Chief Economist & Political Strategist, CrossASEAN Research

Prasenjit K. Basu

PK Basu has 34 years experience covering Asia's economies and markets (equities, fixed income and currencies), including 20 years covering the global economy. He was Chief Economist (SE Asia & India) at Credit Suisse First Boston for 5 years, and Chief Asia (x-Jpn) Economist at Daiwa Securities for a similar period. Among other roles, he was global head of research at Maybank Kim Eng, Malaysia equity research head and chief ASEAN economist at Macquarie, Chief Economist at ICICI Securities, ASEAN economist at UBS and the first chief economist at Khazanah Nasional (where he was co-head of research, and led all agri-business initiatives). PK Basu started his career in the Asia Service of WEFA (Wharton Econometrics) in Philadelphia in 1990, rising to be Director of their Asia Service in June 1994. 
PK's book, "Asia Reborn: A continent rises from the ravages of Colonialism and War to a New Dynamism" won the Tata Literature First Book Award (non-fiction) for 2018. It is the first single chronicle of the modern economic and political history of the whole of Asia (from Iraq and Turkey to Korea and Japan, and everything in between), told from an Asian perspective.

Chief Economist & Political Strategist

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Macroeconomics

With the ringgit down 6.7% YoY and oil prices rising, CPI inflation jumped to 3.2% YoY in January 2017. This was partly the CNY effect, but mainly the result of transport prices rising more than 8% YoY (driven by the 13.5% YoY rise in RON95 petrol prices). We expect Bank Negara to raise the official policy rate by 25bp at this week's monetary policy meeting, to restore its long-standing goal of a positive real policy rate. IF Bank Negara does raise its policy rate as we expect, then we would turn positive on Malaysia (reversing our view from late-July last year: <a href="https://www.smartkarma.com/insights/signs-of-economic-life-snuffed-out-by-slowly-imploding-politics" target="_blank" data-smartkarma-citation="insights:4826">Signs of Economic Life Snuffed Out by Slowly Imploding Politics</a>). Firmer oil prices and improved semiconductor demand have allowed exports to lead a cyclical rebound to 4.5% real GDP growth, and the current account surplus was 2% of GDP in 2016. Net portfolio outflows were large, but net FDI inflows have been robust for the past five quarters (helped by support from China for 1MDB-related assets).Strong visitor arrivals (helped by ultra-low hotel prices -- US$90/night for me at the Sheraton KL last week, lower in Puchong) and 2.5% YoY labour force growth ensure that private consumption remains robust. Legerdemain helped cut government spending by 13% YoY in 4Q 2016, but that enabled the fiscal deficit to stay on target (3.1% of GDP in 2016). Malaysia's strong nominal GDP growth, coupled with firmer oil prices (but less firm palm-oil prices, albeit still up YoY) should bolster earnings growth, especially relative to the rest of the region. Malaysia's politics remain toxic, however, with UMNO drawing increasingly close to PAS (Islamist Party of Malaysia), and supporting its agenda of introducing hudud laws -- which would destroy the credibility of UMNO's non-Malay allies in the ruling Barisan Nasional (BN), including MCA, MIC, Gerakan and several Sabah/Sarawak parties. The new regime at Bank Negara Malaysia (BNM) has gone along with the government's tendentious probe into foreign exchange losses 25 years ago, so we are not turning bullish on Malaysia until BNM actually raises interest rates (as several banks have already started doing). If and when it does, Malaysia would become a good contrarian bet, with a stable ringgit inducing portfolio inflows (reinforcing the basic balance surplus), and 7%-plus nominal GDP growth helping to spur a turnaround in EPS  growth.

With the ringgit down 6.7% YoY and oil prices rising, CPI inflation jumped to 3.2% YoY in January 2017. This was partly the CNY effect, but mainly the result of transport prices rising more than 8% YoY (driven by the 13.5% YoY rise in RON95 petrol prices). We expect Bank Negara to raise the official policy rate by 25bp at this week's monetary policy meeting, to restore its long-standing goal of a positive real policy rate. IF Bank Negara does raise its policy rate as we expect, then we would turn positive on Malaysia (reversing our view from late-July last year: Signs of Economic Life Snuffed Out by Slowly Imploding Politics). Firmer oil prices and improved semiconductor demand have allowed exports to lead a cyclical rebound to 4.5% real GDP growth, and the current account surplus was 2% of GDP in 2016. Net portfolio outflows were large, but net FDI inflows have been robust for the past five quarters (helped by support from China for 1MDB-related assets).Strong visitor arrivals (helped by ultra-low hotel prices -- US$90/night for me at the Sheraton KL last week, lower in Puchong) and 2.5% YoY labour force growth ensure that private consumption remains robust. Legerdemain helped cut government spending by 13% YoY in 4Q 2016, but that enabled the fiscal deficit to stay on target (3.1% of GDP in 2016). Malaysia's strong nominal GDP growth, coupled with firmer oil prices (but less firm palm-oil prices, albeit still up YoY) should bolster earnings growth, especially relative to the rest of the region. Malaysia's politics remain toxic, however, with UMNO drawing increasingly close to PAS (Islamist Party of Malaysia), and supporting its agenda of introducing hudud laws -- which would destroy the credibility of UMNO's non-Malay allies in the ruling Barisan Nasional (BN), including MCA, MIC, Gerakan and several Sabah/Sarawak parties. The new regime at Bank Negara Malaysia (BNM) has gone along with the government's tendentious probe into foreign exchange losses 25 years ago, so we are not turning bullish on Malaysia until BNM actually raises interest rates (as several banks have already started doing). If and when it does, Malaysia would become a good contrarian bet, with a stable ringgit inducing portfolio inflows (reinforcing the basic balance surplus), and 7%-plus nominal GDP growth helping to spur a turnaround in EPS  growth.  

Malaysia: A Rate Hike This Week Could Make It a Good Contrarian Pick