KUALA LUMPUR (Nov 20): Malaysia must harmonise its trade regulations and ensure consistent enforcement to lower compliance costs, streamline processes and create a level playing field for micro, small, and medium-sized enterprises (MSMEs) in the global market, said the Institute for Democracy and Economic Affairs (IDEAS).

This comes as the country sees a surge in non-tariff measures (NTMs), which impose significant cost burdens and deter smaller businesses from international trade participation, IDEAS highlighted in its Asean Integration Report 2024, titled “Inclusive Trade: Perspectives on Regulatory Challenges for MSMEs in Asean”.

NTMs, often used as alternative trade policy tools to tariffs, regulate imported and exported products through compliance, procedural requirements and information disclosure. While these policies are deemed legitimate, they can distort trade and disproportionately impact smaller businesses, IDEAS noted.

“NTMs can safeguard public health and safety, but poorly implemented regulations disproportionately hinder MSMEs, which operate with limited resources and narrow profit margins,” said IDEAS economic and business unit assistant manager Sharmila Suntherasegarun.

The think-tank projects Asean exports growing by 90% in 2031, presenting "substantial opportunities for MSMEs to expand into global markets".

Still, the research institute noted that the rise of NTMs — including the labelling, stringent packaging and certification requirements in the food sector — has emerged as a significant barrier.

“SMEs, especially in the food industry, face high compliance costs due to complex labelling requirements, including nutrition and front-of-pack labelling,” said Prof Evelyn Devadason, from Universiti Malaya’s Faculty of Business and Economics, during a panel discussion.

“For example, countries like Thailand mandate specific front-of-pack formats, such as traffic light or guideline daily amounts (GDA) labelling, which complicate market access for smaller businesses,” Evelyn added. Malaysia should consider a unified labelling framework to streamline requirements to help SMEs due to the high compliance cost, she noted.

The panel discussion was also attended by founder of Women Leadership Foundation Datuk Dr Hafsah Hashim, director of Centre for Indonesia-Malaysia-Thailand Growth Triangle Subregional Cooperation (CIMT) Amri Bukhari Bakhtiar and Asean Young Women Entrepreneurs Club vice chair Shinta Melodi.

MSMEs account for 97% of businesses and 85% of the Asean workforce, but their participation in cross-border trade stands at just 18%, a figure far below their potential, according to IDEAS' report.

“Structural reforms at the domestic level are critical,” said Evelyn. “Streamlined conformity assessment procedures and better interoperability between national digital systems are prerequisites for cross-border integration. Without domestic reforms, regional alignment will remain challenging.”

Source: Theedgemarkets

Geopolitical tensions were on the headlines yesterday after Ukraine fired its first US missile to Russia after having received the green light from the White House following a two-year wait to do so. And Kremlin relaxed rules that would allow them to use nuclear weapons in case of an attack on its soil. Consequently, the session was marked by a swift flight to safety. Gold and treasuries gained, the Swiss franc tipped a toe below the 200-DMA, and crude oil was better bid. The barrel of US crude remained short of testing the $70pb offers however, as the geopolitical-led rally brought the top sellers back to the market. The fact that most Western economies have cut their exposure to Russian oil, and the weak demand outlook from China – which buys around half of the Russia oil today – keeps the bears in a dominant position below the $70pb level.

European indices fell and major US indices kicked off yesterday on a bad mood, but the geopolitical worries gradually left their place to optimism in the US after Walmart rallied to a fresh record on higher-than-expected sales and strong outlook for the holiday season, and on hope that Nvidia would do the same today, after bell.

Risk sentiment is improved today. US and European futures hint at a positive start and demand for safe haven assets has slowed.

Nvidia

One of the most highly anticipated days of the earnings season, if not the most, the Nvidia earnings day, is finally here. Nvidia is expected to have sold for $33bn of chips last quarter: it is 10% higher than the revenue the company announced last quarter, it is more than 80% of the amount they made during the same time last year and more than five times the amount they used to make before the AI craze began at the beginning of last year. The strong AI demand, particularly the insane demand for Nvidia’s next generation Blackwell chips – as says CEO Jensen Huang, and the robust results from TSM – that builds Nvidia’s chips – hint that the results will probably meet and hopefully beat these expectations. Nvidia closed yesterday’s trading session at $147 per share – a touch below its ATH level, and will either extend its rally to a fresh ATH, or decline on some profit taking. The implied volatility for Nvidia shares, based on at-the-money options pricing, stood at approximately 58% for a 30-day period as of November 18 hinting at a potential move of approximately 8-10% in the share price immediately after earnings. That implies a potential move around 1-2% in S&P500, to the upside or to the downside.

But it’s hard to say that good results will lead to a good market reaction. Last quarter, the blowout results and solid outlook weren’t necessarily enough to boost the share price after the earnings announcement. Over time, and at the current valuations, investors have become harder to satisfy and increasingly worried about what could go wrong.

Blackwell delays are the most obvious thing that could go wrong. But the company had successfully tamed worries regarding the Blackwell chips at last quarter’s results. And I believe, they will do the same this time around; they will probably play down the delays that could happen for this type of technology releases and focus on the insanity of the demand. If the company could convince investors that they are making progress to meet this insane demand, the reaction will likely be positive.

Other risks involve the rising competition and a slower future demand for AI from the Big Tech. The AI demand will not die out, even if it slows. Capital continues to flow into AI startups, especially in the US, many sectors, public or private, consider AI projects to improve their productivity levels. But demand outside the Big Tech will be more granular, and the new AI customers will certainly be looking for more affordable chips than Nvidia’s expensive, premium ones. That said, Nvidia has an important card to play now, and it’s called Balckwell. Some expect the company to ship up to 100’000 of these chips in the current quarter: that would be a $7mio addition to sales revenue…

Looking at political risks, the expectation that the new Trump administration could further revive the chip war with China is not a major worry anymore, because Nvidia has a significantly smaller exposure to China today than it did before. In 2021, the company made 25% of its revenue from China. Last quarter, the revenue from China was no more than 12%. But if tariffs go beyond China, it could be an issue for Nvidia that made almost two thirds of its revenue from abroad last quarter.

Recent developments in four charts:

Spiking bond yields were also seen as a reason for selling precious metals. However, it is worth noting that the weakness was caused by concerns about an even bigger fiscal deficit, leading to an even bigger debt burden in a Trump 2.0 era. The United States is facing a significant financial challenge due to the interest payments on its national debt, with the amount projected to reach about USD 1.16 trillion for the entire fiscal year, marking a 30% increase from the previous year. The combination of rising yields and rising debt will only exacerbate the situation, hence the prospect of gold potentially performing well despite rising yields.

"It’s the economy, stupid!” This famous mantra, coined by the political strategist James Carville, helped Bill Clinton unseat President George H W Bush in 1992, and now it explains another election. The economy played a critical role in the 2024 presidential race, creating the conditions not only for Donald Trump to trounce Kamala Harris and for the Republicans to gain control of the Senate and the House of Representatives, but possibly also for a counter-elite to usher in a new power structure.

The election’s outcome reflected two seemingly opposing views of the economy, both of which are correct. The interaction between them says as much about the basic economics-related strategies of the two political campaigns, good and bad, as it does about the state of expert economic communication in today’s America.

The message from voter surveys was unambiguous: The economy was one of the two main issues in this election (the other being illegal immigration). When asked for specifics, many said “inflation”; and if pushed harder, they reported being heavily influenced by what they see as excessively elevated prices and the lack of any sign that they are coming down.

The Trump campaign masterfully exploited voter dissatisfaction with the cost of living. Following Ronald Reagan’s example in 1980, they repeatedly posed variations of the question: “Are you better off today than you were four years ago?”

One reason why Democrats failed to respond is that they were obsessed by another (ironically correct) characterisation of the economy. The Harris campaign emphasised America’s “economic exceptionalism”, echoing a point that many professional economists have been making. The Democrats pointed to robust US growth, which has outpaced the rest of the G7, and to recent gains in real wages, owing to the decline in the inflation rate. And, of course, there have been multiple record highs in the stock market.

But this approach signalled to many voters that the Democrats simply did not understand what was going on, that they are fundamentally disconnected from pocketbook realities on the ground. On some occasions, they even came across as being full of hubris.

After all, a “K-shaped economy” means that improvements associated with robust growth are not evenly shared. Some sectors and households prosper; others struggle. Among those struggling the most are very low-income households that have exhausted their pandemic savings, maxed out their credit cards, have no financial buffers and, therefore, live with an unsettling degree of economic insecurity.

Michael Spence, the Nobel laureate economist, put it well at a recent lecture at the University of Cambridge’s Judge Business School. Pointing to data illustrating the financial fragility of the bottom half of the income distribution, he noted that such households hearing about economic exceptionalism from the traditional media may have one or more of the following reactions: “the media doesn’t know what it is talking about”, “the media is biased” or “the media is not to be trusted”. From these starting points, one can easily arrive at the belief that whoever is talking about the economy doing well simply doesn’t understand or represent one’s interests.

The Democrats also lost control of the narrative on inflation. It did little good to tell people that the rate of price increases, while still positive, had fallen sharply from its 2022 high when their concerns were with the overall price level. The cumulative effect of inflation has added to their cost of living and thus reduced their quality of life.

Similarly, record-breaking equity market runs mean little to households that own few, if any, stocks. Meanwhile, a housing price boom is far from a blessing for those seeking to buy their first home.

But the issue is not just how each party communicated to voters. The traditional expert economic consensus also has proved wanting, not least in its inability to describe clearly and widely the interaction between these two views. Mainstream economists also stood little chance of changing voters’ minds about the other big issue in this election: immigration.

By bolstering the US economy’s supply side, illegal immigration has, in fact, supported growth. But the experts who formulate the consensus economic opinion were never going to be able to communicate this to sceptical voters and even more so because they belong to a club that has taken one credibility hit after another for the past 16 years.

It started with the failure to anticipate the 2008 global financial crisis and subsequent Great Recession — which almost resulted in an even more devastating depression. Likewise, in 2021, the mainstream expert economic consensus insisted that the rise in the US inflation rate would be “transitory”, that is, temporary and reversible. But this view was upended when inflation continued to rise, peaking above 9% in June the following year.

This saga also served as a reminder of an unusual fact: the head of the world’s most powerful central bank, the US Federal Reserve, is not an economist but a lawyer. Would we have someone lacking in formal medical training put in charge of the National Institutes of Health?

All these threads are consistent with a broader theme that was apparent in this election. Not only has the “establishment”, including traditional media, taken a big hit, but the incumbent elites that have led this establishment are being seriously threatened by the rise of a counter elite. As the historian Niall Ferguson put it, this election was also a victory for “the new generation of builders whose autistic-virile qualities [Elon] Musk exemplifies”.

There are many important messages in Trump’s decisive victory and the down-ballot results. Democrats and the economics profesion would do well to heed them. — Project Syndicate

Source: Theedgemarkets