Overall analysis of the stock market and economy in Malaysia :

1. Interest rate ;
Higher interest rates mean that money becomes more expensive to borrow. To
compensate for the higher interest costs, companies may have to cut back
spending or lay off workers. Higher interest rates also mean that a company’s
money cannot borrow as much as it used to, and this has an adverse affect on
company earnings. All of this adds up to a drop in the stock market and the
economy of Malaysia.

Interest Rate (%) in Malaysia :

January 2016 - 3.25
February 2016 - 3.25
March 2016 - 3.25
April 2016 - 3.25
May 2016 - 3.25
June 2016 - 3.25
July 2016 - 3.25
August 2016 - 3.00
September 2016 - 3.00
October 2016 - 3.00
November 2016 - 3.00
December 2016 - 3.00
January 2016 - 3.00

The government decreased the interest rate to boost public spending. But it will
have a backlash on the exchange rate, because higher interest rate means better
exchange rate.

2. Inflation ;
When inflation is at a low rate, the stock market responds with a surge in selling.
High inflation causes investors to think that companies may hold back on
spending. This causes an across the board decrease in revenue (companies
depend on each other spending capability for their revenue) and the higher cost
of goods coupled with the drop in revenue causes the stock market to drop.
Deflation is when the cost of goods drops. While deflation sounds like it should
be welcomed by investors, it actually causes a drop in the stock market because
investors perceive deflation as the result of a weak economy.

Inflation Rate (%) in Malaysia :

February 2016 - 4.2
March 2016 - 2.6
April 2016 - 2.1
May 2016 - 2.0
June 2016 - 1.6
July 2016 - 1.1
August 2016 - 1.5
September 2016 - 1.5
October 2016 - 1.4
November 2016 - 1.8
December 2016 - 1.8
January 2017 - 3.2

Higher inflation will in evidently cause the interest rate to go up. But higher
interest rate will cause the public to spend less and save more. With the current
deflation, the government is trying to boost public spending. But this will cause
the inflation to go up. It’s a “chicken and egg situation “

3. Unemployment ;
Rising unemployment brings lower economic growth, and falling unemployment
tells stock investors that growth is on the way. With high unemployment, means
the economy of that country is not doing well.

Unemployment rate (%) in Malaysia :

February 2016 - 3.4
March 2016 - 3.5
April 2016 - 3.5
May 2016 - 3.4
June 2016 - 3.4
July 2016 - 3.5
August 2016 - 3.5
September 2016 - 3.5
October 2016 - 3.5
November 2016 - 3.4
December 2016 - 3.5
January 2017 - 3.5
With the drop in world oil price, there is a big dip in government spending. The
budget was created with the oil price pegged at $100/barrel. Currently, the oil
price is around $50-$55/barrel. The government has cut off subsidies from the
public. And that is when we saw a major inflation in price.

And with the introduction to Goods and Services Tax (GST), we saw another hike
in inflation. All of this has a major backlash on the unemployment. The
companies are not hiring new employees and they are laying off their current
employees to stay afloat.

And with unemployment increasing, we could see an increase in theft and

bribery. This is because the current income is not enough to meet their monthly
needs. And those who have been laid off, they don’t have any income to pay for
their needs. So they fallback to finding small money or easy money.

4. Economic growth ;
Stock markets are always rooting for more economic growth, because it usually
means more profits for companies, and more profits tend to grow the value of
stocks.

Higher economic growth means that economy of that particular country is doing
well and sustainable.

The government is rooting for higher economic growth, but with low interest
rate, high inflation, and high unemployment, the government is finding it hard to
boost economic growth.
5. Introduction of new policy ;
Ex : Goods & Services Tax (GST)
- When GST was introduced in Malaysia, it took a big hit on the revenue on
small, medium enterprise (SME) companies, because now they have to
increase their selling price to compensate for the tax. Not only that, they
have to report their sales every quarterly. Most of the companies don’t
have sophisticated accounting software. Basic software was good enough
in the past. And now, for them to learn the software, they will need to hire
an accountant to teach them the software. And if they make a mistake in
their reporting, a heavy fine is imposed on them.

It was a new thing for Malaysia when GST was introduced. Many people did not
know what to do. There was so many confusion. And we saw the increase in cost
of living, and decrease in the power of spending of our currency.

Consumer Price Index (CPI)

5. Expectations and Speculations ;

Ex : US Presidential Election
- When President Donald Trump was believed to win the next presidential
election of the United States (US), the US stock market started crashing. There
were a lot of speculations on what he will do when he takes over the presidency.
It was the best time for the investors to go in and buy the stocks at a song,
because it is not a long-term crisis. It is only a short term. And soon the stock
market will stabilize and will return back to normal. And that’s when the
investors that went in earlier will make their money.

6. World Events ;
Ex : US Presidential Election
- When President Donald Trump was believed to be the next president of the US,
the Malaysian stock market also started crashing, in anticipation of what’s going
to happen in the US.

The economy of Malaysia wasn’t doing well either. We were not sure of the new
policies that will be introduced and the interest rate of US. During that period,
the economy of Malaysia was not doing well.

7. Hype ;
Ex : Announcement of New Technology
- When Tesla announced that it has broke through the glass ceiling to create a
fully renewable energy car without any use of petrol, Tesla’s stock price started
rising rapidly. Until it came to a point where the hype died down, and the stock
price leveled back.

FBMKLCI 12mnth index

16/3/17 – 1732.15
16/2/17 – 1707.59
16/1/17 – 1658.84
16/12/16 – 1637.79
16/11/16 – 1627.63
17/10/16 – 1653.71
15/09/16 – 1652.99
16/08/16 – 1699.89
15/07/16 – 1668.40
16/06/16 – 1614.90
16/05/16 – 1621.21
15/04/16 – 1727.99

Summary :

The economy of Malaysia is slowly stabilizing after few world events that took
place recently. But we are nearing a rough patch in the coming years.

The stock market in Malaysia is currently in a volatile state. Many events are
taking place that is causing the stock market to be volatile. It is to my best
knowledge that we hang on for a while before we make any decision.