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Brexit and risks facing ASEAN Brexit and risks facing ASEAN Sovereigns. Malaysia’s credit fundamentals in comparison to regional countries. Esther Lai, Head of Sovereign Ratings

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  • Brexit and risks facing ASEAN Sovereigns.

    Malaysia’s credit fundamentals in comparison to regional countries.

    Esther Lai,

    Head of Sovereign Ratings

    18 July 2016

    Providing Direction

    Opinions That Shape The Market

  • 2

    OUTLINE

    I. BREXIT AND CHANGING RISKS FOR ASEAN SOVEREIGNS

    II. MALAYSIA’S CREDIT FUNDAMENTALS

  • 3

    Growing Sovereign Coverage

    Japan

    gAA3 (pi)/negative

    Bahrain

    gBBB2(pi)

    South Korea

    gA1(pi)/positive

    United Arab Emirates

    gAA2(pi)

    Kazakhstan gBBB2(pi)

    Indonesia

    gBBB2(pi)

    Kuwait

    gAA3 (pi)

    Saudi Arabia

    gAA2(pi) /negative

    Singapore

    gAAA(pi)

    Malaysia

    gA2(pi)

    India

    gBB2 (pi)/positive

    Philippines

    gBBB3(pi)

    Thailand

    gBBB1(pi)

    Turkey

    gBBB3(pi)/negative

    Qatar

    gAA3 (pi)

    Vietnam

    gBB3(pi)

    Laos

    gB1 (pi)/negative

    Oman gA1(pi) /negative

    Cambodia

    gB1(pi)

    China

    gAA3 (pi)

    Myanmar

    gB2 (pi)

    Brunei

    gA1(pi)

    Property of RAM Rating Services Berhad. Content is accurate at the time of printing

  • 4

    ASEAN Sovereign Ratings

    Country Global Rating ASEAN Rating

    Brunei gA1(pi)/stable seaAAA(pi)/stable

    Cambodia gB1(pi)/stable seaBB3(pi)/stable

    Indonesia gBBB2(pi)/stable seaAA3(pi)/stable

    Laos gB1(pi)/negative seaBB3(pi)/negative

    Malaysia gA2/stable seaAAA/stable

    Myanmar gB2(pi)/stable seaB1(pi)/stable

    Philippines gBBB3(pi)/stable seaA2(pi)/positive

    Singapore gAAA(pi)/stable seaAAA(pi)/stable

    Thailand gBBB1(pi)/stable seaAA1(pi)/stable

    Vietnam gBB3(pi)/stable seaBB1(pi)/stable

    Global and ASEAN Rating Scale : different perspective of government risk ASEAN sovereign ratings broadly stable

  • 5

    Brexit to Malaysia’s trade

    9.6% 9.3%

    7.9%

    8.1%

    8.5%

    8.9%

    1.1% 1.0%

    1.0% 1.0%

    1.0%

    1.2%

    2012: European Sovereign

    Debt Crisis

    -60

    -40

    -20

    0

    20

    40

    60

    80

    -15%

    -10%

    -5%

    0%

    5%

    10%

    15%

    20%

    2010 2011 2012 2013 2014 2015

    E x p

    o r ts

    ( R

    M b

    il li o

    n )

    E x p

    o r t

    G r o

    w th

    ( %

    )

    Exports: EU excl. UK (RHS) Exports: UK (RHS)

    Total Export Growth Exports Growth: EU excl. UK

    *Values represent % of total exports

  • 6

    Brexit to Malaysia’s trade

    0.0%

    0.5%

    1.0%

    1.5%

    2.0%

    2.5%

    3.0%

    0

    1

    2

    3

    4

    5

    6

    F o o d a

    n d

    L iv

    e A

    n im

    a ls

    B e v e ra

    g e s

    a n d T

    o b a c c o

    C ru

    d e M

    a te

    ri a ls

    In

    e d ib

    le

    M in

    e ra

    l F u e ls

    A n im

    a l,

    V e g e ta

    b le

    O il s

    a n d F

    a ts

    C h e m

    ic a ls

    M a n u fa

    c tu

    re d G

    o o d s

    M a c h in

    e ry

    a n d

    T ra

    n s p o rt

    E q u ip

    m e n t

    M is

    c e ll a n e o u s

    M a n u fa

    c tu

    re d A

    rt ic

    le s

    O th

    e rs

    P e r c e n

    ta g

    e o

    f T

    o ta

    l ( %

    )

    E x p

    o r ts

    ( R

    M b

    il li o

    n )

    UK's Share of Exports Percentage of Product Group's Total Export (RHS)

  • 7

    Brexit to Malaysia’s FDI

    2012: European Sovereign Debt Crisis

    -20%

    -10%

    0%

    10%

    20%

    30%

    40%

    -10

    -5

    0

    5

    10

    15

    20

    2010 2011 2012 2013 2014 2015

    % o

    f T

    o ta

    l I n

    w a r d

    F D

    I (

    % )

    I n

    w a r d

    F D

    I (

    R M

    b il li o

    n )

    Inward FDI from UK Inward FDI from Europe (excl UK)

    Inward FDI from UK as % of Total FDI [RHS] Inward FDI from Europe (excl UK) as % of Total FDI [RHS]

  • 8

    Limited direct impact to ASEAN trade & FDI

    0%

    5%

    10%

    15%

    20%

    25%

    30%

    UK EU (excl UK)

    Percentage of total exports

    0%

    10%

    20%

    30%

    40%

    50%

    60%

    2014 2015

    Percentage of total investments

    2013/2014 for Brunei

  • 9

    Uncertainties on EU a greater concern

     Brexit an uncharted territory

     Economic and political uncertainties heightened

     IMF cut global growth - 2016 : 3.1% from 3.2%, 2017 : 3.4% from 3.5%

     No rating impact for ASEAN sovereigns so far

     EU risks remain on the radar

  • 10

    Risks for ASEAN sovereigns - China

     China a bigger trade and investment influence

     Concerns on sharp China slowdown reduced

     Policy levers ample

     gAA3(pi)/stable; seaAAA(pi)/stable

    -20%

    -10%

    0%

    10%

    20%

    30%

    40%

    50%

    Rail Highway Civil aviation

    Freight trends

    0

    50

    100

    150

    200

    250

    300 Debt (% GDP)

  • 11

    Risk for ASEAN sovereigns - politics

     Political developments affect sovereign creditworthiness

     Cabinet reshuffle in Malaysia, Thailand, Indonesia

     Leadership changes in Vietnam, Myanmar, Philippines

     Geopolitical tensions expected to be restrained in South China Sea

  • 12

    Risks for ASEAN Sovereigns - Recap

     Brexit – limited direct impact, risks from broader EU remains

     China a bigger concern although risks of sharp slowdown has eased

     Political developments will shape future rating transitions

  • 13

    Malaysia sovereign rating

     gA2/stable; seaAAA/stable

     Resilient growth backed by strong macro fundamentals

     Structurally sound external position

    o Persistent deficits, elevated debt, rising contingent liabilities

    o Political developments could lead to policy challenges

  • 14

    Resilient growth

     2016 growth 4.2% for Malaysia

    0.0

    1.0

    2.0

    3.0

    4.0

    5.0

    6.0

    7.0

    8.0

    MY IN PH SG TH VN

    2013 2014 2015

    % change GDP growth

  • 15

    Structurally sound external position

     Current account to narrow : 1% surplus 2016

     Export diversity buffers weak external demand and low commodity prices

    -5

    0

    5

    10

    15

    20

    25

    MY IN PH SG TH VN

    2012 2013 2014 2015

    Current account performance

    % GDP

  • 16

    Weak fiscal metrics

     Persistent deficits but improving trends

     Fiscal reforms supportive of consolidation

    0 2 4 6 8

    10 12 14 16 18

    2009 2010 2011 2012 2013 2014 2015

    %

    -10

    -5

    0

    5

    10

    15

    20

    2009 2010 2011 2012 2013 2014 2015

    % Supplies and services variance (% budget)

    -5

    -4

    -3

    -2

    -1

    0

    1

    2

    MY IN PH SG TH VN

    Fiscal balance av 2010-2015

    Emoluments variance (% budget)

  • 17

    Weak fiscal metrics

     Debt level high and sticky

     Growing contingent liability; no immediate liquidity risk

    0

    10

    20

    30

    40

    50

    60

    70

    MY IN PH TH VN*

    2.9

    12.3

    34.3

    26.4

    0

    5

    10

    15

    20

    25

    30

    35

    40

    2016 2017-2020 2021-2030 2031-2045

    1 Malaysia Development Berhad

    Danainfra

    Pengurusan Air SPV Berhad

    Perbadanan Tabung Pendidikan Tinggi Nasional

    Prasarana

    Projek Lebuhraya

    Usahasama Berhad

    Turus Pesawat

    RM billion

    Year of debt maturity

    Guaranteed debt

    10

    11

    12

    13

    14

    15

    16

    0

    50

    100

    150

    200

    2010 2011 2012 2013 2014 2015 As a % of GDP (RHS)

    RM bn

    %

    Debt/GDP %

    Government guarantees

  • 18

    Political developments

     Domestic politics – evolving

     Risk on po

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