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YOUR FINANCES AND ALL THAT MATTERS TO YOU
ISSUE 4
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by
Money Matters
HAPPY DEALS
Return to make you happy! Pg 2
Feature Story
INFLATION, DEFLATION
AND REFLATION
Which way are we headed? Pg 4
Market Pulse
THE DRAGON AND THE ELEPHANT
Leading the herd in recovery Pg 9
FEBRUARY 2010
off the cuff
Hello 2010!
2009 was a challenging one and we want to thank you for
your unwavering support. We’re glad that we were able
to help you navigate the economic challenges of the past
year and for gaining your trust as the bank you’ll most likely
recommend to others in Malaysia.
As for 2010, the new year seems to
have brought with it positive signs of
recovery. These signs have given our
HSBC Global Research optimism to
believe that Malaysia’s GDP growth
forecast for 2010 should hit 6.8%.*
This optimism is an indication of a
recovering economy, we hope.
Knowing that we can use some cheer to start off the year,
HSBC has launched its popular Happy Deals again. You’ll
be able to enjoy extra privileges when you sign up for our
products and services during our Happy Deals promotion.
See more information about the deals in the following pages.
For our Feature section, we delve into inflation, deflation and
reflation, with a special focus on where Malaysia and other
countries stand in the scheme of things. China and India
especially catch our eye as they rise in economic power in
the Asian recovery.
Well, life is not all about work. Do spend time to rest and
relax with your loved ones and enjoy the Chinese New Year
celebrations in February.
We at HSBC Bank Malaysia Berhad thank you for continually
banking with us in 2009 and we truly look forward to a happy
and prosperous new year with you.
Cheers,
Lim Eng Seong
General Manager Personal Financial Services
PUBLISHER
HSBC Bank Malaysia Berhad
(Company No 127776-V)
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* “Asian Economics,” Fourth Quarter 2009, HSBC Global Research.
HSBC Bank Malaysia Berhad February 2010
1
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3
feature
Which way are we headed?
There are two schools of thoughts.2
1. Central banks and governments have
introduced measures to increase money
supply which usually lead to a fall in
interest rates, depreciation in exchange
rates and an increase in inflation rates.
2. Prices of goods will continue to fall,
as demand is far below the global
economy’s output capacity leading
to a deflationary
period.
INFLATION TO RETURN FOR MOST OF THE COUNTRIES IN 2010
14
12
10
8
6
4
2
The monetary policies, put in place
after the global financial crisis, could be
deemed inflationary. But there is debate
that with output running at well below
capacity, inflation is unlikely and deflation
will most possibly rear its ugly head.
“Inflation pressures may get out of
hand, leading to a replay of the first
half of 2008 when the region grappled
with exploding CPI indices. There are
already signs that price pressures are
returning and policymakers are well
advised to maintain vigilance,” the HSBC
Global Research team further states.
It further predicts inflation to return to
most countries in Asia in 2010, noting
that price pressures are beginning to
resurface.1
0
2009f
Pakistan
Vietnam
India
Indonesia
Sri Lanka
Philippines
Korea
New Zealand
Australia
Malaysia
Hong Kong
Singapore
China
Taiwan
-2
Thailand
Over the past year, the region’s
governments have implemented some
of the worlds’ biggest fiscal stimulus
programs, while cutting policy rates with
equal panache.”1
Japan
Y
ear 2009 will long be remembered as a tumultuous one.
Asian markets fell and then bounced back with equal vigor.
HSBC’s Asian Economics notes that “the rebound, in
part, reflects the deft policy response by both central banks and
treasuries, with rate cuts and spending boosts coming hard and
fast once the data started to wobble.
Where is Asia heading?
CPI (% YR)
Inflation
Deflation
Reflation
feature
2010f
SHARP DECELERATION IN 2009, WITH A GRADUAL PICK IN 2010
F’cast
10
4
HSBC Bank Malaysia Berhad February 2010
Central banks will have the delicate job
of pinpointing a suitable time to tighten
the reins and dampen the effects of
inflation. Just the same, tightening too
early has its risk and may slow down
growth too rapidly or suddenly, a risk
Asian markets can ill afford to take
especially when the export sector is
far from robust.
INFLATION (% YR)
8
INFLATION IS WELL AND ALIVE
However, a closer look at the Asian
markets show that inflation is the more
likely scenario for Asia ex Japan. Notably,
consumer price indices have started to
peak again and firms are reporting rising
output prices.1 Inflation pressures may
not necessarily explode immediately
but over the course of the year, central
banks in Asia may have to face the
question of how and when to reel back
on their pump-priming measures.
6
4
2
0
98
99
00
01
02
Asia-ex China & Japan
03
04
05
06
07
Asia-ex Japan
08
09f
10f
11f
Asia
Source: CEIC, HSBC
HSBC Bank Malaysia Berhad February 2010
5
feature
feature
Not so for Japan, though.
Japan has once again, fallen into the
gnawing mouth of deflation, an old foe
it has battled for over 10 years, in what
is now notoriously named “The Lost
Decade”. Three years ago, the Bank of
Japan (BoJ) declared that it was finally
free of the clutches of deflation. Its return
must have exasperated policymakers.
Hence, deflation was greeted with a
weary hello at the end of 2009, in the
form of ¥10 trillion ($115 billion) threemonth loans fixed at a 0.1% interest
rate. The move was an attempt to boost
liquidity and reverse a deflationary spiral.
Worth just 2% of GDP, the measure is
considered by analysts to be insufficient
to reflate the Japanese economy or
weaken the yen which on 27 November
2009 soared to its strongest level against
the dollar in 14 years.
He adds, “Japan will continue to be
burdened with a negative output gap,
but industrial production and capacity
utilisation rates should rise, reflecting
increased exports to rapidly growing
6
HSBC Bank Malaysia Berhad February 2010
REFLATION STRATEGY IN
REVERSING DEFLATION
In the face of deflation or a slowing
economy, policymakers may put into
motion reflation strategies. Reflation
is the intentional reversal of deflation
through a fiscal or monetary policy
by central banks and governments.
Reflation policies can include increased
government spending, lowering interest
rate and increasing money supply.
Asian policymakers in the wake of
the global financial crisis pumped in
massive dollars, with China alone
injecting a 4 trillion yuan ($586 billion)
stimulus package to its economic
veins. But which is winning? Deflation
or reflationary measures?
Judging from the surges in the
commodity markets and recent positive
growth in Asian markets, reflationary
forces seems to be gaining the upper
hand, which could augur well for us.
Inflation, deflation and reflation will
continue to battle it out in 2010. While
the Malaysian economy is currently
experiencing modest inflation, we
believe that the government’s reflation
strategies will continue, though
perhaps at a slower pace until exports
and the economy picks up traction.
INFLATION
IS IN
GDP
)
(% y-o-y
Year
2008
2009f
2010f
2011f
4.6
-2
6.8
5.5
n
Inflatio
)
(% y-o-y
5.4
0.8
3.3
2.5
,
er 2009
h Quart
Source:
s,” Fourt
conomic
“Asian E al Research.
lob
HSBC G
In Malaysia, the Central Bank anticipates
inflation to be modest in the absence of
further unanticipated price adjustments
and external influences, it said in a
statement reported by Reuters.1
The Edge also reports that inflation will
likely spike in the second half of 2010 but
at a manageable rate.2
In November 2009, the central bank
has held interest rates steady at 2.0 per
cent for a sixth straight time, with the
current monetary policy stance deemed
appropriate and supportive of economic
activity. Price pressures and inflation
expectations are expected to remain
contained going forward, it added.
Source:
1 “Central bank holds rates,
sees ‘modest’ inflation”,
Malaysian Insider,
24 November 2009.
2 The Edge Financial Daily,
10 August 2009.
WHAT’S THE DEAL
ABOUT INFLATION?
Inflation as defined by Inv
estopedia.com is “the rat
e at which
the general level of pric
es for goods and servic
es
is
rising, and,
subsequently, purchasin
g power is falling. As infl
atio
n
rises, every
dollar will buy a smaller
percentage of a good. For
exa
mple, if the
inflation rate is 2%, the
n a $1 pack of gum will
cost $1.02 in a year.”
Inflation is not necessar
ily a bad thing and a mo
dest inflation often
signifies a growing eco
nomy. But when inflatio
n
goes out of hand,
there are repercussion
s such as:
` Reduced purchasing
power. Those with retirem
ent funds or
fixed income may find
that their savings or inc
om
e is insufficient
to provide for the lifesty
le they’ve enjoyed previo
usly.
` Greater uncertainty in
investments as it would
be difficult to
ensure that returns are
greater than the inflatio
n rate.
` Domestic products be
come less competitive
globally due to
the increased prices.
` In severe cases, hyp
erinflation can occur. The
value of the
currency declines so rap
idly that it is not worth
the paper it is
printed on. This may res
ult in the complete bre
akd
own of the
economy.
RM97 after a year
If you save RM100 in a can. In a year, your money will be worth RM97.
Expected return
Actual return
(eaten by inflation)
Investment
nvestment
If you invested RM100 in an investment with a 4% p.a. return. You’ll get
RM104 after a year but the real rate of return is only 1%, which means
your RM104 only has the purchasing power of RM101 a year ago.
10
RM
Bank
0 before inflati
RM
99
on
after inflation
Borrower
If you took up a loan of RM100, with an interest rate of 2% p.a.
After a year you will owe RM102 but the actual worth is only RM99.
Inflation has reduced the value of your debt.
WHAT ABOUT DEFLATION?
in the supply of money
es, often caused by a reduction
pric
in
line
dec
eral
gen
a
as
on
flati
today at $1 could cost
Investopedia.com defines “de
y, which means a pack of gum
enc
curr
the
of
er
pow
ing
has
purc
or credit.” Deflation increases the
r.
yea
a
only $0.80 in
g
n has its hidden dangers. Declinin
d thing to consumers but deflatio
goo
a
m
see
may
es,
g:
pric
win
er
follo
low
the
Deflation, with its
al of negatives which may include
create a vicious deflationary spir
prices, if they persist, generally
ts for companies.
er spending causing falling profi
` Delay or reduction in consum
dcount or cut back on wages.
as companies close, reduce hea
mes
inco
g
nkin
shri
and
ent
` Rising unemploym
by companies and individuals.
` Increasing defaults on loans
Products are
economy.
a lower level of demand in the
cheaper!
` Economic depression due to
Ch
re
d
deflation is 3%
or example, if de
For
Source:
1 “Asian Economics”, Fourth Quarter 2009, HSBC Global
Research.
2 “Inflation or Deflation? Which way is Asia headed”
by James Chong, Economic Pulse, Cushman &
Wakefield, 27 October 2009.
RM100
RM100
a year...
RM103 after a year
with you. At the end of
Let’s say you have RM100 cash
e amount of cash but its
sam
the
have
the year, you’ll still
increased to RM103.
purchasing power would have
so
So products are cheaper. What’s
is
er
dang
The
tion?
defla
t
bad abou
l, a
in falling into a deflationary spira
vicious cycle of negatives.
Job
l
spe ess People
nd le
ss
ucts
rod
rp
its
pe prof
ea uce
However, Seiji Shiraishi, Chief Japan
Economist for HSBC Securities (Japan)
Limited is still positive about Japan, raising
an earlier forecast for real GDP growth
in 2009 to -5.7% from -6.3%. He also
foresees a GDP growth at 1.2% for 2010,
but warns that Japan will continue to be
burdened with a negative output gap.
Asian countries. Manufacturers will
probably continue to curtail their
personnel costs, so employees’
income will probably continue to
decline.”1
The Malaysian pulse
For example, if inflation is 3% a year...
m
p
so any
can
m
’t
an
yw
orkers
DEFLATION MAKES A COMEBACK
IN JAPAN
In early 2009, in the thick of the global
financial crisis, Asia seemed headed for
a long drawn deflation. However, a few
short months after, Asian markets appear
to have steered clear of deflation.
Inflation and Deflation 101
panies lower pric
Com ntice people es
to
to e
ore
buy m
³,QÀDWLRQGHÀDWLRQDQG
UHÀDWLRQZLOOFRQWLQXHWR
EDWWOHLWRXWLQ´
Co d
or
aff
HSBC Bank Malaysia Berhad February 2010
7
feature
feature
SO WHAT CAN WE DO
ABOUT INFLATION AND
DEFLATION?
Inflation and deflation are the “yin and yang” of the equation and
need to be deftly balanced to aid a country’s economic growth.
One way central banks achieve this delicate balance of inflation
and deflation is via the adjustment of interest rates.
Lowering rates to increase economic
activity. Risk of higher inflation.
Higher
inflation
Slowing
economy
Usually, it is kept in balance.
Slowing economy
Lower
interest
rates
Growing economy
Higher inflation
Central
Bank
Lower inflation
ce inflation.
du
re
to
s
te
ra
Increase
omy.
down the econ
g
in
ow
sl
of
Risk
er
High
inflation
Slowing
economy
Modest
rates
Growing economy
Modest
rates
Central
Bank
Lower inflation
The
Dragon
and The
EElephant
lephant
Leading the herd in recovery
Higher
interest
rates
Central
Bank
conomy
Growing e
Source: Charts based on the “Visual guide to inflation and deflation”, mint.com
tion
Lower infla
Enjoy 2% more or 2X the interest rate, whichever
is higher with Foreign Currency Time Deposit
With HSBC, you’ve so much more to gain in life.
INVESTMENT
HOME FINANCING
TAKAFUL
PERSONAL FINANCING
FOREIGN CURRENCY TIME DEPOSIT
Call 1300 88 0181
Click www.hsbc.com.my
Visit any HSBC branch
Issued by HSBC Bank Malaysia Berhad (Company No.127776-V) (“HSBC Bank”). HSBC Happy Deals Programme Terms & Conditions apply. Programme period until 31 March 2010.
8
HSBC Bank Malaysia Berhad February 2010
HSBC Bank Malaysia Berhad February 2010
9
market pulse
market pulse
16.2%
I
y-o-y in October
2009.
t’s no secret. China and
India are helping Asia
reshape the path to
RECOVERYAFTERTHEGLOBAL
economic slump. The two
populous nations’ swift and
strong fiscal measures as
well as the sheer strength
of domestic demand, have
launched them into growth
sooner than expected, with
much appreciated spillover
to the rest of Asia.
Already, both nations are chalking up
impressive numbers. China’s GDP
growth is expected to reach 9.5% next
year.1 India’s 2009/10 GDP growth
forecast have also been revised
upwards to 7.2% from 6.2%.2 Despite
the global slowdown, China and India
have witnessed growth and have
risen to be the world’s fastest growing
economies.
10
HSBC Bank Malaysia Berhad February 2010
GDP forecast
for 2010 at
8.5%.
2010 GDP
previous quarter.
Commodities surge!
Electricity output rebounded
17.1%
y-o-y
dramatically to
in October from 9.5% in
September, the fastest pace
since February 2006. The
growth of coal and crude steel
production quickened to
21.1% y-o-y and 42.4%
y-o-y, respectively in October
2009, from 12.7% and 28.7% in
September 2009.
OPTIMISTIC NUMBERS
The HSBC Global Research team
in their November report of China
revealed a firmer economic recovery
underpinned by stronger domestic
demand despite the slow recovery of
exports. “The biggest upside surprise
comes from industrial production (IP)
growth, which accelerated to 16.1%
year-on-year (y-o-y) in October from
13.9% in September, close to the
pre-crisis level,” says Qu Hongbin,
economist for the HSBC Global
Research team.1
A lot of its current growth is attributed
to domestic demand. Retail sales
recorded its best in October 2009,
the highest pace since January 2009.1
External trade while still lagging
is expected to improve gradually.
Exports slowed to
13.8% y-o-y in
October from -15.2% in
September, impiying a
slow exports recovery
due to the still weak
external demand.
However you look at the numbers, the
smoldering amber of China’s economy
looks set to turn red hot in 2010.
A RECORD RECOVERY
India’s upward GDP revision to 7.2%
from 6.2% is pegged to what can only
be described as a remarkable JulySeptember GDP release. The HSBC
India Economic Watch reports that
“Our calculations suggest that total
output rose 3.3% (13.9% annualised) in
quarter-on-quarter seasonally adjusted
terms – the biggest quarterly rise the
economy has enjoyed since the data
began in 1996! The 7.9% y-o-y rise
compared with a market expectation of
a 6.3% increase and was the strongest
since January-March 2008.”3
Ex-agriculture
growth picked
up to 9%
– the highest
since January
to March 2008.
Even the “drought” has not done
much to dampen Indian spirits.
Despite the negative impact of
rainfall 23% below normal during
the June-September monsoon,
lead indicators show that the nonagricultural economy is filling in the
lack, left vacant by lower agriculture
outputs.4 India’s economy looks set
to stampede its way to growth.
ASIA ANSWERS THE CALL
Fuelled by positive growth in India
and China, the world economy
is starting to recover, reports the
International Monetary Fund (IMF).
“The rebound in emerging and other
developing economies is being led by
a resurgence in Asia, most notably
in China and India, fuelled by policy
stimulus and a turn in the global
manufacturing cycle,” the report said.
International Monetary Fund (IMF)
Agriculture
Total Output
in October 09.
Source:
Data compiled from
HSBC India Economic
Watch (Issue 60)
19 November 2009,
(Issue 61) 10 December
2009 and HSBC Global
Research, “Do the rains
still reign in India?”,
2 November 2009.
Ex-agriculture
16.1% y-o-y
³7KHUHERXQGLQHPHUJLQJ
DQGRWKHUGHYHORSLQJ
Total output
rose 3.3%
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(13.9% annualised)
DUHVXUJHQFHLQ$VLDPRVW
in the July to
September 2009
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quarter from the
THE ELEPHANT TRUMPETS
Inward Foreign
Retail sales
growth jumped to
Commodities
2010 GDP
Retail
9.5%
Industrial
production
(IP) growth
accelerated to
Exports
GDP forecast
for 2010 at
Sector
Source:
Data compiled from HSBC China
Economic Spotlight,
11 November 2009.
39 sectors all
posting positive
y-o-y growth,
with the biggest
growth in
transportation,
machinery,
chemistry
products
and ferrous
metals.
Industrial
Production
FIRE RETURNS TO THE DRAGON
Agriculture growth
slowed to 0.9% due
to the worst drought in
decades, with rainfall
23% below normal
during the June to
September 2009
Inward Foreign Direct monsoon.
Investment picking up
again and is currently
running at just over
USD3 billion a month.
The policy stimulus in China could
support recoveries in other parts of
Asia, and the world. “China’s moves
have also helped its neighbours
increase industrial production sharply
from recession lows. Since hitting a
trough in late 2008 and early 2009,
industrial production has jumped 28%
in Korea and 26% in Taiwan. In July
(09), American industrial production
rose for the first time since December
2007, but it remains just half a
percentage point above the bottom
in June (09),” states the New York
Times in its article, “Asia’s Recovery
Highlights China’s Ascendance”.5
Perhaps, Mr. Dominique StraussKahn, Managing Director of the
International Monetary Fund (IMF),
said it best in a speech to the
International Finance Forum in Beijing
last November at the conclusion of his
visit to China. “For China and for Asia
as a whole, a growing voice on the
international stage means tremendous
opportunities to contribute to the
shaping of the post-crisis global
economy. This is entirely appropriate,
given Asia’s economic weight in the
world.”6 For the first time, the catalyst
for recovery is coming from China,
India and the rest of Asia to the world.
Source:
1 HSBC China Economic Spotlight, 11 November 2009.
2 HSBC India Economic Watch (Issue 61),
10 December 2009.
3 HSBC India Economic Watch (Issue 60),
19 November 2009.
4 HSBC Global Research, “Do the rains still reign in
India?”, 2 November 2009.
5 New York Times, “Asia’s Recovery Highlights China’s
Ascendance”, 23 August 2009
6 International Monetary Fund, “China’s Leadership
Key in Global Economic Recovery and Reform, IMF
Managing Director Dominique Strauss-Kahn Says”
Press Release No. 09/408,16 November 2009
HSBC Bank Malaysia Berhad February 2010
11
market pulse
market pulse
Locally, the economy sprang back to
life in the second quarter of 2009,
registering 17% quarter-on-quarter
annualised growth. The economy
contracted in 2009 as expected but
at a smaller rate of -2.0% compared
to the earlier forecast of -3.8%.
Malaysia’s 2010 GDP growth numbers
are expected to expand and hit 6.8%.
More good news, the Malaysian
equity market, like its neighbours,
have also rebounded positively.
Overall, the country looks set to enjoy
a sustained, V-shaped recovery.3
Positioning for
THE ASIAN
RECOVERY
Talk to your Relationship Manager for
more information on the above funds.
100
Investors are advised to read and
understand the contents of the
prospectus before investing. Among
others, investors should consider the
fees and charges involved. The price
of units and distributions payable,
if any, may go down as well as up.
90
80
70
60
40
Hang Seng Index
Drawdown Analysis +63.5%
1
6
11
16
21
26
31
41
Source:
1 Bloomberg & HSBC. Data as of September 2009.
46
51
56
Market Crash 1987
1993 Fed Tightening & Mexico Crisis
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Source: Morning
12
36
HSBC Bank Malaysia Berhad February 2010
Decline
Duration
(Month)
66
s'LOBALRECOVERYLEDBY!SIAN
economic growth
sChina India to lead the Asian
economic growth
s'LOBALRECOVERYLEADTOHIGHER
demand for commodities
71
76
Commodities Funds
Regional/Malaysia Funds
s"ENElTFROMHIGHERDEMAND
arising from global economic
recovery
OSK UOB Golden Dragon
s(EDGEDAGAINSTINmATIONAND
weakening USD
($"3'LOBAL#OMMODITIES&UND
OSK UOB Energy Fund
OSK UOB Gold and General Fund
!M'LOBAL!GRIBUSINESS&UND
AmPrecious Metals Fund
Alliance Advantage GEM Fund
PruAsia Select Income Fund
OSK UOB Asian Growth
Opportunities
CIMB Islamic Asia Pacific Equity
PruAsia Pacific Equity Fund
HDBS Select Opportunity Fund
OSK UOB Smart Treasure Fund
2 Bloomberg. Data as of August 2009.
3 HSBC Global Research, Asian Economics,
“All show, no go?” Forth quarter 2009.
Asian Stock Market Crisis 1997
Recovery
Duration
(Month)
2
44
13
20
13
16
36
42
16
61
Choice of Equity Funds
Current valuations at fair value
potentially present opportunities to
diversity into different asset classes.
HSBC offers the asset class themes
with a focus on Asia.
HANG SENG INDEX REBOUNDED STRONGLY
50
ASSET CLASS THEMES
More than a year after the global
economic crisis, Asian economies
have shown their mettle in weathering
the crisis relatively well. Equity
markets have also rebounded strongly.
Current valuations are not at bargain
levels compared to early 2009 but
they are still at fair value.1
China and Hong Kong valuations
remain appealing with its price-to-book
ratio rebounded to historical average.
Although not at the high levels of early
2009 the Earnings Yield Gap remains
attractive.2 The Hang Seng Index
rebounded by as much as 63.5% in
almost 10 months.
FREE 32” LCD TV 1 with HSBC Premier/HSBC
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Issued by HSBC Bank Malaysia Berhad (Company No.127776-V) (“HSBC Bank”). HSBC Happy Deals Programme Terms & Conditions apply. Programme period until 31 March 2010.
1 Valid only for HSBC Premier/HSBC Amanah Premier customers with minimum investment of RM250,000 worth of selected Equity Unit Trust Funds or Structured Investment distributed by HSBC Bank or
HSBC Amanah only. Limited to the first 1,000 eligible new-to-Premier customers and 500 eligible existing customers on first-come-first-served basic.
HSBC Bank Malaysia Berhad February 2010
13
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