents who fall under Group C were found to have significantly higher incomes, with 31% having household incomes above RM10,000.

Nonetheless, in-depth responses of individuals via qualitative interviews with ICMR suggest that the level of disposable income matters more than earned income. Some interviewees felt they could start investing while making RM3,000 a month, while others only felt comfortable after earning RM7,000 a month. But all interviewees agreed that they are more likely to invest if their disposable income increases.

“I recently changed jobs and got a pay rise, and it’s been much easier for me to invest now. Before this, even though I was getting decent pay for my age, I found it hard because I enjoy my lifestyle like going out for meals with friends, and that’s not something I’m willing to give up”

Roshan, 28, consultant

Financial Literacy And Risk Tolerance

ICMR’s research suggests a link between financial knowledge, financial confidence, and risk tolerance with the likelihood of investing and the kind of products invested in. For instance, someone who does not know much about financial matters and has little financial confidence is also unwilling to take risks – hence not investing and falling into Group A.

This could also explain behavioural differences between Group B, which invests only in ASNB funds or unit trust products, and Group C, which invests in other capital market products. The first unit trust company in Malaysia was set up in 1959. This might be why retail investors are most comfortable with unit trust products, considering their long history in Malaysia.

Additionally, many investors who only invest in ASNB funds or unit trust products (Group B) tend to be less risk tolerant and financially confident. In contrast, those who invest in other capital market products like shares or cryptocurrency, which are perceived to be riskier, tend to have higher risk tolerance levels and feel more financially confident.

“I have an ASNB account, although allocations can be hard for a Chinese. I consider the money in ASNB and my unit trust savings because they’re safer. I have some foreign shares and some cryptocurrency, which I consider investing. I make sure I keep 60 – 70% of my money in the safer options and make sure they’re on regulated platforms, and then I’m happy to take more risks with the other investments”

Han Cheong, 32, civil servant

Income Allocation

Behavioural shifts across the groups are also reflected in ICMR’s survey results on income allocation. A higher percentage of Group C stated that they set aside amounts for investing only (27%) or separate amounts for savings and investing (30%). On the other hand, a higher percentage in Group B stated that they set aside money for savings only (52%).

This indicates a shift in mental accounting from Group B to Group C, with those who invest in other capital market products being more likely to distinguish between saving and investing. Mental accounting refers to the tendency to mentally sort out funds into separate accounts, affecting how a person thinks about their spending.

Complementing the survey data above, findings from ICMR’s qualitative interviews also suggest that many young Malaysians perceive safer investment products as “savings.” In contrast, riskier products are perceived as “investing.” This tendency concerns their own personal risk assessments and methods of mentally dividing their money.

“I opened an ASB account and took out an RM50,000 ASB loan because my mother said I should. I pay the loan monthly, but I honestly have no idea how it works. I didn’t know until now that I could also put money regularly into my account if I wanted to”

Haris, 25, journalist

Catching Up With Young Investors

ICMR’s research findings on young investors highlight that many factors are linked to one’s investment behaviour, including income, financial knowledge or confidence, and risk tolerance. Policymakers and industry players should avoid a “one-size-fits-all” approach when dealing with millennial or Gen Z investors and instead adopt more nuanced or tiered policies and products.

As for young investors who are still unsure or not confident about investing, leveraging behavioral insights to incorporate the right tools, self-awareness, and techniques to navigate their personal finances can help. Understanding their biases and using heuristics (mental shortcuts) to simplify the investment decision-making process will encourage safer and more strategic investing habits for the long term.

This article is part of a content series by the Institute for Capital Market Research (ICMR). Follow ICMR’s Facebook page to stay updated about behavioral tips and insights for better investing habits. To learn more about ICMR’s research on millennials and Gen Z, visit www.icmr.my or download the full report here.

About the Authors

The Securities Commission Malaysia (SC) is pleased to announce the release of its Annual Report 2022 (AR 2022), the Audit Oversight Board Annual Report 2022 (AOB Report 2022), and the inaugural Capital Market Stability Review 2022 (CMSR 2022).

The SC Chairman, Dato’ Seri Dr. Awang Adek Hussin, said the Malaysian capital market remained orderly and continued to finance the economy, with total funds raised hitting a record high of RM179.4 billion. This exceeded the 5-year pre-pandemic average of RM121.4 billion.

The 2022 performance, led by a record amount of corporate bond and sukuk issuances, was achieved despite increased global market volatility and headwinds. Globally, the capital market registered weaker performance in 2022 with the continued tightening of financial conditions in major markets, inflationary pressures, and the repercussions of the Ukraine war.

Dato’ Seri Dr. Awang Adek said the continued resiliency of the Malaysian capital market highlighted the value of exercising prudence and shared accountability while capitalising on growth prospects that arise. “This approach allows the market to better manage risks, preserves overall financial resilience and stability, and supports economic growth,” he said.

AR 2022 highlights the SC’s efforts in promoting market integrity, investor protection, and the development of the Malaysian capital market. This ensured the capital market’s role in financing sustainable development, while facilitating continued innovation to address emerging risks and
challenges.

Among the key highlights outlined in AR 2022 are:

• Equity crowdfunding (ECF) and peer-to-peer financing (P2P) platforms continue to facilitate the funding needs of micro, small and medium enterprises (MSMEs), with the total funds raised recording an increase of 26% from RM1.4 billion in 2021 to RM1.7 billion in 2022. Since their inception, ECF and P2P have helped 7,218 MSMEs raise over RM4.4 billion.
• The Islamic capital market (ICM) comprising total sukuk outstanding and Shariah-compliant equity market capitalisation, saw a marginal increase by 0.6% compared to the previous year. The ICM has increased at a compound annual growth rate (CAGR) of 4.2%, driven by the increase in total sukuk outstanding (9.3% p.a) while Shariah-compliant equities remained relative flat (0.1% p.a.). Ongoing efforts to broaden and deepen the ICM were made, including the issuance of the Guidelines on Islamic Capital Market Products and Services to facilitate efficient access to the ICM ecosystem.
• The capital market continues to prioritise good corporate governance and sustainability practices. As of 1 March 2023, 30% of the top 100 public listed companies (PLCs) are led by women, and all top 100 PLCs have at least one-woman director on the board.
• To address scams and unlicensed activities, the SC had established an internal task force. The establishment of an internal task force is a proactive measure to ensure that such activities are identified and dealt with in a timely manner. In 2022, 185 websites were blocked and 304 new entries were added to the SC’s Investor Alert List, compared to 143 websites and 134 new entries in 2021.

In 2022, the SC took criminal and civil actions related to various serious breaches such as disclosure breaches, securities fraud and unlicensed activities which resulted amongst others, numerous criminal convictions and RM12.9 million in total fines.

Three Special Feature articles are published in AR 2022:

• Towards Greater Investor Protection: Understanding Investors’ Vulnerabilities
• Reinvigorating Capital Formation for Sustainable Economic Development
• Behavioural Insights to Address Retirement Savings Inadequacy.

Audit Oversight Board Annual Report 2022

During the year, the AOB inspected 56 audit engagements carried out by 52 individual auditors from 21 Audit Firms. On an annual basis, the AOB inspects the Major Audit Firms which collectively audit PLCs that represent 73.5% of the total number of PLCs and 95.3% of the total market capitalisations of PLCs in Malaysia. In 2022, the AOB also conducted targeted inspections aimed at responding to emerging risks in a timely manner.

Highlights of the AOB Report 2022 include:

• The AOB continues with its supervisory rigour by leveraging data analytics to identify key risks and specific areas of concern in the market. The number of audit firms inspected during the year increased by 50%.
• To strengthen the oversight role of Audit Committees (ACs), the AOB engaged with 973 ACs from 773 PLCs through its ‘Conversation with Audit Committees’ session. The AOB strongly believes effective oversight by strong, knowledgeable, and independent ACs of PLCs can enhance audit quality.
• In 2022, the AOB engaged with 84 senior partners of AOB-registered audit firms to understand the challenges faced by the profession and ensure that timely regulatory measures are put in place to improve audit quality.
• To strengthen the audit profession’s capabilities, the AOB and the Malaysian Institute of Certified Public Accountants (MICPA) held workshops to assist audit firms with the implementation of the International Standards on Quality Management, which became effective on 15 December 2022. These workshops provided practical examples of how audit firms should design their quality management systems based on the nature and circumstances of the firm and the engagements they perform.
• During the year, the AOB took six enforcement actions against auditors for breaching the relevant auditing and ethical standards. The actions included prohibitions and monetary penalties totaling RM383,500.

The AOB’s enforcement actions are subjected to Judicial Reviews by the auditors and the AOB has managed to successfully defend its actions in the Courts thus far. During the year, the Federal Court unanimously ruled in favour of the SC and the AOB in respect of a Judicial Review initiated by aggrieved auditors. The decision further reinforces the robustness of the AOB’s enforcement framework.

Capital Market Stability Review 2022

The CMSR, which outlines overall risk assessments on various components of the Malaysian capital market, revealed that, while the domestic market continued to be affected by the confluence of global and local factors, it was able to operate in a fair and orderly manner, with no systemic stability concerns observed.

Key observations from the report include:

• Domestic equity market was impacted by global volatility which affected market sentiment amid healthy local retail and foreign investor participation.
• Liquidity in equities continued to be supported by both local and foreign investors.
• Corporate bond default rate remained low.
• Fund managers had in place robust liquidity risk management processes to ensure sufficient liquidity to manage potential increase in redemption.
• For PLCs, most sectors recorded higher earnings in 2022
• In the digital asset space, average trading value has declined and domestic digital assets remain small compared to the equity market.

Moving Forward

Dato’ Seri Dr. Awang Adek said some of the areas of focus in 2023 include regulatory reforms, enhancing the fundraising ecosystem, advancement of the ESG agenda, facilitation of technology adoption and improving of corporate governance.

The SC will also prioritise sustainability and talent development to ensure the capital market continues to contribute to broader social and environmental goals.

“As we look towards the future, the SC remains committed to pursuing initiatives that will further strengthen Malaysia’s capital market, and enhance its role as a catalyst for economic growth and development,” he said.

To view and download these reports, please visit:
1) SC Annual Report 2022
2) AOB Annual Report 2022
3) Capital Market Stability Review 2022

About the Securities Commission Malaysia

The Securities Commission Malaysia (SC), a statutory body reporting to the Minister of Finance, was established under the Securities Commission Malaysia Act 1993. It is the sole regulatory agency for the regulation and development of capital markets. The SC has direct responsibility for supervising and monitoring the activities of market institutions, including the exchanges and clearing houses, and regulating all persons licensed under the Capital Markets and Services Act 2007. More information about the SC is available on its website at www.sc.com.my. Follow the SC on twitter at @SecComMy for more updates.

After a tough year for equity and bond investors in 2022, investment opportunities are starting to emerge with markets beyond the US looking more and more compelling. Asia is a diverse region with many different economies, of which each market is in its economic cycle. This means that selectivity in terms of markets and sectors is key.

In particular, we believe three main factors are steering the Asia Pacific (APAC) investment markets in 2023:

• China’s reopening and potential growth;
• Recessionary risks in developed markets; and
• US dollar strength moderates.

Service-Driven Recovery To Support Growth As Mainland China Reopens

Early indications are that mobility and economic activity have started to rapidly normalise following the easing of Covid restrictions in mainland China. For instance, we have already seen a strong uptick in travel activities within and from mainland China. The return of holidaymakers is expected to bring about positive knock-on effects to various sectors around the region, with companies from the hotel, casino, airlines, as well as consumer discretionary retail industries set to benefit. The release of pent-up demand may also appear in the form of “revenge spending” and the impact may funnel to property companies that own shopping malls.   

In contrast with much of the world, inflation is not a concern for mainland China. The headline rate was 1.8% year-on-year in December 2022, below the 3% target rate. Low inflationary pressure has given the People’s Bank of China the room to cut its policy rate and the loan prime rate over the past year.

Separately, since the fourth quarter of 2022, government authorities have started to lend support to the domestic real estate market with an aim to encourage healthy development within the sector. Besides rolling out measures to ensure a timely delivery of presold homes, different governmental bodies have introduced coordinated policies to expand financing channels for stressed private property developers to ease their financial pressure.

Since the economic outlook for mainland China has clearly improved, its service-driven recovery could drive GDP growth of 6.2% in 2023 and 4.5% in 2024. With China’s sheer size, stronger economic activity may mechanistically lift the overall GDP in Asia, and the overall growth globally (forecasted at 1.9%. for 2023).

Recessionary Risk In Developed Markets Could Mean Opportunities For Asia

Although our latest forecast has pointed to a less pessimistic outlook, uncertainties over growth and inflation in the US and other developed markets persist.

We continue to believe that the US is heading towards a recession in the second half of 2023 due to tighter monetary policy, even though the degree will not be as grim as previously thought. While we expect the US Federal Reserve (Fed) to continue its rate hiking cycle in 2023, the pace would be more moderate for rates to reach a trough of 3.25% by mid-2024.

After a prolonged period of strong execution, underlying US margins are now at record levels. As negative operating leverage kicks in, companies may feel pressure on their earnings, which may lead the Asia Pacific investment markets to outperform.

Elsewhere, in the UK, a recession is also still on the cards as higher inflation and interest rates, along with austere fiscal policy, dampen the outlook. We expect its economy to see an outright contraction of 0.8% in 2023. Potential risks include high energy costs, labour shortages and disruption to supply chains. Meanwhile, the eurozone economy is likely to be largely stagnant, although it is expected to avoid recession because the relief on household incomes and inflation should fall back more quickly within the year.

Yet, it is not all bad news. Historically, the best opportunities for equities have occurred in the midst of recessions. From a valuation perspective, Asian equities are currently outshining its peers in the West. Improved market sentiment, as well as China’s economic recovery are also likely going to lend support to the markets regionally. These factors combined have led us to hold a more positive view towards Asian investments.

Asian Currencies To Find More Stable Footing As USD Softens

Given the importance of the dollar for global investments, it is important to also look at where the currency is heading. The US dollar has reached its peak and divergence in global central bank policy is likely to put pressure on the currency to depreciate further.

Although there are signs that both headline and core inflation in the US is on a downward trend, its domestic labour market is still tight, which supports restrictive monetary policy for longer. If the Fed shifts to a less aggressive tightening pace and pivots to a pause, there could be some softening in the US dollar. In turn, Asian currencies will be able to find a more stable footing and therefore provide a more favourable environment for Asian bonds, especially those in the local currency space.

The Reserve Bank of Australia raised borrowing costs to a 10-year high in February 2023 and New Zealand’s central bank. On the other hand, the Bank of Korea may be one of the first central banks in APAC to halt its hiking cycle.

For APAC markets that are still in a phase of raising interest rates, it would favour investors to select sectors with a positive correlation to bond yields, such as banks and, in some cases, selected consumer names.

A Flexible Investment Approach Remains Key In Times Of Regime Shift

We are entering a new regime in policy and market behaviour after a 40-year cycle of deflation. With risks associated with the recession, geopolitics, inflationary pressure and the global energy crisis continuing to add to macroeconomic uncertainty, investors will need to change how they value assets, find investment opportunities, and manage risks.

To navigate through market uncertainty, we believe holding safe haven assets such as US Treasuries and cash can help cushion any potential volatility, whilst alternative assets like gold can act as a diversifier.

Nonetheless, taking a flexible approach that accounts for growth and income should help investors build a more resilient portfolio that can shield them from potential headwinds.

By Chloe Shea, Investment Director, Multi-Asset, Schroders

In March 2020, the world was shocked by the spread of the coronavirus or COVID-19 outbreak. Curfews and movement controls have been enforced; all business activities are temporarily suspended to stop the spread of the pandemic. The outbreak of COVID-19 not only impacted the entire world’s economy, which was not inadequately prepared for this pandemic but also affected the two most prominent economic powers, China and the United States.  

The curfew and the closure of some industries from operating face-to-face activities, especially tourism, services, education, and business during the COVID-19 pandemic, have encouraged the development of the new norm, which is the transition from conventional to digital platforms. It is common to know that today, various activities can be carried out online and have become part of life among communities worldwide.

The use of online transactions as a means of payment is now widely accepted, and the number of businesses using them continues growing daily like a mushroom after rain. This results from the users spending more time at home than normal. This is one of the biggest threats to users and may have contributed to a rise in cybercrime cases. One of the most significant cybercrime issues is online scams or fraud.

Online Scams In Malaysia

According to a report from the Royal Malaysian Police (PDRM), between 2020 and May 2022, 68% of fraud cases involving RM5.2 billion were online scams. The Securities Commission Malaysia (SC) reported that there are still several high-profile cases of online scams, such as the iPay88 and AirAsia intrusions.

In addition, the country was also shocked by the leak of 22.5 million personal data of Malaysians through the myIDENTITI platform. These cyber scam activities became more prevalent as more payment services were offered online for users’ convenience. The more services offered online, the harder it will be for the authorities to monitor and monitor every transaction that is executed.

These online scams cases have hit record highs in the past two years since the COVID-19 pandemic hit the world. Coupled with the unstable economic situation, most companies suffered in sustaining their business during the Movement Control Order (MCO) period, which eventually forced them to shut down their business and lay off their employees or both.

The unemployment rate makes individuals more vulnerable, and they will tend to choose fraudulent online activities as an easy way to earn money to continue their daily lives.

How Online Scams Are Associated With The Economic Recession?

In a financial crisis, society will experience financial stress and look for opportunities to generate income, thus solving their financial problems. Among those most affected by the crisis are those with low incomes living in urban areas. Their life was sufficient enough. Plus, their monthly commitments, such as rent, car instalments, and others, will cause their lives to be squeezed.

The situation is worsening for couples with a child aged from two months to a year, as many expenses are required, draining a large portion of their income from purchasing diapers and baby milk. Child expenses also vary according to their age and level of growth. Expenses become increasingly demanding as the child grows older and vice versa.

Faced with all these kinds of commitments, parents do not have any savings for their children, let alone for themselves. Looking at these loopholes, scammers will take advantage of this situation by offering non-existent opportunities such as investment opportunities, job opportunities, or a government grant that promises lucrative results in a short period.

During the economic downturn, scammers create fake job-seeking websites and send soliciting emails promising high wages while working from home. But in reality, the work and opportunities offered do not exist but require a down payment in advance or sometimes an advance payment to “book or bid” for this job opportunity.

Due to monthly commitments and family responsibilities towards their spouses and children, the victims sometimes do not think long enough and lose their money to the scammer because they had to pay a down payment in advance to confirm they would get this job opportunity.

During this time, the spread of fraud, false and fake information will likely increase as scammers see this as a golden opportunity to take advantage of those struggling financially. Fraud schemes such as Ponzi, fake investment opportunities, and pyramid schemes will become more prevalent.

In these challenging circumstances, the affected group categories (urban poor) will act and become aggressive. Due to the rampant online scams, any attempt to distribute survey questionnaires via Whatsapp usually receives a low response rate.

Plus, any attempt to obtain information using Google Forms will be seen as something negative and a form of exploitation from the viewpoint of those already poor. (with the exception that their closest friends distribute the questionnaire survey form or they have been informed in advance of this)

In short, the world economy’s recession and online scams cases can be attributed in several ways. The economic downturn has exposed the public, especially those facing the financial crisis, get some exposure to various types of fraudulent schemes.

It is essential to remain vigilant and take security measures to protect yourself, your spouse, close family, and relatives from being exposed to online scams tactics, especially during this economic downturn.

*Malay Version of this article was published in Warta Oriental entitled “Penipuan Atas Talian Tidak Mengenal Masa Rehat: Senantiasa Kekal Bersiap-siaga Sewaktu Kemelesetan Ekonomi”. Retrieved from, https://wartaoriental.com/2023/03/20/penipuan-atas-talian-tidak-kenal-masa-rehat-kekal-siap-siaga-sewaktu-kemelesetan-ekonomi/

*This article does not reflect the stance and policies of the institutions involved. It is the author’s opinion, research, and experience while engaged in fieldwork.

About the Author

Renugah Rengasamy. Head of Information Technology (IT) Division at the Social Institute of Malaysia

Rashid Ating. Researcher at the Institute of Advanced Studies (IAS), University of Malaya (UM), Kuala Lumpur, Malaysia

More articles from Rashid Ating:

• Sudahkah Anda Bersedia Untuk Bersara? Berapa Yang Anda Perlukan?
• Pendidikan Celik Kewangan Dalam Peperiksaan PISA: Pendedahan Awal Mengenai Pendidikan Kewangan Dalam Kalangan Rakyat Malaysia Berumur 15 Tahun

The Global ESG Monitor (GEM), a research initiative that examines ESG transparency in non-financial reporting of the largest companies in the world, revealed that Malaysian companies used internationally recognised frameworks, standards, and strategic tools in their Environmental, Social and Governance (ESG) reporting but lacked the appropriate content and level of detail needed for optimal transparency, thus ranking in the midfield amongst global and regional peers.

The GEM 2022 analysed the transparency of non-financial ESG data of 625 ESG reports from 350 companies listed on 10 of the world’s largest stock market indices on four (4) continents. The ranking is based on the degree of transparency in reporting on ESG strategy, materiality, and disclosure of indicators and not their overall performance on such metrics. The GEM Malaysia Regional Report 2022 marks the first time Malaysia was included in the benchmarking report, assessing the 30 companies listed on the FTSE Bursa Malaysia KLCI (FBMKLCI).

“Malaysia’s FBMKLCI inclusion in GEM 2022 reflects the country’s commitment to transparency and sustainable business practices. With an average score of 54 out of 100 points, the Malaysian index ranks joint fifth place alongside the Dow Jones among the ten indices surveyed. This positions the FBMKLCI ahead of the S&P 50 USA (53 points), ASX 50 (53 points), WIG 20 (51 points), and BET 20 (41 points). Above FBMKLCI rank S&P Asia (56 points), Hang Seng (57 points), EUROSTOXX (66 points) and DAX (68 points),” said Michael Diegelmann, Co-founder of the GEM.

“The FBMKLCI’s ranking showcases progress in sustainability, but also highlights the need for deeper, more detailed ESG reporting in Malaysia,” he added. 

The Report’s findings were revealed today at a thought leadership event, ‘Sustainability Perspectives’, hosted by Perspective Strategies, the Malaysian Regional Partner of the Global ESG Monitor. The event featured insightful discussions led by speakers Michael Diegelmann and Ariane Hofstetter, both co-founders of the GEM, Dr. Nurmazilah Mahzan, Member of IFRS Foundation Integrated Reporting and Connectivity Council (IRCC), and Ir. Dr. Mohd Fadzil Bin Mohd Siam, Head of Corporate Strategy & Sustainability, Tenaga Nasional Berhad (TNB), which topped the leader board of Malaysia’s FBMKLCI companies with the highest transparency score. The discussion highlighted areas where the index is already performing well, identified opportunities for improvement, discussed ESG transparency issues in Malaysia, and showcased best practices in ESG reporting.

“We are delighted to bring together corporate leaders who are committed to sustainability and communications. The event was made possible by our sponsor, U Mobile Sdn Bhd (U Mobile) and partner, bzBee Consult. We believe this is just the first step as we strive towards highlighting the importance of ESG Transparency in sustainability reporting. The premise is that Sustainability and ESG do not work without transparency,” said Andy See, Managing Director of Perspective Strategies, the Global ESG Monitor’s Regional Partner.

The transparency scores of the top 10 FBMKLCI companies based on the Global ESG Monitor are:

Note: The criteria for measuring transparency in the Global ESG Monitor are based on six (6) interdependent dimensions, balance, comparability, accuracy, timeliness, reliability and relevance.

Other key findings of the Global ESG Monitor Malaysia Regional Report include:

• The FBMKLCI demonstrates a commitment to international frameworks, with 90% of companies referencing the Sustainable Development Goals (SDGs), 87% following the Global Reporting Initiative (GRI), and 67% aligning with the Task Force on Climate-Related Financial Disclosures (TCFD).
• The Malaysian Code on Corporate Governance (2021) specifies that there should be at least 30% “women directors” on the boards of Malaysian companies. FBMKLCI is already in a good position in this respect, as mixed boards have already been identified for 80% of the companies surveyed.
• In the reports themselves, however, the companies are more cautious in this respect: only 77% report the total percentage of their employees by gender. The descriptions in the FBMKLCI are also rather restrained when it comes to the topic of age split (67%) or ethnicity (43%).
• Significant transparency gaps exist in Environment, Social, and Governance (ESG) reporting, with scores of 55%, 39%, and 54% in each respective category.
• The top performing companies namely Tenaga Nasional Berhad and Press Metal Aluminium Holdings Berhad tied for first place at 72 points.
• A lack of detail in reporting has resulted in a poor overall ESG transparency score. For example, 90% of Malaysian companies report that a materiality analysis was completed but only 20% provide background information on the year of data collection and how the data was collected. In addition, 67% of companies list their stakeholders but only 37% provide information on how the stakeholders were determined.

Ariane Hofstetter, the GEM’s Co-Founder and Head of Research added, “While Malaysian companies excel in adhering to international frameworks, it’s crucial they provide more comprehensive information on environmental, social, and governance aspects to truly embrace sustainability.”

“We must realise that the transparency of our ESG reporting is critical to inform and engage stakeholders. After all, sustainability reporting has been mandatory for all Malaysian public-listed companies since 2016. Whilst there are still many hurdles for Malaysian companies to overcome when it comes to transparency, overall, this is good news for investors and other stakeholders as we are moving towards the right direction,” concluded Andy See, Managing Director of Perspective Strategies.

Click here to download the Inaugural Global ESG Monitor Malaysia Regional Report 2022 that was unveiled at Sustainability Perspectives earlier today.

About Perspective Strategies

Perspective Strategies is a strategic communications and issues management firm with services in public affairs, brand communications and stakeholder engagement. The firm’s expertise is built on years of experience of working in a comprehensive range of industries and businesses. Perspective’s team has strong credentials in corporate reputation, investor relations, brand and marketing communications, as well as communication capabilities building for clients. In line with the current shift towards Sustainability and ESG, the firm established the Strategy and Sustainability Practice to deepen its knowledge and expertise in this core area. Perspective Strategies is the exclusive Malaysia Regional Partner of the Global ESG Monitor (GEM).

About the Global ESG Monitor

The Global ESG Monitor (GEM) is a unique research initiative to examine transparency in non-financial reporting of the largest companies in the world.​ The GEM monitors, analyses and reports on the transparency of non-financial ESG reporting using the GEM ASSAY™, a proprietary research tool adapted annually in response to evolving conditions and developments.

The operationalisation of transparency underlying the GEM ASSAY™ is based on the relevant guidelines of Global Reporting Initiative (GRI), ISO Standard 26000, World Economic Forum (WEF) and Accountability.

The Global ESG Monitor is headquartered in Wiesbaden (Frankfurt), Germany with partner offices in Washington, DC; Melbourne, Australia; Kuala Lumpur, Malaysia; Hong Kong, China; Warsaw, Poland and Bucharest, Romania.

For more information on the Global ESG Monitor 2022 Transparency Report, visit www.globalesgmonitor.com