GROUP RISK MANAGEMENT

DIVISION

BULLETIN

RISK MANAGEMENT

ISSUE 23
JUNE 2016

Is China heading
into
property
bubble?

U.Ks moves to
leave
EU
sent
financial markets
into turmoil.

Big automakers
rush
to
find
ride-hailing
service

Thai
government
launched
Eastern
Economic
Corridor
(EEC) to position
Thailand as a key
regional
freight

Another sign of property bubble in China

Ordos, Inner Mongolia which is
commonly referred to as a
"Ghost Town".

Chinas property prices rebound, but stocks tell

another story
Economy

The property market in China show sign of

overheating as investor shift interest to
property investment following Chinas
stock market bubble in June last year.
Drastic
property
price
increase
particularly in major cities - 63% in
Shenzhen, 30% in Shanghai and 18% in
Beijing y-o-y.
Factors for property surplus:i.
Ease
of
down-payment
requirement on mortgage by 2025% for first home buyer.
ii.
Minimum
down
payment
for
second-home purchases was cut to
30% from 40%.
iii.
Easy credit approval and removal
of purchases restrictions in big
cities.
Consequences:i.
Imbalance between demand and
supply
ii.
Growing concerns on bad loans and
market speculation in China real
estate market.
iii.
Protracted concern about empty

Vacant construction
sites and streets in
Yujiapu & Xiangluo Bay,
a new biggest central
business district in

Risk Insights

In responds to the ghost cities, China claims

that many of these new cities are not
expected to be vibrant until 15-25 years after
construction. They are built for the future and
forecast that the demand will come later.

Given that Chinas real estate sector

contributes about 20-25% of GDP, a sharp
slowdown in the property market (property
bubble burst) would impact on Chinas
incomes, wealth and consumption thus
creating a ripple effect throughout the
world.
Should property bubble burst happen,
investors may re-consider their new or
existing investment in China property and
invest in other countries where property
market is more stable and safe, including
Malaysia.
Potential influx of China developers to
Malaysia
due
to
large
investment
opportunities and good trade relationship
with Malaysian government.
For example, Country Garden, a China
developer with nearly 50% of its sales
from third or lower-tier cities (low sales
rate), has set foot in Johor property
development to cover up its unsold
property in China.
Heighten competition between
local
property players may impact DRB HICOMs
Property business asSources:
China
high end
www.wallstreetdaily.com/
www.chinadaily.com.cn/
www.chron.com/
www.knightfrank.com/

More carmakers made strategic partnership with ride

Now in US, Uber drivers can lease their vehicles from Toyota and
cover their payments through earnings generated as Uber drivers.
Risk Insights

Investment rush by big automakers on

ride sharing services.
GM this year invested $500 million in
Lyft, one of the competitors to Uber in
the United States.
While,
Toyota
last
month
has
announced a strategic partnership with
Uber, with an undisclosed investment.
Volkswagen invested $300 million
euros into taxi app Gett.

Globally, Ubers scale and rapid growth

certainly are impressive; it has more
than one million active drivers and
more than 450,000 in the US alone.
But in Malaysia there is no clear status
on Uber legalisation. However, Uber
has grown mostly in major cities such
as Penang and Klang Valley.
The Land Public Transport Commission
is currently considering ways to
accommodate ride sharing companies
like Uber due to growing public support

Big automakers arent ignoring the way

that ride-sharing apps are changing
the
transport
landscape,
neither
overestimating it.
Ride-sharing companies were seen as
a threat to the automakers where it
may be encouraging delay of car
purchases.
Yet according to new survey from
Autodata (US), the rise in popularity of
ride-sharing app Uber is already having
a significant impact on customer
attitudes towards the purchase of new
cars where in 2015; 22% holding off
purchases because of Uber.
Possibility of the same impact may
happen in Malaysia if local authority
gives a green light to the ride sharing
companies to freely operate.
Opportunity for the Group car leasing
business i.e. DLSB and AVIS to
formulate
an
affordable
leasing
package to attract ride sharing drivers.
Opportunity for operating companies
under AD business sector including

Sources: www.cnbc.com/
www.autodatagroup.com/
www.bloomberg.com/

U.Ks moves to leave EU after more than four decades sent

financial markets into turmoil.

Britain's pound tumbled to a fresh 31-year low against the

dollar on Monday, 27 June as investors bet Britain's vote to
leave the EU will trigger a Bank of England rate cut.

BREXIT: Whats next?

Why hasn't the UK left already?
To leave the EU, UK need to formally
invoke Article 50 of what is known as
the Lisbon Treaty.
When it is invoked in a letter or a
speech, two years of negotiations

Is the UK's political system collapsing?

Not to say collapsing but reshuffling
period.
Prime
Minister
David
Cameron
(Conservative Party) staked his career
on the country to remain in the EU.
With the lost, he will be gone in a
couple of months.
On the other hands, Labour Party
Leader, Jeremy Corbyns struggling with
the power to rule as nearly half of his
Risk Insights

Could the United Kingdom split too?

Possibility is high. Yet, situation remains
uncertain.
Unlike England and Wales, Scotland
wanted to stick with the EU. So did
Northern Ireland.
Scottish First Minister Nicola Sturgeon
said that a second independence
referendum is now highly likely, and a
recent poll suggested as many as 60%
of Scots would support leaving the
United Kingdom.
However, some key issues remain
including how would Scotland fully pay
for its services as the oil price has
crashed and would its people give up
the pound in exchange for the euro?
If Scotland became independent, it
would hold 95% of the UK's current oil
and gas reserves if they were split

Sources:
www.edition.cnn.com/

: www.bbc.com/
www.nbcnews.com/

The pound's sharp decline having

immediate ripple effects around the
globe.
On Monday 27 June, shares in Europe,
UK and US continued to see heavy
losses amid uncertainty over the UK's
economic future intensifying.
Minimal impact to overall Group
business due to no significant exposure
of Group business in UK market except
risk of escalating costs to Proton Lotus
project due to removal of UKs
preferential treatment on importing and
exporting of goods from EU countries.
Low cost on importation of materials
from UK for CTRM AC and short term
forex gain for operating companies that

Thai government launched Eastern Economic Corridor

Thais Deputy Prime Minister expects that the EEC project will
place Thailand as a key regional freight transport hub.
Economy

On Tuesday 29 June, Thailands Cabinet

has approved the EEC project aims to
develop
three
eastern
provinces
Chonburi, Rayong and Chachoengsao.
The initial investment of $8.5billion will
be funded by the government budget,
the private sector and public-private
partnerships.

Thailands EEC cluster:1. Automotive

2. Smart electronics
3. Affluent, medical and wellness tourism
4. Agriculture and biotechnology
5. Food
6. Robotics for industry
7. Logistics and aviation
8. Biofuels and biochemical
9. Digital
10.Medical services
Risk Insight

Chachoengs
ao
Chon Buri

Rayong

Some of the projects disclosed are:i.

Laem Chabang's port third-phase
expansion.
ii.
Expansion of U-Tapao International
Airport and U-Tapao deep-sea port.
iii.
Bangkok-Rayong and Bangkok-Hua Hin
high-speed rail project.
iv.
East-west car ferry project between
Bang Pu, Pattaya and Pran Buri.
v.
Waiver of corporate income tax for 8
years for investors and have the right
to lease land for 50 years with renewal
of contract for another 50 years.
vi.
Motorways express Bangkok-Chonburi,
Pattaya-Map Ta Phut and Laem
Chabang-Nakhon Ratchasima.
vii.
Thai government has set aside more
than 4000 hectares of land designated
Sources:
www.property.bangkokpost.com/
www.adb.org/
www.thainews.prd.go.th/

Improvement
and
smooth
logistic
processes
would
attract
shipping
companies to berth at Thailand instead of
harbouring at congested Port Klang.
Consequently, this would affect the
amount of goods entering Malaysia thus
shrinking KLB business opportunities.
Furthermore EEC also is set to become an
Asean water transport hub, linking the
Dawei deep sea port in Myanmar with
Sihanoukville in Cambodia and Vung Tau
port in Vietnam.
Opportunities for DHACE to cater to cargo
flight and KLB to provide car ferry
transportation services in the EEC region.
Opportunities for investment in EEC as

Leam Chabang
port in Chon Buri
is a key port for
the export of Thai
products

Sources : www.insideevs.com/