Every business cycle is different in its own way, but certain patterns have tended to repeat themselves over time. Fluctuations in the business cycle are essentially distinct changes in the rate of growth in economic activity, particularly changes in three key cycles—the corporate profit cycle, the credit cycle, and the inventory cycle—as well as changes in the employment backdrop and monetary policy. While unforeseen macroeconomic events or shocks can sometimes disrupt a trend, changes in these key indicators historically have provided a relatively reliable guide to recognizing the different phases of an economic cycle. https://www.fidelity.com/viewpoints/investing-ideas/business-cycle-investing
Where is Malaysia now (from a cycle investing perspective)?
1- Interest Rate Rising
In July 2014, Bank Negara Malaysia (BNM) hiked its overnight policy rate by 25 basis points to 3.25 percent, after keeping it steady since mid-2011. http://www.cnbc.com/2014/07/10/entral-bank-raises-rates-to-help-debt.html
2- Falling Share Price
3- Falling Commodity Prices
Malaysia depends on two key commodities, crude oil and crude palm oil (CPO) to drive its exports. Crude oil has declined significantly since 2014.
CPO has since recovered after experiencing significant decline from 2014 onwards.
4- Falling Overseas Reserves
We have seen a drop in foreign reserves of BNM:
5- Tighter Money
Tighter credit lending in the property sectors:
Malaysians are finding it increasingly harder to get housing loans as banks have less money available to lend out, financial expert Gary Chua said today. Chua, who heads financial education firm Smart Financing, said the housing loan approval rate, which was at least 65 per cent about seven years ago, has been showing a downward trend this year with banks rejecting a higher number of applications. He said statistics show that the 53 per cent of loan approvals by banks in the first quarter slid to just 47 per cent for residential property loan approvals in the third quarter.
6- Falling Real Estate Values
The prices of houses could fall further as developers and the secondary property market grapple with the softening demand and the absence of speculators who had been snapping up properties over the last few years. Prices of residential properties declined 4.7% in the first-quarter (1Q) of 2015 and had fallen around 3% so far this year, said RHB Research Institute Sdn Bhd analyst Loong Kok Wen.“If the economy worsens next year, prices of residential properties as a whole could slump by 3% to 5% in 2016.“Residential properties in Iskandar Malaysia, Johor, could see a double-digit price decline next year while prices in the Klang Valley may drop in the single digit,” the analyst told The Malaysian Reserve yesterday
7- Falling Interest Rate
13 July 2016: Bank Negara Malaysia has unexpectedly reduced the Overnight Policy Rate (OPR) by 25 basis points to 3% at its Monetary Policy Committee (MPC) meeting on Wednesday, citing rising risks from Britain’s exit from the European Union. It said on Wednesday the ceiling and floor rates of the corridor for the OPR are correspondingly reduced to 3.25% and 2.75% respectively. This move could see banks lowering their lending rates and making it cheaper for eligible consumers and companies to take loans. Correspondingly, the saving rates could also go down.
What Are The Sectors That Can Be Considered If We Are REALLY In A Recovery
Our brief analysis is very much of a domestic focus, without significant consideration for external factors. The uncertainties in the global environment could potentially weigh on Malaysia’s growth prospects and hence, the question of whether we are in recovery or not will ultimately depend on the overall health and prospects of the global economy.
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