The zero-sum game of liquidity

AFTER 3 strikes in a week, America is officially in a banking crisis – though not a global one just yet. Speculatively mismatched balance sheets result in a cascading destruction of liquidity and confidence. Where have we seen this before? The predictably sad ending is that the middle class gets squeezed, the poor get further marginalised, and capital shifts into the coffers of elite, again. 

While liquidity can indeed be created or contracted, the transfer of assets is a zero-sum game. Money simply changes hands and seeks new homes. This should result in a windfall of capital allocation for developing markets like Malaysia.  

Venture investment in Silicon Valley is likely to stall, waiting for the dust to settle.  But since holding cash is anathema to asset managers, who get paid to invest it, capital will start looking for targets in other markets, particularly South and Southeast Asia.  

Reflecting on the experience of the Global Financial Crisis 15 years ago, Malaysia’s relatively closed economy showed greater resilience to cross border contamination. There is now an opportunity to attract more foreign direct investment, particularly in the infrastructure, technology, and manufacturing sectors.  

With yields dropping in the US, increased capital can potentially flow into infrastructure investment. Malaysia should tweak its policy framework for long-term investments in renewable energy, transportation, and telecommunications to generate excess returns over the life of concessions.   

Additionally, the shifting of global manufacturing operations to Southeast Asia due to rising labour costs in China and ongoing trade tensions combine to position Malaysia as a destination for investment in new industries such as computer chips and automotive EV.  

The biggest impact, however, should be in global tech – the bulk of SVB, Silvergate and Signature Bank customers – which will be compelled to look elsewhere for high-growth and scalable markets in India and SE Asia as alternatives to traditional tech hubs like Silicon Valley. 

The opening of this window of opportunity – while chaos and fear rule the more developed markets – should encourage us to offer incentives encouraging more foreign direct investment in Malaysia, while at the same time maintaining a firm regulatory and compliance framework to contain the accompanying risks from excessive capital inflows resulting in inflation and asset bubbles. 

Some modest currency appreciation would nevertheless be welcome, given the ringgit’s protracted weakness against the US dollar since the onset of the pandemic. This could also take some pressure off imported food and commodities pricing, which have been spiralling out of the reach of affordability for most of the general citizenry.  

Some quick action and creative marketing – admittedly, not the traits Malaysia is best known for – could allow us to manoeuvre investment flows into both digital and brick-and-mortar economies, while Silicon Valley, the perennial star player, takes a breather. – March 16, 2023. 

Rais Hussin is president and CEO of EMIR Research.  

* This is the opinion of the writer or publication and does not necessarily represent the views of The Malaysian Insight. Article may be edited for brevity and clarity.

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  • Not only Malaysia, but the whole world are trying to attract Foreign Direct Investments (FDI).

    However, due to unemployment concerns, supply chains disruptions, national security, etc, developed countries are encouraging their companies to locate onshore or near-shore.

    In addition, there are two broad trends in FDI, ie

    a) investing in countries with a huge population, large domestic market and cheap labour, eg, formerly China now India, EU, Vietnam, Indonesia, Thailand, etc

    b) investing in countries willing to give huge subsidies eg, EU, Japan, US with its CHIPs act and even Singapore, etc

    Obviously Malaysia is not a) and with its RM 1.5 trillion debt, it cannot afford b). So Malaysia has a great problem attracting FDI.

    The alternative is to look within for domestic investment and develops it own human capital. For that to happen, we have to stop the "brain drain", dismantle unfair and discriminatory policies, have a level playing field for all, encourage meritocracy, among others. Otherwise, even our very own entrepreneurs will look elsewhere due to a) and b) and other incentives.

    Michelle Yeoh is a good example of a "brain drain". There are many talented others like her in all fields. They can make Malaysia great, if only given the chance.

    If Malaysia continues with its race and religious centric government, economy and policies, rest assured it will eventually become a failed nation.

    Posted 1 week ago by Malaysian First · Reply