​I wrote this message to all my Kiasutrader Members and friends on Chinese New Year's eve ​and decided to post here as well to all who frequent i3 investor.  Any feedback will be much appreciated and I can be contacted via my website, www.kiasutrader.com or via email at kiasutrader@gmail.com.   

 Wishing all our Chinese Friends a very Happy, Blessed and Prosperous Chinese New Year.

The Chinese Calendar depicts this year as the year of the Monkey.  In the Chinese Zodiac calendar, the Monkey is 9th of a 12 year cycle of animals. The monkey as we know is a mischievous animal, being closest to homo sapiens. Various studies have been made of this primate and the Chimpanzee and Orang Utan (literally, man of the forest) are said to be the most intelligent of them all.

We will not endeavor to deal with folklore or the astrological signs and implications here for wealth, heath, etc for people born under this sign here.  There are loads of material available on line as well as off line regarding this. 

That said, 2016 had begun in a negative note for the world's economy with the US just having increased interest rates by 0.25% and the rest of the world suffering from some form of deflation or other.  Europe is still maligned with unemployment and growth concerns and now faces the wave of new refugees from the Middle East Conflict.  Recent data from the US seem to point to a weakening economy and further interest rate rises there may be stalled for the time being

Over in Asia, Japan just went into negative interest rates while the growth engine in China that was heavily reliant on big scale infrastructure projects in the past to drive its GDP growth stalled; as it tries to restructure its economy to a consumer driven growth engine. This has caused commodity producing countries like Australia and Oil producing countries to face uncertainties and will certainly be affected by the sudden drop in income from such resources.  

Australia just announced that its trade deficit has deteriorated alarmingly, with deficit increasing to $3.5 Billion in December 2015. Hence the Australian central bank had cautioned that growth is forecast at 2.5% to 3.5% in 2016 and 2017 (down from 3% to 4% earlier for 2017).  This reveal the severity of the problem for a big commodities reliant economy like Australia.

Over in  Malaysia, the Prime Minister and Finance Minister had also revised the Budget to take cognizance of the fall in the price of oil which is a major income contributor to the country.  Whether the new measures will work remains to be seen and the country may suffer the problems of a "twin deficit" ie deficit in the Trade (current account balance) as well as the Government Budget Balance which will lead to problems for the economy.  Those who are academically inclined can read the article at :-

http://www3.nccu.edu.tw/~95351503/macro2006/course%20info/chapter%202/Twin%20Deficits_Implications%20of%20Current%20Account%20and%20Fiscal%20Imbalances%20for%20the%20Accession%20Countries.pdf

Even though oil prices had come down to USD30 and below recently, the demand is still lacking as ample supplies are available, what with the Iranian oil fields coming on line soon.  The political issues involving Russia, Iran and Saudi Arabia  (all rivals in the current Middle East conflicts) may see meetings to stable the oil price come to nought as all the parties concerned are worried about losing market shares and threats from Oil Shale producers that can easily ramp up production as they are individual contractors and not tied to any OPEC like federation or government.

Hence, the shale oil producers will ramp up again once oil reaches USD40 a barrel as they need to repay bank loans and placate shareholders and Venture Capitalists. The recent rise in the price of oil is, a delusion and it cannot be sustained given the geo-political arena in which this natural resource is operating in.

What does this mean for the Malaysian economy that is heavily reliant on oil?  

Well, unless drastic measures are made to reform the structure of the economy and short term pain is endured, the globalised world will pounce on uncompetitive structures and "second best" solutions that will soon be found out.  Band Aid approaches to managing what is inherently a social, productivity and structural issue will not help. Greece found this out the hard way.

Malaysia signing the TPPA agreement in Auckland may help exporters to gain footholds at good terms in the US, Canada and other signing countries but again other countries with less impeding social structures like Vietnam had also signed, so what competitive advantage does Malaysia have in the longer term?

Well, anything can happen as we are living in a dynamic world where money can be made or lost in the capital markets at the blink of an eye.  

As Investors, take note of fundamentally strong companies that had been unfairly "knocked" down by all the talk about Export play coming to an end.  Will the Ringgit be able to sustain its current recovery with so many negative elements working beyond the control of any Government?  Malaysia is an open economy, which means we are open to the vagaries of international trade and its positive as well as negative impacts.

Hence 2016 will be a year where one should take cognizance of what is happening world wide rather than what is happening domestically and be led astray by all the "noise" that have its own agenda.

"Nuff Said" - let us have a good start to the new year and "May the Monkey be with you" ! 

Wishing all a Happy, Blessed and Prosperous Chinese New Year to all Chinese and to the rest, Happy Holidays!

Peter

P/S  :  The undersigned, welcome any feedback to the above, whether in agreement or disagreement as we always "Agree to Disagree"