What Lies Ahead For Malaysia?
Getting through 2019 was a challenge. A combination of global issues lead to a bearish economy; which wasn’t helped by downward pressure on the Ringgit. Despite this, we made it through to the end.
Markets had a small rally towards the end of 2019 on news of a Conservative Party victory at the British polls and a potential end to the US-China trade war. 2020 started with the short-lived US-Iran standoff that had the immediate effect of bumping up oil prices. The longer-term effect on the global economy is yet to come but the price of gold has already hit a 6-year high.
So, with the looming prospect of yet more global instability, what can we look forward to in the coming year?
Experts believe that the Malaysian Ringgit will continue to rise against the US Dollar for the near future. This is on the back of improving oil and palm oil prices, while Malaysia is also set to benefit from more foreign investment due to companies abandoning manufacturing bases in China.
However, there is no indication that the exchange rate will increase beyond the RM4 to US$1 mark. Any future improvements will require longer term improvements to the economy and for the government to increase investor confidence in their ability to lead.
The Ministry of Finance expects growth in the real estate sector to come from construction-related services, like those involved in the building of the Mass Rail Transit Line 2 and the Light Rail Transit Line 3 projects. The introduction of the East Coast Rail Link and Bandar Malaysia megaprojects will also encourage expansion.
Residential and commercial properties will still see an overhang, although the rent to own financing scheme should cushion the impact on the economy. We are likely looking towards more downward pressure on prices for the rest of 2020, despite the threshold for foreign ownership bring reduced from RM1,000,000 to RM600,000.
Fintech will see big changes in 2020. Bank Negara Malaysia will be opening applications for virtual bank licenses in the second half of the year. Guidelines for the creation of these new financial services were published at the tail end of 2019, and rumours have it that Grab and Boost among others, are both already interested in entering the field.
Virtual banks are banks that do business through online banking and ATMs. They do not have physical branches for customers to visit. The theory is that this opens up the financial sector to new players, as the barrier to entry is much lower.
The Malaysians@work campaign is set to encourage local employers to hire more unemployed graduates and use locals to replace foreign workers. There is also an incentive for bringing women back to the workforce.
Employers that find places for graduates that have been unemployed for more than 12 months or women who have been out of the workforce for a similar amount of time will receive RM300 a month for two years. These employees will also receive RM500 a month for the same period.
These incentives are expected to allow the unemployment rate to remain at a steady 3.3%; unchanged from 2019.
Malaysia will continue to be subjected to the unstable geo-political climate – like every other country on this planet. Tensions rising in the Middle East may have caused oil prices to rise yet again, but the prospect of war on the horizon has many investors taking a more cautious outlook.
Brexit also continues to threaten financial markets, especially with British Prime Minister Boris Johnson pledging to take the UK out of the European Union. The third deadline extension gives Johnson until 31 January 2020 to reach a new trade agreement with the EU or go crashing out with no deal.
This uncertainty doesn’t look like it will be going away any time soon, not to mention that the world is long overdue for a recession. Financial prudence is advised for the coming months, but that doesn’t mean you should avoid investing or taking additional steps to diversify your income.
Short term gains might be tempting, but they are incredibly risky. Instead, it is better to adjust your plans for the long term. This is something younger Malaysians should have been doing in the first place.