Inflation concerns

       IT’s earnings season time and the lookout will be just how the topsy-turvy, Covid-19 induced shutdowns will affect the bottom line of companies.

       There will be stocks that will post weakness given the year-on-year effect but also importantly is the effect of rising prices on the fortunes of companies.

       The world is now beset in a period of rising prices. Supply shocks, demand recovery and labour constraints are pushing prices upwards, much to the chagrin of consumers but to the delight of companies that do benefit from elevated prices.

       Malaysia is pretty lucky in that regard. Plantation stocks are riding a record-level crest of prices and their bottom lines will reflect that.

       The other will be oil and gas companies.

       As prices rise from the nadir of Covid-19 crisis, the lack of investment since the collapse in 2014 would mean supply too will have a hard time keeping up with demand as the world recovers from the pandemic crisis.

       The bottlenecks are also going to induce some pricing pressures on margins of companies that are reliant on commodities or inputs that have shot up in pricing.

       But at the same time, not all commodities are up. The volatile nature of products has seen prices of goods that were once up fall dramatically in a short period too.

       What is most damaging is the price of food that has risen to a decade high. And that is going to hurt the incomes of families that are trying to rebuild their incomes and afford to feed families.

       With unemployment only inching downwards slowly and income of households still under pressure, the higher costs will likely lead to tough decisions by households.

       Inflation, even though may be high for a moment of time, remains a top indicator central banks around the world pay attention to. That may force interest rates to rise sooner rather than later and it is going to create yet another period of volatility that high commodity prices itself will bring.

       Retirement crisis

       WHEN the Employees Provident Fund (EPF), over the past weekend, said we have a retirement problem, well it is time to pay attention.The custodian of a lot of Malaysians’ retirement income estimates that its members will need to work between an extra four and six years to rebuild the savings that have been utilised during the pandemic.

       That has led to a significant drop in the percentage of members meeting the basic savings threshold (RM240,000 at age 55) from 36% in 2020 to an estimated 27% by the end of this year.

       To show just how acute the situation is, the head of strategy at the EPF estimates that only 3% of Malaysians can afford to retire.

       And that amount is before there is any rise in the minimum wage which the government is contemplating.

       Should the minimum wage rise to say RM1,500 a month, then the minimum amount needed to be saved at the age of 55 will also rise to commensurate the higher minimum wage.

       With inflation accelerating, that is going to put even more cost pressure on sustaining any decent standard of living.

       If people cannot afford to fund their retirement, that will just create a new layer of hardcore poor in the country.

       That will also put even more pressure on the government to fund a social safety net and that commitment, together with the increasing worrisome state of government finances are in, will make it quite clear that it may just be a matter of time before the retirement age will have to be raised.

       When the retirement age was first set at 55 years of age, the mortality age was around 57 years of age.

       Today, the retirement age is at 60, but people are living more than 16 years longer post retirement.

       And if retirees don’t have enough money to retire on, then it is going to create a major social and economical issues for Malaysia.

       Coupled with an ageing society where the fertility rate is 1.7 and Malaysia is schedule to become an aged society in 25 years.

       It can ill afford a large chunk of Malaysians who can’t afford a decent retirement.

       Raising the retirement age is logical way to deal with the impending crisis.

       There will be a knock on effect in terms of youth unemployment, but that will have to be dealt with in a different way for the policy makers. It is not a zero-sum game but it is not ideal that the demographic dividend is longer in our favour over the long run but one where another form of crisis will add even more pressure on national incomes.

       Fintech growth

       A US-based venture capitalist had said back in 2019 that every company would become a financial technology (fintech) company.

       This was on the basis that every company will be able to embed digital financial services in their offerings, because of the infrastructure that has become easily available to them. Detractors of that view are quick to point out that merely using a white label solution to enable digital payments doesn’t make one a fintech company.

       There are a plethora of other issues that any company wanting to be deemed a fintech needs to do, ranging from risk management to compliance and customer servicing and if one is attempting to get into the realm of lending, then there are capital management skills to be had.

       Locally, there seems to be a big push for fintech.

       A week ago at the Securities Commission’s (SC) eight annual fintech conference, its officials said that fintech could be a key enabler in re-building the Malaysian economy as the country recovers from the pandemic.

       The SC was speaking from the standpoint of the capital market and capital formation.

       Through its initiatives, the regulator can boast a healthy fund raising eco system through equity crowd funding and peer to peer debt raising platforms.

       These have helped close to 4,000 Micro, Small and Medium Enterprises (MSMEs) raise RM2.2bil so far.

       While this achievement is commendable, the fintech push in the country has much room for growth.

       Digital bank licences have yet to be issued and even when they are, it is left to be seen how nimble and innovative these players will be.

       Meanwhile MSME’s are still falling short of digitalising their businesses and most cannot be faulted considering the massive hit to their business that came about from the pandemic.

       Clearly more needs to be done by Malaysian companies in order to embrace fintech capabilities to remain competitive in an increasingly globalised economy.