This Week’s Top Headlines

i) The Department of Statistics recently revealed that 2 in 10 Malaysian families earn less than RM3,000 per month, eerily close to the absolute poverty line of RM2589. The Top 20% (T20s) contributed 46.3% to the total household income, while B40s, despite occupying 40% of the population, only contributed 16.1%.

ii) The ringgit spirals lower as the US Fed forecasts more interest rate hikes as necessary to tame inflation. Chairman Jerome Powell said that getting inflation back down to the target goal of 2% will require a period of below-trend economic growth.

iii) MIDF Research has maintained its positive outlook on banks but urges investors to remain selective in their picks. The firm has expressed optimism towards Public Bank and RHB Bank.

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Malaysia’s Unfair Household Income Distribution

According to the Department of Statistics, the total number of households stood at 7.9 million in 2022, with 3.8 persons on average in each family. This is an 8% increase compared to the 7.3 million families recorded in 2019.

T20s made up 46.3% of total household income, while M40s made up 37.6%.

B40s only represented 16.1%, despite them occupying 40% of the total number of households.

2 in 10 Malaysian families have a monthly income of less than RM3,000.

7.3% (or 576,000 families) of the total households earned less than RM2,000, significantly lower than the absolute poverty line of RM2,589, placing them in hardcore poverty.

Close to half of the population (or 45.7% of households) have a total income of less than RM5,000.

How much does a household actually need?

In 2022, the average household expenditure stood at RM5,150, with the bulk of it (23.2%) going to housing and utility costs.

Yet, we have almost 50% of families earning less than RM5,000 per month.

The distribution of wealth decreases exponentially as income increases, but it abruptly skews towards rich families (ie. those earning RM15k and above), unveiling the disturbing reality of Malaysia’s wealth gap.

Just a few weeks ago, DOSM released the wage report for the formal sector, shedding light on 35% of the population earning less than RM2,000 per month.

The distribution of wages is, unsurprisingly, somewhat similar to the distribution of household income.

Low wages and an uneven distribution of wealth highlight the fact that Malaysians are severely underpaid.

Though the minimum wage of RM1,500 is great for low-skilled workers, employers tend to use it as a reference for all employees, whether skilled or unskilled.

A progressive wage system, which rewards workers while increasing their productivity, is needed in order to resolve part of this crisis.

But for white-collar, high skilled workers, proper policies must be enforced to prevent them from being exploited.

As citizens, the key to climbing out of a poverty trap is to live slightly below your means.

If you earn RM2,600 per month but live like someone who earns RM2,400, that’s RM200 saved per month and one step closer to financial freedom.

Always be eager to learn and upskill yourself. By acquiring new skills and being more efficient at your work, you can negotiate a better salary from your employer.

Look for a higher-paying job if you feel that your current employer is not paying you enough. Seek an employer that appreciates your talents, or better yet, go to a foreign country (such as Singapore) to work.

Ringgit slides as Fed hints at more interest rate hikes.

The ringgit has continued to trend lower this week, touching a six-week low of RM4.6425 against the US dollar on Friday’s close.

Things are not looking bright for the local note as it depreciated 3.05% since the start of August.

Apart from being dragged lower by the weakening yuan (which was covered in my previous issue), the ringgit is suffering from dollar strength.

The dollar index, which tracks the status of the greenback versus other major currencies, has continued its rally from last week.

On a monthly basis, it is up 2.48%.

On Friday (25 Aug), the Federal Reserve convened for their yearly meeting in Jackson Hole, which investors closely watched how Chairman J. Powell addressed the strategy to tackle inflation.

The Fed is grappling with the question of whether slowing inflation is convincing enough to proceed with more gradual interest rate hikes or if a more aggressive approach is necessary.

Powell assured caution in upcoming meetings, acknowledging both the progress made in controlling inflation and the risks stemming from the unexpectedly strong U.S. economy.

"We are ready to increase rates if appropriate, and we plan to maintain a restrictive policy until we are confident that inflation is consistently moving towards our target," he stated.

Powell also mentioned that achieving a sustainable return to 2% inflation would likely require a period of below trend economic growth and some moderation in labor market conditions.

Investors now find it more likely than not that there will be another rate hike by the end of the year, whereas previously no further rate hikes were anticipated.

Consequently, the dollar surged 0.58% from Powell’s comments.

MIDF maintains positive outlook on banks, urges investors to be “selective”

According to MIDF’s recent report on Malaysia’s banking sector, financial institutions had a scattered performance for the second quarter 2023.

Despite this, the research firm has maintained a positive call for banks but urges investors to be more “selective with their picks.”

The research firm also warned that potential credit cost and asset quality issues could affect the profitability of banks, thereby resulting in a weaker season than the first quarter.

Performance expectations are as follows: CIMB > PBBANK > HLBK > AMMB = RHB > ABMB > AFFIN > BIMB > MAYBANK

MIDF has set their sights on Public Bank and RHB Bank due to their great asset quality and high capital ratios.

Weakness is expected for Maybank, Affin, Alliance, and BIMB.

That’s all for this week’s newsletter!

DISCLAIMER: The information contained in this newsletter is for informational and educational purposes only. Nothing herein shall be construed to be financial, legal, or tax advice. The opinions of this newsletter are solely that of the publisher.

Get early access to our newsletter and miss nothing from the markets. Join our journey towards financial literacy today.

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