1. The China Effect
Jesse Colombo said:
"Malaysia’s bubble will most likely pop when China’s economic bubble pops and/or as global and local interest rates continue to rise, which are what caused the country’s credit and asset bubble in the first place," he wrote in the Forbes article headlined "Malaise Is Ahead For Malaysia's Bubble Economy".
I say:
If and when China pops, almost the whole world would be popping like a fart after a can of baked beans. It is not just Malaysia, everyone, including the mighty US. So this piece of information is a no-brainer and adds no value because the idea of predicting a calamity in a particular country is so that you could exit from investing the country and invest in another. That is useless if all the other country would be popping cans too.
2. Like or worse than the 1997 crisis
He said:
"As I’ve been saying even before this summer’s EM panic, I expect the ultimate popping of the emerging markets bubble to cause another crisis that is similar to the 1997 Asian Financial Crisis, and there is a strong chance that it will be even worse this time due to the fact that more countries are involved (Latin America, China, and Africa), and because the global economy is in a far weaker state now than it was during the heady days of the late-1990s," he said.
I say:
Again I say that if the popping is caused by China bursting, it should be epidemic. However, the effect on Malaysia, in my view would be different from 1997. Granted, the ringgit is now floated, but it is still quite 'managed' and i think you still cannot trade ringgit overseas. And we have showed the world that of the movement is unjustified, we could slap back the capital control and fixed the ringgit. Despite all the bruhaha and protest as well as all the so-called economic justifications against fixing one's currency, we have showed the world it worked and we have got the guts to do it ( well i hope we still do).
Household debt is high, which is indeed worrying whether you are in a bubble or not. It would fuel a financial crisis only if people lose the capacity to pay those debt. And that can only happen if people lose their jobs or in the case of speculators, could not liquidate their speculative assets (like houses or shares etc). Malaysia enjoys almost full employment and being an exporting nation, our production depends on the world economy as a whole. Therefore, if the world stops buying, then our factories will shut down and our workers don't get paid and thus cannot pay the loan. But if the world stops buying, it is not a Malaysian problem, it is a global problem, Malaysia included.
I am not saying there is no bubble. A bubble is basically when the 'price' is way above the fundamental value. In any growing economy, you would want to get a higher price than your value; meaning there will always be a buffer between your wealth and your value.
Wealth, as measured via GDP and stock indices are prices. And prices only sometimes reflects the valuation. I always say this: Valuation is a perception while price is the reality. People try to justify and claim that prices will always reflect the true value in an efficient economy / market, but guess what? There is no fully efficient market.
And what more, prices are subject to other factors which is absent from valuation. Prices is subject to greed, momentum, herd, ignorance and a host of other behavioral tendencies. So what if your country does not have a bubble, meaning if the GDP or index is well below the fundamental value of your economy; if the downward price momentum hits you, or speculative traders cornered your currency due to greed, your wealth or 'prices' will go down. Yeah, you had no bubble to begin with, but you end up in much worse place.
Therefore, to not have a bubble is unrealistic. To lament on the the prospect of a burst bubble is pathetic. To plan for a price correction is opportunistic. And opportunistic people make lots of money...
