The Securities Commission Malaysia (SC) today released new Guidelines to strengthen the role of investment analyst firms and their analysts as a reliable source of investment information for the public.
The SC also issued a Technical Note to provide details on the licensing requirements for those providing digital investment advice. This is in line with the SC’s agenda to create a digitally inclusive ecosystem for the capital market.
Both developments support a key thrust of the Capital Market Masterplan 3 to provide investors with better and greater access to quality investment advice and increased diversity to meet their emerging needs through a more digitally inclusive ecosystem.
“Investment advisers play an important role in the capital market by providing valuable insight and information for investors to assess investment opportunities. That is why the SC expects them to exercise reasonable care and diligence in providing research-related services,” said the SC Chairman, Dato’ Seri Dr. Awang Adek Hussin.
“The SC is also cognisant of the shift in the investment advisory landscape. The emergence of digital advisory models that combine technology and investment expertise is expected to further strengthen the provision of accessible and quality advice to investors,” he added.
Guidelines on Market Conduct and Business Practices for Investment Analysts and Their Analysts (IA Guidelines)
The IA Guidelines outline the core principles and minimum standards that must be observed by holders of a Capital Markets Service License (CMSL) and a Capital Markets Service Representative’s License (CMSRL) who issue or promulgate research reports in carrying out the regulated activity of providing investment advice.
Investment analyst firms and their analysts are expected to have high standards of integrity and competence in providing research-related services to ensure the objectivity and quality of their research reports and recommendations.
They will be given a six-month period to familiarise themselves with the IA Guidelines, which take effect on 8 June 2023.
Enabling Digital Advisory Business Models
The SC is facilitating applicants seeking to carry out the business of investment advice through the use of automated, algorithm-based tools to meet the different needs of investors.
With the release of the Technical Note today, a party proposing to undertake digital investment advisory services and requiring dispensation or waiver of certain licensing requirements, which include minimum financial requirements and competency thresholds, can submit an application for waiver to the SC.
In considering such an application, the applicants are required to demonstrate how their digital innovations can benefit their targeted investors while possessing the requisite technological capabilities.
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.
Stablecoins are in vogue, for good and bad reasons. On the bright side, by being allegedly backed one-for-one with hard currencies or near-money safe assets, unstable stablecoins hold the promise of functioning as privately produced money that could facilitate digital trade on distributed ledger technology (DLT) platforms in the future.
To see this, one must recognise an important property that defines the acceptance of a currency: the no-questions-asked (NQA) principle. Coined by Bengt Holmström, the 2016 Nobel Economics Prize winner, NQA means no due diligence is needed on the value of currency used in a transaction. All parties in a transaction accept the money at face value – a one-hundred-ringgit note means RM100, not a cent less.
The implication is enormous: banks will not put your transaction on hold to verify the value of your money when you wave your card to pay for a meal. Neither will the cashier waste time on physical verification if currency notes were presented. Just imagine how messily inefficient the payment system will be if otherwise occurred.
NQA also means no delay when it comes to redemption and convertibility. All banks shall do in the face of deposit withdrawals, for instance, is to let it be. Likewise, no parties in a transaction would question an exchange of a RM100 note for two RM50 notes or ten RM10 notes upon request.
For fiat currency, the trust is grounded upon central bank’s monopoly in currency notes issuance. For bank money, the trust is sealed by deposit insurance and access to central bank reserves.
Unstable Stablecoins?
Which brings us back to the viability of stablecoins as privately issued money. By what the trust on stablecoins can be underpinned? So far not much, other than the collateral in the form of cash and cash equivalents proportional to the stablecoins minted.
Tether, for instance, describes that “Every Tether token is always 100% backed by reserves, which include traditional currency and cash equivalents. Every Tether token is also one-to-one pegged to the dollar, so USDT1 is always valued by Tether at USD1.”
Leaving aside the fact that Tether has been sued and fined USD18.5 million for lying about its backing assets – less than 7% of its tokens were backed by cash and cash equivalents– the inner logic of a collateralised token is deeply flawed.
Now suppose the token is genuinely 100% tied up in perfectly safe and liquid assets. That simply means stablecoins are equivalent to but no better than cash. If so, what is the point to privately create a digital token, while the job can be carried out equally well by riskless central bank money?
But if the token is not fully backed by near-money safe assets, tokens become non-fungible, as the same tokens embody different intrinsic values when the collateralised assets are varying. Then the token users would need to consider whether to accept the token at face value in each transaction. After all, your USD1 stablecoin is not worthy of my USD1 stablecoin. This is a great example of unstable stablecoins.
NQA Concept With The Unstable Stablecoins
In this context, NQA principle is violated. Stablecoins are always vulnerable to runs, and therefore hard to use in transactions. There is a familial resemblance between the Free Banking Era of the 19th century in the United States and stablecoins. By passing the Free Banking Law first in Michigan, in 1837 and last in Pennsylvania in 1860, more than a dozen of states changed the way banks were operated. Anyone could just open a bank, but with one rule: banks had to back their note issuance one-for-one with state bonds.
Guess what? Bank notes were not economically efficient then as there was constant argument over the value of notes in transactions. NQA principle was broken, and there can’t be a functioning currency when there is no NQA.
Later in 1863, the National Bank Act was passed. Banks that could issue national bank notes were established. Privately issued bank notes were penalised out of existence, giving way to national bank notes that ended the free banking era.
If history is any guide, the parallel is clear: stablecoins are likely to be replaced by the coming central bank digital currencies that can also circulate on a DLT platform. No privately produced monies, however collateralised, can be as good as a properly run central bank monies.
Unless central bank digital currencies are designed for use only among financial intermediaries, then other private digital monies like stablecoins can co-exist to serve the wider economy on retail front.
But to transform stablecoins into the equivalent public money, the one-to-one peg to national central bank digitalcoins must be backed by central bank reserves. Stablecoins cannot become a stable currency until this occurs.
By leveraging the prevailing well-functioning banking and payment system, another option is to tokenise the bank deposits. These tokens would represent a claim on the bank, just as a debit card holder drawing on her savings deposits does. Tokens are then backed by deposits, which, in turn, are backed fractionally by central bank reserves and deposit insurance.
As such, fungibility is restored, and NQA principle is naturally effectuated. While stablecoins in its current form are inherently unstable, we certainly don’t want to throw the baby out with the bathwater by putting more nails in stablecoins’ coffin.
But rather, if we believe that digital exchanges enabled by DLT platforms are here to stay and proliferate in the future, sorting out a viable form for privately produced currency that can be used to grease the wheel of digital exchanges is a more productive way out.
We might not be far away from stabilising the unstable stablecoins.
About the Author
Wong Chin Yoong is a professor of economics in Universiti Tunku Abdul Rahman, and an external consultant to Max Wealth Group.
We now live in the era of uncertainty. The market is very volatile, where it can have wild swings that might scare even the most seasoned of professionals. This is where fixed income comes into the picture to help smoothen things up and make investing less of a wild rollercoaster ride.
Smart Investor spoke to Dan Ivascyn, Managing Director and Group CIO of PIMCO to find out more about the global fixed income outlook for 2023. Ivascyn is leading the company’s fixed income strategies and PIMCO is an American investment management firm focusing on active fixed income management worldwide. PIMCO manages investments in many asset classes such as fixed income, equities, commodities, asset allocation, ETFs, hedge funds, and private equity.
Dan Ivascyn, Managing Director and Group CIO, PIMCO
Global Fixed Income Outlook For 2023
Smart Investor: 2022 has been a torrid year for markets on the back of higher interest rates and persistent inflation. What’s your broad outlook for markets in 2023 and are we tipping towards a recession?
Dan Ivascyn: Over the next six to twelve months, we expect to see shallow recessions and rising unemployment across many large developed markets. Central banks are determined to bring down inflation, which means tighter financial conditions and slower growth that is unlikely to bounce back quickly.
We believe the return potential in the bond markets is now compelling, given how much yields have risen year-to-date. We do see downside risks for global equity markets, however, given starting valuations and earnings expectations that may not account for ongoing central bank tightening measures and increased recession risk.
SI: Fixed income has also not been spared from the volatility as bond yields rise with the Fed staying on its hawkish path. Is the bond route over or should investors stay buckled up? What’s your take on the global fixed income outlook for 2023?
DI: The global fixed income outlook for 2023 is looking quite attractive whether it is from an absolute perspective, versus cash for those that may have been on the sidelines looking to avoid the volatility, or versus equities where we see more downside risk. Given the dramatic rise in rates so far this year, we are finally at a point where we do see considerable opportunities for the patient investor, particularly in the higher quality space that should be more resilient in a recession.
The bottom line is that valuations have changed a lot very quickly and careful investors can now go on the offense in select parts of the fixed income market.
SI: Against a backdrop of slowing growth and risks of corporate defaults, how will the team be approaching its credit selection and investment process? Which sectors are you finding attractive?
DI: In credit markets, we seek to balance near-term caution given the uncertainty and recession risks with a long-term focus on high quality, resilient assets that may see some near-term weakening, but that we believe are highly unlikely to default. This includes a range of high quality structured credit assets, high quality investment grade corporate debt, particularly financials, and even some high yield credits that we believe have sufficient balance sheet resiliency over a range of adverse economic outcomes.
We’re more cautious on areas of the credit markets that are very sensitive to the economic cycle. This includes weaker emerging market corporate exposures, lower-rated bank loans, and segments of the private credit market where weaker-quality borrowers will likely face the direct impact of higher central bank policy rates via higher debt service costs, which will likely be accompanied by deteriorating earnings power.
SI: Why should investors consider fixed income as an asset class in their portfolios?
DI: There are several reasons bonds make sense in a diversified portfolio. Firstly, the increase in yields globally means there is a much higher income potential in bonds than there has been in a long time. High single digit yields in high-quality bonds provide a powerful source of returns and stability, particularly compared to equities which may see more weakness in a recession.
Secondly, current valuations mean there is the potential for capital gains as the trade-off between growth and inflation becomes more evident, potentially resulting in a Fed pivot.
Finally, while stocks and bonds have tended to move in the same direction this year, we expect to see a return to negative correlations, meaning fixed income generally should rise in value when equities fall.
Well there you have it, the global fixed income outlook for 2023 by an expert.
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During the recent Singapore Fintech Festival 2022, which saw record turnout, a new digital asset was launched in the form of vouchers called “purpose-bound money”. They are powered by the Singapore Dollar backed stablecoin (XSGD) and processed on the Grab superapp, and piloted to 5000 participants with much fanfare. The vouchers were sponsored by Temasek, the best-managed sovereign wealth fund in the world.
Many thought that digital assets were gaining the public recognition and adoption it deserves. They enthused that the year-long ‘crypto winter’ is turning into spring, as November is usually a great month for the markets.
Temasek explained that it spent 8 months on “extensive due diligence” before making the investment. Fellow investors include Tier 1 venture capital (Sequioa, Softbank), hedge funds (BlackRock, Tiger Global), and multi-billionaires (David Loeb, Paul Tudor Jones) to name a few. Ordinary Singaporeans were caught in the same boat, as they were the second biggest traders globally on FTX pre-collapse, averaging 240,000 visits a month.
The markets went nuclear. Business Insider summed up wryly: “Up-vember has turned to Nope-vember!”
Can Retail Investors Really Manage Ultra High-Risk Assets?
Digital assets are extremely volatile. They have crashed so many times that there is a website dedicated to counting the number of times that “bitcoin is declared dead” by news outlets. At time of writing, there are more than 460 “obituaries”. Bitcoin has dropped by 75% from its high this time last year with about RM9 trillion in value destruction across the crypto market!
Take bitcoin for example: It has a very high level of residual risk i.e., risks that cannot be attributed to normal factors. This means that there are risks which are specifically unique to this asset class, and it is nearly impossible to be aware of or to address all risk factors.
Based on studies, 91% of bitcoin’s risk is unexplained. In comparison, broad-based equity indices like the S&P 500 have only <1% residual risk. Individual stocks typically carry higher residual risk, but much lower than that of bitcoin.
Investors might take on such residual risks to serve the notion that digital assets can hedge against global market downturns, but unfortunately, this could not be further from the truth. Bitcoin might not act as a safe haven against downturns such as during the pandemic. Instead findings show that it might even amplify losses.
Therefore, when you invest in digital assets, accepting high risk is not an option – it is par for the course. You stand to lose everything you have, and you shouldn’t be surprised by it. When a large sovereign wealth fund can lose its entire investment despite all the information access and investing tools at its disposal, what can we say for small-time investors?
Many non-professional investors are oblivious of taking large amounts of residual risks but are unable to sufficiently diversify them away.
Please ask yourself:
Do you know how to manage crypto exposures, optimize position sizes, and have the level of sophistication to do so?
Do you fully understand how price discovery in crypto works, and the outsized role which futures markets play?
How frequently should you rebalance your portfolios and what assets can you rebalance to?
How are you going to hedge risks when there are literally no hedging instruments offered by the DAXes in Malaysia?
Awareness Of Risk Is Not Equal To Suitability Of Investment
Investors are taught to allocate between the four main types of asset classes according to risk. You may put some into cash which tend to have the lowest risk, followed by bonds or properties, and finally into equities, which carry the highest risk.
Some consider digital assets as the fifth asset class though it is far riskier than equities. Often there are no financial statements or real fundamentals behind them, so investors have to rely on technical analysis. Furthermore, due to the lack of regulations, ‘information asymmetry’ remains a serious and unresolved problem – investors seldom have full or fair access to the information required. Under these circumstances, value investing is very difficult.
In the absence of corporate disclosure requirements, investors aren’t duly notified of the legal and technical threats that unfold. When all they see is the quotation board (as corporate news isn’t announced to DAXes), their decisions won’t be as informed as they should be.
For instance: They won’t know that the latest digital asset approved for trading in Malaysia, Solana is closely related to FTX, which is currently being investigated for large-scale fraud. Or that it suffered at least five major outages since its launch, rendering it ‘unusable’.
Or that Ripple is facing ongoing prosecution by the US SEC and has been delisted in leading foreign DAXes such as Coinbase. Or that Uniswap gets maliciously hacked every now and then, without any investor recourse.
Digital assets bound to a single corporate entity such as FTX present a big due diligence headache as investors won’t know what hit them before it’s too late. The performance of these entities directly correlates to the performance of their tokens.
They may behave like equity, but they are not beholden to their token holders! They are neither required to report or be transparent. Corporate controls take a backseat while their ‘moon-talk’ takes the wheel, right until the inevitable car crash.
Digital Asset, The Choice Of So Many Youths
Nevertheless, crypto has changed the investment dynamic. It has become a touchstone of pop culture. When you ask Millennials and Gen Zs, their first investment product is crypto even though it is the riskiest asset class! They’d place their life savings to buy illiquid artworks (in the form of NFT) even though that’s the last thing a normal portfolio will consider.
When you ask what their objectives are, it sounds like they want to chase unicorns or catch lightning in a bottle (expect prices to magically pump). Their investment strategy is mainly to hold until it hurts – while those who sell are shamed as weak hands.
It’s a ‘donut’ approach: Do nothing as it tracks to zero, just stare at the hole. Solana may have plunged 95% from its peak last year with no bottom in sight. But to Solana fans, it is the hill they die on.
The point is: It is not enough to be aware of the risks – most investors already are. Awareness is one thing, but the assessment of product suitability is quite another. But are DAXes making such an assessment? Are investors being risk profiled?
When it comes to a prolonged downturn like what is seen now in the crypto market, these investors become captive or stuck in their spot positions without ways to neutralise them or products to rotate out to.
Will the situation worsen once IEOs (initial exchange offering) start proliferating the market? IEOs share similar characteristics with private securities offerings, which are generally reserved for accredited investors. In Hong Kong, these are classified as “complex products” which warrant additional investor protection measures (HK SFC: Guidelines on Online Distribution and Advisory Platforms 2019).
In Singapore (where FTX is the latest storm to volley the island in a squall line from Terra Luna to Vauld to Three Arrows Capital to Hodlnaut), regulators have been repeatedly advising retail investors to stay away from crypto but was anyone listening?
When Investors Treat Crypto As Their Retirement Plan…
According to a Charles Schwab survey, nearly half of all millennials and Gen Zs see crypto as a viable retirement plan. This is not just a generational trend but a tech-driven one (Guardian).
They use digital tools like robo-advisors (Accenture) and prefer to pick their own stocks (Wall Street Journal). They think financial planners are for their parents (“OK Boomer!”) and rather get their fix from social media influencers.
Asset managers have been eager to gratify this demand. One of the world’s largest retirement funds, the Ontario Teachers’ Pension Plan for 330,000 working and retired teachers, decided to invest in FTX and is now among the biggest losers on record. Fidelity Investments, which administer pension plans for 23,000 companies in the US, has allowed contributing employees to choose bitcoin in their 401K retirement accounts.
Here in Malaysia, there are news reports that EPF funds were taken out during the Special Withdrawal rounds to invest into crypto – despite the looming retirement security crisis. DAXes are even talking up ‘monthly deposit features’ into crypto like regular savings plans!
There is increasing pushback, in the wake of FTX which fooled the most brilliant and vigilant asset managers. New York’s Attorney General cautioned, “investing hard-earned retirement funds in crashing cryptocurrencies could wipe away a lifetime’s worth of hard work”. US Congress is being asked to ban digital assets for individual retirement accounts as most of them “have no intrinsic value and are too unstable”.
The same goes for investing in “digital asset companies which are a breeding ground for fraud, crime and theft” and “do not operate with sufficient guardrails to protect retirement savings” (US NYAG: Prohibiting Retirement Investments in Crypto 2022).
If Investors Can’t Be Protected, They Should be Restricted
Investors must learn to see behind the smoke and mirrors of crypto. It is 90% marketing and 10% innovation, with a probability not promise of long term value. Many are over-confident of their own research and unaware of confirmation bias.
Even Temasek had to admit that their trust was “misplaced” in FTX. In an interview with Bloomberg, the FTX owner admitted that the concept of high returns in crypto was like a Ponzi scheme, which left the reporter utterly stunned!
Investors need to grow up and admit that they would have missed it too.
FTX is an unbelievably complex organization. Even the defunct Lehman Brothers which triggered the 2008 global financial crisis was less complex. FTX printed monopoly money, made investors buy it, then printed more monopoly money as collateral and took out real money loans – which it gambled away through a sister company.
If digital assets are high-risk products that require sufficient knowledge, experience and capital, why are they not restricted to sophisticated investors – but marketed widely including to the pensioners, the poor, the uninitiated?
The unwary masses are bombarded with outdoor billboards, online banners, radio spots, and roadshow trucks designed by award-winning agencies. Influencers are freely promoting crypto ads in the guise of financial education and luring their ‘followers’ into backroom deals.
At the end of the day, a good investment thesis should have a strong balance sheet, risk management practices, corporate governance, and recovery mechanism. Unfortunately, this basic hygiene is nowhere in the crypto sector.
Until this is done, if we cannot adequately protect vulnerable investor groups, then we ought to in good conscience restrict them from digital assets.
Crypto is here to stay but regulators should ensure it’s here for good. Where there are no suitability guidelines, digital assets are not considered an alternative investment but will become the new staple.
About the Author
Edmund YongKevin Wong
Edmund Yong and Kevin Wong are the partners of Celebrus Advisory, a regulation-focused consultancy for blockchain technology and digital assets.
With so many uncertainties coming our way, recession, and general election just to name a few, there’s a lot of jittery investors out there. Throw in volatility, rise of inflation, hike in interest rates, and we have ourselves a storm coming up next year.
Not sure where to invest? Smart Investor recently spoke with Lee Sook Yee, Chief Investment Officer, Kenanga Investors Berhad to find out more about this hot topic.
Lee Sook Yee, Chief Investment Officer, Kenanga Investors Berhad
Smart Investor: Analysts are saying that recession is coming next year, does Kenanga Investors agree? If yes, what contributed to it and will it be even worse than previous recessions?
Lee Sook Yee: A typical recession is characterized by declining GDP growth together with a rise in the rate of unemployment. In that respect, there is increasing likelihood that the USA and Europe will fall into a recession sometime next year.
Looking at consensus estimates, US GDP growth will slow from 1.7% in 2022 to 0.4% in 2023. Meanwhile, growth in the European Union is forecasted to decline from 3.3% in 2022 to 0.3% in 2023.
With regards to the causes of the recession, a cyclical slowdown in the business cycle is made worse by high inflation, tight monetary policy and geopolitical conflicts. The magnitude of recession is still uncertain, and will depend on many factors.
Recessions in the past such as the 2008 financial crisis were driven by subprime mortgages and a subsequent liquidity crisis when Lehman failed. The issues this time around centers on high inflation and the resulting tight monetary policy by central banks to combat it.
Hence the magnitude of the recession would be the persistence of inflation and the willingness of policy makers to ease policy when inflation starts to cool. For Malaysia, growth will slow in-line with global growth but should still remain relatively resilient supported by domestic consumption despite the drag from exports.
Analyst expect a lower growth rate but still above 4% for 2023 with stable employment.
SI: What is Kenanga Investors’ market outlook for 2023? What are the things to look out for?
LSY: We think 2023 could see a market rebound depending on how long inflation takes to cool and the corresponding policy response from central banks. Global markets should be able to embark on a sustainable rebound once central banks signal a pause or a turn in policy stance.
For now, trends in the datapoints point to lower inflation by end of 2Q’ 2023 due to easing supply side constraints, tighter policy working with a lag and base effects.
Markets have declined significantly in 2022, pricing in higher rates and also a slowdown in growth. Looking a past history, markets tend to bottom about 1-2 quarters before the worst period in growth and earnings and sometimes even ahead of the final rate hike.
SI: As a retail investor, where should we invest our hard-earned money in 2023?
LSY: Overall, we expect a recovery in global markets for 2023 after the sell-down in 2022. Valuations have become cheaper across the board and investors are highly cashed-up.
Earlier in the year, we think bonds could perform better as inflation peaks. Meanwhile equities should recover thereafter, once the growth concerns get priced in and the central banks move to a more supportive stance.
When equities rebound, we should see strong performances across the board regardless of geography. Malaysia also stands to see better days, as uncertainties abate post-election and global macro concerns cools.
The Answer To Where To Invest In 2023
Hope you now have the answer on where to invest for next year. As we approach the end of the year, take the time to unwind and spend quality time with your loved ones.
The COVID-19 pandemic outbreak shows an increasing trend of hackers and scammers stealing information and financial data since many business operations have shifted to global scale, and consumers have an increased dependence on online payment systems.
This is true for cryptocurrency or crypto investments. But why is crypto scams in Malaysia still on the rise despite countless news regarding it that have made headlines both worldwide and nationwide?
The possible reason behind this is the attractive and fast return of investment. Success stories of those who are lucky enough to succeed in this investment became the fascination for others to do the same.
After all, crypto investments do exist and are real. In Malaysia, the potential is massive as our financial industry is accelerating into Fintech and digitalisation as portrayed in the Bank Negara Malaysia (BNM) Financial Sector Blueprint 2022-2026 and Malaysia Fintech Report 2022.
Shariah wise, the legitimacy and the nature of trade plays a big role in determining whether an investment is permissible or otherwise. It is reminded that Muslims are prohibited to invest in something which contains element of gambling or an investment which involved speculation in its nature of trading.
The importance of the legitimacy and nature of investment, in relation to the works of Imam Al-Ghazali, was described in his Magnum Opus, Kitab Ihya Ulumuddin. Al-Ghazali mentioned that the understanding of Fiqh is crucial as the action taken in making investments are properly managed and done according to the Shariah.
Checklist On Crypto Scams In Malaysia
It is best to refer to the two checklists below before getting involved in any crypto investments, or you may expose yourself to crypto scams in Malaysia.
1. Checklists regarding investment and investing in crypto:
Study the investment model, risk, and return to see whether it is reasonable.
Muslims can check regarding the Fatwa given on cryptocurrency investments and if it is permissible, check further if there are any circumstances where a crypto investment is considered impermissible? There are many other pointers given by the Shariah Advisory Council (SAC) regarding Islamic investments.
When in doubt, you can check with the Compliance Officer from Bank Negara Malaysia, Securities Commission Malaysia (SC), Ministry of Domestic Trade and Consumer Affairs, Cybersecurity Malaysia or other relevant authorities regarding the licensing status of the local or foreign investment company or find out if there are any latest warning issued regarding cryptocurrency investments.
2. Checklists in identifying and avoiding crypto scams in Malaysia:
You could contact the National Scam Response Centre (NSRC) if you realised you had been scammed and provide the authorities with the relevant details.
To check whether the investment account has any police report record linked to its bank account number. This can be done through the website of the Royal Malaysia Police Commercial Crime Investigation Department, which is supported by Bank Negara Malaysia (BNM), Ministry of Domestic Trade and Consumer Affairs (MDTCA) alongside with the Ministry of Communication and Multimedia Commission (MCMC).
When the transaction amount is suspicious, the Bank officers might stop it for the purpose of due diligence. Be cautious if the Bank officer advice you not to proceed with the transaction without providing any specific reason. They usually have the basic background detail regarding the account you were transferring money to. If you had transferred the money and regretted it, you may call the Bank immediately to cancel it.
Although praise should be given to ‘financial advocates’ who hunt after scammers personally in real life, prevention is better than cure. In this case, it is better to be an informed investor. Hopefully the checklists above can prevent you from becoming a victim of crypto scams in Malaysia.
About the Author
Azah Atikah Anwar Batcha has an Accounting, Finance, Auditing, and Islamic Finance background. She has worked with two of the Big four firms prior to pursuing her postgraduate studies at University of Technology Malaysia (UTM), Kuala Lumpur. She can be contacted at aaabwrite@gmail.com
We have seen it before. The business looks legit and takes on paid orders from customers. Then the business suddenly folds and absconds with all the money. Thus, the name ‘fly-by-night’. It is one of the oldest and simplest ways to operate a scam. But people still fall for it.
In the murky world of cryptocurrencies, this takes on a whole new meaning with rug pull.
“If I Die, I Won’t Completely Die”
Gerald Cotten built a platform that was once the top destination for crypto investors in Canada and the first to be licenced as a money service business by the country’s anti-money laundering authority. At one point, it was processing 90% of crypto trading volumes there.
Everyone loved Gerald. He looked like the guy you’d hangout for drinks in a bar, with giggly boyish charms and a knack for big boys’ toys.
Barely one month after his wedding in a Scottish castle, he allegedly faked his death while traveling to Jaipur, India. He was only 30 years old.
It was two weeks before Christmas 2018. He and he alone had access to a billion ringgit’s worth of crypto belonging to over 76,000 investors!
The cause and circumstance of his death were mysterious to say the least. It launched a media and doxxing frenzy. He was seemingly healthy and died from what local doctors claimed to be Crohn’s disease – which is generally not fatal. It begged the question why he chose to travel without medical precaution.
His name was misspelt on the death cert, no autopsy was done, and the funeral was ‘closed casket’. His will was signed a few days before his death, naming his newlywed wife as the executor and sole beneficiary.
According to some internet sleuths, Jaipur is known to be a mill for fake death certs. Plastic surgeries are also on hand to give the undead a new face. Back home, investigators dug into Gerald’s books and found a massive Ponzi scheme, while investors sought to dig up his corpse to verify it was him. It became clear that he was in grave financial trouble (pun intended) during his final months with the motive to run.
This exit scam or rug pull is immortalised in crypto folklore and the fraud bible, and perfectly summed up by the quote from surrealist master Salvador Dali: “Si muero, no muero por todo” or “If I die, I won’t completely die.”
As we go deeper into the DeFi (decentralised finance) part of the cryptoverse, exit scams have become the weapon of choice. They contributed 37% of all crypto scam revenue in 2021, surging from 1% in 2020!
They are much faster: the average active period for each scam was 70 days in 2021, down from 192 in 2020. And they have a catchy new name: “rug pull”, like when the rug is quickly pulled from underneath and makes you fall.
The tactics used to rug pull investors are creative. In Compounder, the smart contract used for the investment was injected with a few lines of malicious code to drain out the funds. Investors could do nothing but watch and be left holding the bag.
In SushiSwap, the founder cashed out all his tokens at a high after successfully sucking billions in liquidity from a rival platform with a cloned blockchain protocol – this is called a ‘vampire attack’ as liquidity is the lifeblood.
In Squid Game (no relation to the Netflix show), the token created so much hype off a popular meme but flash-crashed when the founders pull out – from peak of US$2861 to a fraction of a cent, in 10 minutes! The token was intentionally designed with exit barriers which made it harder to sell and fueled market panic as everyone is reeling from the rug pull.
In more recent news, the fugitive owner of Thodex, the top exchange in Türkiye was arrested after a grand ~RM10 billion rug pull. He shut down the exchange by faking cyber-attacks, locked up the funds of 391,000 investors, and fled overseas with a USB drive. He faces up to 40,000 years in jail.
In the conventional world, what you see is what you get. But crypto is invisible. Which is all the more reason for you to know what you’re getting into. The vast majority of investors do not read the technical code before they buy crypto, not because they don’t want to but they don’t know how to.
Even with safeguards like security audits, timelocks, burnt keys, and what-nots, it is not failsafe. Many high-profile scams were audited by reputable firms! Worse, most of these scammy founders are anonymous – pushed proudly as a selling point rather than warning sign since the whole industry is founded by a phantom named Satoshi Nakomoto!
Only detailed forensics can tell you what went wrong. The real truth is found in the digital fingerprints. Even then, you won’t be completely safe from rug pull.
For those of you who tend to have FOMO (fear of missing out), you missed nothing. Instead, please enjoy the JOMO of not losing money as seen above. Crypto is not for everyone. There are other less risky products out there to aim your FOMO. It is better to invest in what you know or to stay within your “circle of competence”, as Warren Buffet would say.
Crypto is a great invention, but is in continuous iteration, and you can afford to wait it out until the products improve and mature over time. Do remember to make your due diligence or you could become a victim of rug pull.
Edmund Yong is the managing partner of Celebrus Advisory and appointed by MDEC as part of its Talent Expert Network (formerly known as Digital Expert Panel) for blockchain technology. Members of the public with similar experiences and who are looking for investigative and forensic services in digital assets from authorised representatives, or to support their litigation efforts, can contact the CEO of Imperium Universe at jason@imperiumuniverse.xyz.
With many uncertainties coming our way such as the recession and general election, there are a lot of jittery investors out there. Throw in volatility, rising inflation, hikes in interest rates, and we have ourselves a storm in the coming year.
With that, Smart Investor organised and moderated the webinar ‘Where To Invest In 2023’ attracting hundreds of participants where they attended a fruitful session and discussion between three industry experts sharing their thoughts and views.
The panel was made up of three industry experts: Lim Chia Wei, a senior portfolio manager at Affin Hwang Asset Management; Julian Suresh, the executive director and chief investment officer at Redvest Wealth & Asset Management; and Jason Wong Jia Jun, CFA and research manager at FSMOne Malaysia.
Where To Invest In 2023
We started off with the question: “The dreaded R-word is popping up again and haunting investors. Do you think we are headed for a recession and how do you think Asia will weather through the crisis this time? Could we see a repeat of 1997 or something milder?”
Chia Wei states that we might go into recession in the next six to twelve months down the road, but it would not be as bad as previous recessions. He also shares that most Asian countries are in a much better position in 2022 as compared to 1996, with better current account balances, as a result of a better performing Gross Domestic Product (GDP) in countries such as Singapore, Taiwan, Hong Kong, Malaysia, Korea, and Indonesia. The number of Forex reserves is also highlighted with Hong Kong, Singapore and Thailand showing the way.
Next, we ask the question: “What other key events are you keeping an eye for in 2023? Are there any black swans on the horizon?”
Chia Wei responded: “The stock market has declined a lot and is nearing the bottom, with the bear market already in the US and Asia. The stock market will always bottom out and rebound before the end of a recession.”
To spot the end of a recession, he advises us to look out for the potential easing of inflation and bond yields to go down from a very high level. We should also watch out for a weaker US Dollar (USD), that will see Asian stock markets recovering.
He also cautions us to be aware of the potential escalation of the Russia-Ukraine conflict or the potential of an embargo on oil exports which could cause a spike in oil prices. This will in turn cause the bond yield to rise and with the strengthening of USD, this will have a negative effect on most investment assets.
With such a backdrop of impending uncertainties, one must be asking what can we do next? How do you position your portfolios? Specifically, we ask: “What are some of your sector preferences and which ones do you think would be vulnerable in this environment?”
“We are currently underweight on certain sectors such as banking, semiconductors, and commodities; these industries tend to suffer more during a recession. We are overweight on defensive sectors, such as consumer and health care,” answered Chia Wei.
When the recession bottoms out in 2023, he suggests revisiting and taking a closer look at the aforementioned industries (banking, semiconductors, commodities). But he also warns that we might hit the bottom only in 2024, if things don’t do too well.
Chia Wei also shares a recent positive indicator being the Consumer Price Index (CPI) measuring the change in the price of goods and services from the perspective of the consumer. It is key to measure changes in purchasing trends and inflation. Even though the CPI is bullish, inflation is expected to remain high in the United States (US).
Malaysia is also expected to further hike up interest rates, but on a more gradual basis. This would give the Malaysian economy more time to digest, especially with higher monthly instalments such as housing loans that will increase gradually. But the slower hike in interest rates as compared to the US with its aggressive hikes, will make the USD stronger against the Malaysian Ringgit.
Which brings us to the question about the USD. “What is going on with the strong USD? What causes it to go up?”, we ask our next panellist Julian Suresh to explain further.
Julian Suresh, Executive Director and Chief Investment Officer, Redvest Wealth & Asset Management
According to Suresh, there are a lot of factors causing the USD to rise against most major currencies around the world. Some of the factors include the Russia-Ukraine conflict, high CPI numbers in the US leading to high inflation, and global growth concerns or the looming recession.
The USD is moving within expectation, and with the Federal Reserve expected to hike up interest rates, we shall see the USD continue to strengthen. And if each rise in interest rates is higher than expected, that would see the USD strengthen even further.
With the Ringgit also being positively correlated with KLCI, the bear market hitting our local stock market has also contributed to the poor Ringgit performance.
But all is not gloom though, as the bond market is a good alternative to invest. With Malaysia and US bond yields moving closely together, it seems that it will only get higher in the near future. Perhaps everyone is seeking shelter from the current bear market that is hitting the world’s stock market.
But if interest rate hikes are getting more aggressive, it will cause the bond yields to fall. At this point we can look to our local stock market, which has a lot of upsides and liquidity.
Answering a question posed by one of the participants on where to invest in 2023 following the movement of the USD, Suresh answered, “We should first look at the expected US data, whether it will rise or fall. If the USD falls, then the stock market is a good choice to invest.”
But if you take a closer look at the stock market, the S&P 500 might have dropped a lot, but it is still chalking up decent gains over the past few years. As compared to our FBM KLCI which has been underperforming badly.
Even though the USD might be strengthening, our Ringgit has been performing stronger against other major currencies such as the Japanese Yen, Pound Sterling, and Euro.
“The Malaysian market should bounce back by next year, and we are actually doing pretty well,” Suresh optimistically replies when asked about his outlook on 2023.
Our GDP is growing and there’s also an increase in supply and demand in selected sectors.
“It is not about what the new government will be doing, but it is what state the new government will be facing,” said Suresh.
He advised us to be mindful of our risk profile and to diversify our portfolios since there would be a lot of potential once the market recovers. In terms of exports, Malaysia came in second best behind Indonesia, but we managed to beat other countries such as Taiwan, Korea, China, Thailand and even Singapore.
In terms of growth, Malaysia is leading the pack, beating the likes of Singapore, US, Europe and even China.
We then welcomed our third and final panellist, Jason Wong Jia Jun, CFA and research manager at FSMOne Malaysia to share his thoughts on whether Malaysia is still a good market to invest in.
Jason Wong Jia Jun, CFA, Research Manager, FSMOne Malaysia
“From a portfolio perspective, Malaysia is a good market to invest in, due to its low correlation with the global market. Malaysian equities have a lower correlation coefficient with the global equities at 0.54 and the Asia ex-Japan market at 0.38,” he also optimistically answers, relying on good data.
Having Malaysian equities in your portfolio will help reduce volatility and boost risk-adjusted returns.
Even though FBM KLCI is trading sideways, certain sectors have shown good performances such as the financial and energy sector. Local fund managers have also been able to give good returns, as they tend to be able to pick the right stocks – especially in the Small & Medium Cap companies.
Jason also shares his thoughts about Malaysia’s market outlook for next year: “The Malaysian market has been disappointing this year, but we are still doing relatively good against other markets. Next year will be better as the Malaysian economy has been growing at a healthy pace, and next year our economy will be even better as forecasted by the International Monetary Fund (IMF).”
Fundamentally our companies are expected to be doing better with the solid backdrop of our improving economy next year. Earnings are expected to recover next year with double digit growth as compared to this year.
The financial sector will benefit directly from an increase in Overnight Policy Rate (OPR), and the OPR is expected to rise further. The financial sector will enjoy more than 15% growth in 2023 due to the widening net interest margin and improved investment income, as well as higher bond yields.
Our Malaysian stock market is currently trading at a very attractive level, with the FBM KLCI targeted to hit 1,600 points by end of 2023.
“Yes, there are some turbulences caused by both external and internal factors, but the sentiment will turn favourably once some of the catalysts are in place. This includes a reduction in inflation, the eventual resolve of the Russia-Ukraine conflict, and the reopening of China’s international borders”.
With the good news ahead, the question on everyone’s minds is: “Should we keep on investing despite the gloomy prospect of recession next year? If yes, where to invest in 2023?”
Jason responded with a resounding, “Yes! We must be greedy when others are fearful.”
Now is a good time to be back in the market, after it has suffered such a big drop. There are a lot of buying opportunities for long-term investors. Apart from Malaysia, the Asia ex-Japan market is also another good opportunity to invest in. The tourism sector is starting to pick up, and we can now see many tourists traveling in and out of Asian countries.
Next up is China, where they are doing the exact opposite of what others are doing. They are currently cutting down on interest rates and coming out with stimulus. The recovery of China will have a positive impact for the Asian region, especially Malaysia as we have a strong link with China. The disappointment in earnings for Asia will be less severe, as the downward impact has been priced-in most major Asian equities. Plus, the valuation is much more attractive due to the massive retracement that had taken place.
Now You Know Where To Invest In 2023?
The panellists also highlighted that the market is nearing its bottom, and next year we should see the market recover. The dreaded recession might not be as bad as we expect it to be, so just hang in there for as little as a few more months or for longer which is at best, another year or two.
You might also want to hold onto your cash, stay liquid and wait it out, as ‘cash is king’. But ultimately, it all depends on your risk profile and the strategy that you use.
Global economies have faced a number of challenges in recent months, leading to depressed stock market returns. The ongoing Russia-Ukraine war continues to have ripple effects on the global economy. And although most countries have gone back to business as usual following the peak of the COVID-19 pandemic, the virus is probably not going to fully disappear.
In addition, China’s “Zero-COVID” policy has been weighing on economic activity there. Other well-known market challenges include rising inflation and interest rates, as well as the surging US dollar.
Despite these headwinds, emerging economies continue to prove their resilience. We believe it is now a compelling time to consider emerging markets equities, even as many investors are less focused on the asset class.
Conventional And Consistent Policies
Policies in emerging markets have generally been more conventional and consistent than those of developed markets, which we believe will ultimately lead to more robust economies relative to their own history and relative to developed markets. In contrast to developed markets in the post-global financial crisis period, emerging economies did not experiment with negative interest rates.
They have generally had upward-sloping, traditional yield curves over the past decade. During the recent pandemic, policymakers in emerging markets generally did not pursue very aggressive fiscal support plans, which means they did not blow up their sovereign balance sheets. Contrast this with developed markets like the United Kingdom, for example, which pursued aggressive fiscal expansions.
As inflation began to accelerate post-pandemic, emerging economies were also preemptive in tightening interest rates. Thus, while the United Kingdom, the eurozone and the United States are still trying to catch up with rising inflation, many emerging economies have largely completed their tightening cycles.
Brazil, for example, started tightening in March 2021, and has made 12 consecutive rate hikes. Inflation has been decelerating there in recent months, leading the central bank to pause its hiking cycle in September. The US Federal Reserve, meanwhile, did not start raising rates until March of 2022.
In addition, emerging economies are typically less leveraged at the sovereign, corporate and household levels. For example, in Mexico, the household debt-to-gross domestic product (GDP) ratio is only 16%, compared with the United Kingdom’s ratio of around 90%. 1
At the stock level, emerging markets offer investors opportunities in high-quality and high-growth companies. They are home to some of the most innovative, technology-oriented companies in the world—companies that are building the digital architecture around us. These include hardware and software suppliers as well as semiconductor manufacturers.
Some are even responsible for the transition to decarbonization. Many emerging market companies are global leaders in the production of electric vehicles and electric batteries, and in renewable energy such as in solar manufacturing.
Attractive Valuations
Emerging market equity valuations are trading at near historic discounts versus the developed world. In our analysis, the relative profitability between these two asset classes does not warrant the current 45% discount on a price-to-book basis.2
Also, relative to its own 15- to 20-year history, emerging markets as an asset class is one of the few that looks cheap to us. The MSCI Emerging Markets (EM) Index, a benchmark representing the asset class, is now trading at close to 10 times forward earnings, compared to around 18 times for the US S&P 500 Index (S&P 500).3
Increased Dividends And Buybacks
Emerging market companies have recently been increasing their dividends. They have been using their cash flows to distribute dividends to shareholders rather than deploying capital given uncertain growth outlooks. Company managements have also been seeing value in their equities, resulting in increased buyback activity.
In our opinion, these increases are temporary. In this volatile environment, these dividends and buybacks are appreciated, but we would prefer companies invest in their own businesses for secular growth opportunities.
While we believe the persistence of high dividend levels is unlikely to remain at the current 4% level, there has been a sea change in how emerging market companies think about capital optimization and balance sheet management.4
Over the past 20 years, approximately 2.5% of annualized total returns of 9% have come from dividends. 5 Thus, there has been dividend support to the asset class, which many investors may not realize.
Increasing Optimism
Over the long term, we are increasingly optimistic about emerging market economies. Despite the current environment of slowing growth, rising inflation and geopolitical issues globally, we have confidence in both the emerging markets asset class and our strategies.
We continue to seek high-quality business with solid balance sheets, competitive advantages and attractive valuations.
Sources
1. Sources: CEIC, “Mexico Household Debt: % of GDP,” June 2022. CEIC, “United Kingdom Household Debt: % of GDP,” June 2022.
2. Source: Factset. Price-to-book ratio is a financial ratio used to compare a company’s current market value to its book value.
3. Sources: MSCI, Nasdaq. The MSCI EM Index is a free float-adjusted, market capitalization-weighted index designed to measure the equity market performance of global emerging markets. The S&P 500 is a market capitalization-weighted index of 500 stocks designed to measure total U.S. equity market performance. Indexes are unmanaged and one cannot directly invest in them. They do not include fees, expenses or sales charges. Past performance is not an indicator of future results. See www.franklintempletondatasources.com for additional data provider information.
4. Source: Factset.
5. Source: Factset, FTEME.
About the Author
Andrew Ness, Portfolio Manager, Franklin Templeton Emerging Markets Equity
Quantitative and algorithmic trading is a field in finance that deals with high-frequency trading. A large number of people from all over the world are flocking to this field. It is a highly competitive field and requires an in-depth knowledge of the financial markets, advanced mathematics and coding skills.
Because of their capability to rapidly process huge volumes of information and forecast future market trends, quant traders have seen an increase in development in recent years.
Algorithmic trading is a type of automated trading that uses mathematical models to execute trades. Algorithmic trading is a form of automated trading that uses algorithmic techniques to generate, monitor and execute financial trades.
Most aspects of finance have been automated, and securities trading is not any different. Algorithms are intended to help with trading automation, and stock exchanges rely on them. Because of the speed of execution and reduced operating costs, institutional investors as well as big finance companies prefer algorithmic trading.
In these kinds of trades, there is no human intervention. Rather, these trades are carried out in accordance with pre-written guidelines.
Algorithmic trading reduces intermediaries, aids in increasing order execution speed and gives traders a sense of security and reliability. As can be seen, the market for Algorithmic Trading is steadily developing and playing a crucial role for traders.
Because of its vast use of statistical equations in strategy development, it aids in making fact-based decisions. It assists in achieving optimal results by quickly and accurately calculating and analysing trade orders. Furthermore, it reduces the reliance on emotions as well as other judgements by making decisions based on data.
It investigates various market indicators and market conditions that influence trading strategies. As a result, it continuously monitors and tracks trading activities in the event of market changes. Algorithms are programming languages that carry out different orders and directions.
It aids in the reduction of manual mistakes that could happen in trading due to a variety of aspects. As a result, it develops and executes strategies based on both historical and real-time data.
It also minimises issues and mistakes that could lead to risks. It accelerates trading activities and facilitates different stages in order to execute strategies on time.
It also facilitates decision-making by employing high-frequency systems which help address intricate math equations.
Even an experienced trader would also require a few seconds to place a trading order. That’s a lot of time for the price to move significantly in this age of high-frequency trading. In that time frame, the algorithm will already have placed and secured thousands of orders.
Human precision and efficiency limitations can cost endless possibilities.
Accuracy
In algorithmic trading, the strategies are accurate most of the time when it comes to dealing with operational aspects of trading. For example, while filling in the order details, humans can commit errors due to loss of concentration or other factors like emotions.
Back-testing
Automation is widely used not only for trade execution but also for strategy validation. To evaluate the performance of any strategy used in live markets, it is tested and tried on historical data. This is referred to as backtesting the strategy.
Backtesting provides critical information about the strategy’s past performance.
Why Algorithmic Trading Is Growing Rapidly?
Algorithmic trading has risen to prominence over the last few years. It is credited with the accomplishment of some of the best functioning and efficient hedge funds. Algorithmic trading, untainted by the emotional state of people and inhibiting response time, executes trading commands rapidly and accurately.
Some of the most crucial reasons why people want to learn algorithmic trading:
Placing jobs in the field of Financial Technology
Developing a data-driven approach to trading
Setting up one’s own algo trading desk
Reducing manual-related risks in trading
Risk management
Trading is happening in microseconds and even nanoseconds. A single millisecond accounts for millions of dollars in net sales annually from market trades. Aside from ease of use and customization, some of the many beneficial characteristics of Algorithmic trading include confidentiality, speed, and accuracy.
Conclusion
Algorithmic trading provides traders with numerous opportunities. It broadens horizons in order to achieve the best possible results for trading activities. Furthermore, the use of algorithms results in the systematic execution of trade orders. It also helps to eliminate any psychological or emotional preconceived ideas.
It offers viable alternatives by streamlining tasks as well as executing trades adequately. By undergoing an algorithmic trading course, you can enhance your skills and abilities in trading.
Algorithmic trading is a trading revolution. Furthermore, as a result of Algorithmic trading, traders and their techniques are emerging. Traders use mathematical and statistical methods to devise a strategy for expanding their purview.
As a result of trading breakthroughs, traders must consistently learn and acclimate to a changing market. In consideration of the diverse advancements that drive the industry, it is essential to build skill sets. Traders must also be aware of the advanced technology and variables that influence their financial activities.
Dive into the wonderful world of Algorithmic Trading today!
