theSun | MONDAY OCTOBER 20 2008 TELLING IT AS IT IS 15

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TRIGGERED initially by the collapse in US highest since September 2003. This jump
subprime mortgages last year, the current
credit crisis has buffeted Wall Street and
European stock markets, paralysed banks
on both sides of the Atlantic and humbled
US Treasury Secretary Hank Paulson. Last
Unintended benefits of in joblessness prompted Chicago Federal
Reserve Bank President Charles Evans to
comment publicly that “unemployment
rarely goes up this much without a recession
following.”

Malaysia being a tortoise

Thursday, Paulson expressed regret for
mistakes leading to the biggest financial
crisis in seven decades.
The credit crisis, however, underscores
the few benefits of Malaysia being a tortoise.
With the financial typhoon now roaring
through the US and Europe likely to gather
strength, Malaysian policy planners have
little cause for complacency.
As a tortoise, Malaysia has been spared
the turmoil affecting thousands of investors
in Hongkong and Singapore. This is because
policymakers like Bank Negara Malaysia
emphasise developing ringgit-based lending
and ringgit-based investment products while
resisting the temptation to be financially
trendy.
In contrast, regional hares like Singapore
and Hongkong offered investors innovative
US dollar investment products, including
derivatives. Touted to yield higher returns
with minimal risks, these derivatives
became virtually worthless when
issuers – like US investment giant Lehman
Brothers – became bankrupt.
Derivatives are complicated financial
instruments, like options and futures
contracts, that derive their value by
reference to an underlying asset or index.
Some 43,700 investors in Hongkong
bought HK$12.7 billion (RM5.8 billion) of
Lehman’s mini-bonds – high-risk, credit-
linked derivatives – and HK$3 billion (RM1.4
billion) of similar, equity-linked derivatives
while some 10,000 Singaporeans purchased
S$201 million (RM482 million) of Lehman-
linked products, a South China
Morning Post article suggests.
Although the number of
investors in both territories
is small, their angst is highly
visible.
In Hongkong, hundreds
held demonstrations recently
protesting against banks that
sold them these toxic assets. In
Singapore, an AFP report says
about 600 retirees and middle
class investors – angered by a
MakingSens
possible loss of their life savings by Tan Siok Choo
– held an unprecedented rally
last Saturday.
Regulators in Hongkong and Singapore,
however, face a dilemma. Distressed
financially and emotionally, investors must
be offered some relief in a manner that
doesn’t undermine the involved financial
institutions’ financial health. In contrast,
Malaysian regulators have been largely
spared this agony.
Because Bursa Malaysia is a tortoise,
investors experienced less volatility. True,
the Kuala Lumpur Composite Index (KLCI)
never reached the stratospheric highs of the
Hang Seng Index (HSI) last year. On Oct 30
last year, the HSI soared to 31,638.22; last
Friday, the HSI plummeted to close
at 14,554.21.
This year, all major East Asian
bourses, including Bursa Malaysia,
entered negative territory. As
a laggard, the KLCI suffered a
less precipitate decline. Based
on last Friday’s closing price, the
KLCI has fallen by 37.4% from
end 2007, a smaller margin than
that experienced by comparable
indices in Singapore, Jakarta,
Thailand and Hongkong, all of
which have tumbled by more than
45%.
Although Malaysian
policymakers are having a less stressful time
than some of their regional counterparts,
there is little cause to celebrate. News reports
from the US, Japan and Singapore suggest
the worst is yet to come.
In the US, the carnage that decimated
Wall Street has now spread to Main Street.
Last Friday, Commerce Department data
showed US home construction slid for the
third consecutive month in September,
falling 6.3% to a seasonally adjusted 817,000
annual rate, the lowest level in 17 years.
Additionally, the US jobless rate hit 6.1%
in August and again in September, the
To counter a recession in Japan that
many economists now see as inevitable,
the Diet in Tokyo passed a supplementary
budget worth ¥1.8 trillion (RM62.6 billion),
a sum that could blow out the government’s
already ballooning debt.
Underlining the gravity of the situation,
Prime Minister Taro Aso announced a
further emergency spending package would
be implemented if needed. He said he would
rather sacrifice the government’s earlier
pledge to restore fiscal balance than allow
Japan’s economy to contract.
Across the Causeway, Prime Minister
Lee Hsien Loong acknowledged last week
Singapore had entered into a technical
recession.
Admittedly, Malaysia’s economy is
broader-based and probably more resilient
than its southern neighbour. And because
the direct impact of the credit crisis in this
country has been minimal, individuals and
corporations in this country may be less
anguished and may continue to spend and
invest.
What needs to be remembered is financial
typhoons are indiscriminate – elephants,
hares and tortoises may be thrown off-
balance by the gale force winds now roaring
through East Asia.
Opinions expressed in this article are the
personal views of the writer and should
not be attributed to any organisation she
is connected with. She can be contacted at
schoo@noordinsopiee.com.