The Financial Winners And Losers In 2015

Many Malaysians are taking a step back and cutting back on spending due to uncertainties over the impact of the impending Goods and Services Tax (GST), rising costs of living, the depreciating Ringgit and bleak economic outlook following a dip in global crude oil prices.

Due to this, various sectors across the board are expected to soften due to declining consumer demand. However, there are a few industries that could benefit from our weakening currency and could potentially thrive this year.

Here, we take a look at the potential financial winners and losers in 2015.

What’s Thriving?

1. Manufacturing/Export-driven businesses

The weaker Malaysian currency could spell a boom for export-driven industries following a potential rise in demand for locally-produced goods and commodities from advanced economies, and steady growth in China.

Top Glove Corp Bhd, the world’s largest rubber glove, for instance, has recorded an upturn in profit due to sharp appreciation of the US dollar and falling raw material prices.

“As an exporter, the currency (rate) makes us more competitive and we are cost efficient and should see better profit margins,” said Top Glove’s Chairman Tan Sri Lim Wee Chai.

2. E-commerce

E-commerce has been described as “the next China” for its rapid and exponential growth in recent years and is expected to expand even more in 2015.

An increasing number of Malaysian consumers are turning to online shopping due to more competitive prices and convenience.  Online shopping in Malaysia has increased six times in the last three years alone, driven mostly by the success of Lazada and Zalora.

A recent study by The Nielsen Global Survey of E-Commerce also showed that Malaysians were ranked among the world’s most avid online shoppers, with six out of 10 Malaysians inclined to make their purchase online.

New advancements in technology such as mobile apps provide new and increasingly accessible avenues for e-commerce and further spurs the sector’s development.

3. Tourism

The dip in our currency will likely result in a boost in the tourism sector as Malaysia becomes an increasingly affordable holiday destination to overseas tourists.

The Government is also making notable efforts to boost tourism. During the Budget Revision 2015, it was announced that there will be a visa fee waiver for select tourists, including those from China to encourage the sector’s growth.

To increase national revenue, the Government aims to boost domestic tourism through competitive domestic airfares. This could mean new regulations for the local aviation market, or lower Passenger Service Charge (PSC) rates.

With a few airlines in Malaysia already dropping the fuel surcharge, tourism will definitely see an upward spike.

4. Retail

Higher currency exchange rates will deter many Malaysians from travelling abroad. This will result in a lower outflow of money from the country and a consequent boost in the retail industry, such as shopping malls.

Avid shoppers can look forward to longer nationwide mega-sales periods, which is part of the Government’s agenda in the revised budget to encourage spending and to increase national coffers.

This, coupled with initiatives to promote tourism, as well as the impending pre-GST buying frenzy, will likely result in a growth spurt in the retail sector, especially in the early part of the year.

What’s Diving?

1. Property

The property sector experience a slowdown in 2014 due to cooling measures by the government to curtail property transactions, and is expected to decline further in 2015 due to challenging economic outlook, stricter mortgage approval and the wait-and-see approach by many buyers in anticipation of GST that will come into force in April this year.

Although housing is exempted from GST, the construction costs involved such as land cost, material cost and labour costs are not, and will contribute to higher property prices.

Financial experts predict that property transactions will drop by about 10%, with house prices stagnating or rising slightly by 3% to 5%.

2. Real Estate Investment Trusts (REITs)

Malaysian real estate investment trusts (REITs) could lose momentum as a chain effect from the cooling property market.

Future REITs acquisitions could also be more challenging, as all purchases of commercial assets are subject to 6% GST. The surcharge could potentially result in less attractive assets’ yields and cause a decline in the sector altogether.

Further REITs players are expected to keep a wait-and-see stance, which is expected to last for six to nine months, in line with typical consumer behaviours in most countries.

3. Automotive

New cars are currently subjected to 10% sales and service tax but this will be replaced with 6% GST soon. Despite various announcements saying that car prices could drop after the implementation of GST, such claims may not be accurate.

With GST, sales tax for new cars are lower. However, it will be very hard to assume that cars will be 4% cheaper post-GST. This is because under the GST system, there will be a different implication to businesses in various areas ranging from tax computation

This may indirectly reduce new car prices with lower sales tax, but it will be very hard to predict now. This is because GST is imposed on the supply of goods and services at every stage of the supply chain (which may previously be tax-free), from the supplier up to the retail stage of the distribution. The surcharges that will come with the GST system could end up contributing to higher car prices.

The current weakening of the Ringgit against major currencies does not help as imports are becoming more expensive and will likely result in higher car prices. This, coupled with consumers’ wait-and-see approach will likely cause a decline in the sector.

4. Luxury Items

Last December saw many Malaysians snapping up luxury goods and big-ticket items at shopping malls ahead of the GST implementation.

For example, prices of luxury watches are expected to go up because it is currently exempted from any sales tax.

Higher prices, coupled with the earlier rush to purchase items that are not taxed pre-GST, could result in a steep decline in sales of luxury items through 2015.

As the adage goes, “what goes up, must come down,” the reverse is also true. While declining oil prices have caused national revenue to shrink and the Ringgit to devalue, the lost will be levelled out over time once GST comes into force.

Currently, only 1.8 million Malaysians (against a 30 million-strong population) are paying tax. With GST, our government is expecting an additional RM5 billion to RM6 billion in revenue every year. In the long run, a more effective and efficient tax system will help in reducing the fiscal deficit in Malaysia, and in so, elevate the country towards becoming a high-income nation.

Also, short-term fluctuations in our currency will not determine medium and long-term economic prospects for the nation. With an optimistic outlook for the Malaysian economic, a weakening currency can be beneficial to find a way to turn adversity into opportunity.