The “sandwich generation” refers to individuals who simultaneously care for their ageing parents while supporting their own children. This demographic trend is becoming increasingly prevalent in Malaysia because of the ageing population, rising life expectancy and strong cultural expectations that children will care for their elderly parents. As the proportion of senior citizens grows, the responsibilities of the sandwich generation will intensify, placing substantial economic and emotional pressure on working adults.

Malaysia’s healthcare and social security systems have proved inadequate in providing comprehensive support for the elderly. As a result, many elderly Malaysians rely heavily on financial assistance from their children. According to the Malaysia Ageing and Retirement Survey (MARS) by the Social Wellbeing Research Centre (SWRC) at Universiti Malaya, more than half of the elderly respondents (55%) depend on financial transfers from their children, averaging RM526 a month .

This dependency highlights the inadequacies of old-age income arrangements such as the Employees Provident Fund, which often fall short in covering basic living expenses and medical costs for older adults. The MARS data shows that only 5.1% of senior citizens have EPF savings to last beyond the age of 65, exacerbating the financial burden on their children.

The dual role of supporting both ageing parents and dependent children places significant financial strain on the sandwich generation. Balancing the costs of their children’s education with the medical and living expenses of their elderly parents is a daunting challenge. MARS data shows that in 2022, individuals aged 40 to 50 allocated an average of RM234 to their parents, representing 7.4% of the average monthly income for the same year. This burden is further compounded by the rising cost of living in Malaysia. The past decade has seen significant increases in the cost of essential goods and services (cumulative increase of 30.8% since 2010), forcing many middle-aged individuals to prioritise the needs of their immediate family over long-term savings and investments. For instance, the national housing affordability index indicates that housing prices are beyond the reach of the average Malaysian household, with a median multiple of 4.7 times the median annual household income, exceeding the internationally accepted affordability threshold of 3.0 times. This situation forces many sandwich-generation families to allocate a substantial portion of their income to housing expenses, further reducing their capacity to support both their children and ageing parents.

Demographic and labour market challenges

Malaysia’s demographic landscape is undergoing profound changes, with significant implications for economic development, social security and healthcare. The number of working-age persons to support one senior citizen has declined from 15:1 in 2000 to 10:1 in 2020, and is projected to decrease further to 3:1 by 2060. This shift places immense pressure on working-age adults to support senior citizens, especially in the absence of comprehensive public income security for seniors.

The Malaysian labour market also faces challenges that exacerbate the pressures on the sandwich generation. One of the most significant issues is the high incidence of low pay, defined as the percentage of the workforce earning less than two-thirds of the median wage. In Malaysia, over 30% of the workforce falls into this category, more than double the Organisation for Economic Co-operation and Development’s 14% low-pay incidence rate. This low-wage structure is coupled with wage disparities along geographical, educational and skill lines. Added to this, the female labour force participation rate, at 55.8% in 2022, is significantly lower than the male participation rate of 81.9%. These disparities contribute to inadequate old-age protection, particularly for vulnerable groups such as women, self-employed workers and low-wage earners.

System gaps and old-age poverty

Malaysia’s reliance on an insurance model based on labour market participation and income level, with limited government intervention, results in lower coverage rates and inadequate benefits for most Malaysians. This situation places significant pressure on the sandwich generation to provide for their ageing parents.

In 2023, 13.735 million working-age individuals, or 57.36% of the population, were not covered by either EPF or Retirement Fund (Inc) (KWAP). These coverage gaps leave many individuals vulnerable to old-age poverty, disproportionately affecting senior citizens.

Closing the coverage gap, therefore, is essential to alleviating the financial strain on the sandwich generation. Effective policy formulation requires a detailed examination of the various segments within the working-age population, acknowledging the specific factors contributing to each gap. For example, EPF’s initiatives, such as i-Saraan, aim to extend coverage to the informal sector and gig economy  but fall short in addressing gap 2 (unemployed individuals) and gap 1 (those not in the labour market, particularly women with family responsibilities). These groups risk reaching retirement age without sufficient accumulated savings for old-age income security, leaving them vulnerable to poverty in their senior years and dependent on their children for support. Addressing these gaps comprehensively is crucial for ensuring equitable old-age security across all segments of society.

Pension adequacy is another significant weakness in Malaysia’s current system. EPF statistics show that more than one-third of contributors withdraw their retirement savings as a lump sum at retirement, currently set at age 55. However, the median savings amount at age 54 is only RM44,025, equivalent to just nine months of per capita income as at 2023. This median savings obscures the fact that female members have a median savings of only RM29,975 compared to RM63,351 for male members, highlighting the compounded financial vulnerability faced by women in retirement.

The case for a consumption-based contributory pension

Given the pressing challenges faced by the sandwich generation, the introduction of a consumption-based contributory pension (CBCP) offers a sustainable and equitable solution. Unlike traditional pension schemes that rely on direct payments from labour income, CBCP introduces a 2% contribution linked directly to consumption, harnessing the economic activity of all residents, regardless of employment status. By extending coverage to all senior citizens, including those without employment records, CBCP would particularly benefit women and individuals in unstable forms of employment who are currently excluded from old-age income security.

CBCP offers a distinct advantage by directly linking contributions to a tangible social benefit — a flat-rate pension of RM700 a month for senior citizens. This direct connection could make CBCP more palatable to the public, positioning it as a progressive policy that not only addresses old-age income security but also alleviates the financial pressures on the sandwich generation.

Integrating CBCP into Malaysia’s pension system

Integrating a flat CBCP as a foundational pillar within Malaysia’s pension system would provide a vital complement to existing earnings-related tiers, such as EPF. This strategic approach would significantly broaden the pension system’s reach, encompassing informal and self-employed workers who are often left out of traditional pension schemes, as well as individuals outside the labour force. By ensuring that all senior citizens, regardless of their labour force participation, have access to a guaranteed minimum level of income security, this integration would create a more inclusive and equitable pension framework, addressing critical gaps and enhancing overall social protection.

By coordinating CBCP with existing old-age income security measures and emphasising synergies, the integrated system can effectively reduce inequality and enhance economic security for the elderly population. This approach also maintains incentives for saving in higher level protection, such as EPF and private sector saving, and labour market participation within Malaysia’s overall fiscal framework.

The proposed CBCP, providing RM700 per month to senior citizens aged 65 and above, would correct the discriminatory labour market, benefiting women more than men, as they tend to live longer.

The overall cost of CBCP is projected to range from 1.019% to 1.063% of gross domestic product by 2045, with a 2% consumption-based contribution generating sufficient revenue (1.08% of GDP annually) to cover these costs.

CBCP is technically sound and politically feasible

Social pensions have significantly reduced old-age poverty and influenced political outcomes in various countries, often benefiting ruling parties electorally. However, implementing a consumption-based contribution in Malaysia faces political challenges, particularly because of past negative experience with consumption-based taxes such as the Goods and Services Tax. Introduced in 2015, GST was unpopular for its regressive impact, leading to its repeal in 2018.

Despite these concerns, CBCP could be politically viable because, unlike GST, it directly links a 2% consumption contribution to a flat-rate benefit of RM700 for senior citizens. This connection between contributions and social benefits may make CBCP more acceptable to the public, as it supports the elderly, especially those financially dependent on their children.

To further ease CBCP’s implementation, we suggest reducing workers’ EPF contributions by 2%, which would lead to an increase in real wage and offset the impact of the new contribution.

Evidence from other countries shows that well-designed social pensions can garner significant public support and become a political asset for governments. For example, the universal old-age pension introduced in Lesotho in 2004 helped the government win subsequent elections, while Peru’s “Pensión 65” programme, launched in 2011, significantly boosted electoral success. Similar evidence was seen in Georgia, Kenya, Bolivia, Brazil and Mauritius. These examples demonstrate the strong appeal of social pensions to the electorate, particularly the sandwich generation.

The introduction of CBCP in Malaysia offers a viable solution to the financial and emotional pressures faced by the sandwich generation. By extending coverage to all senior citizens, particularly those excluded from traditional pension schemes, CBCP would alleviate the burden on working adults while providing a more inclusive and sustainable social protection system. CBCP represents a forward-thinking policy that addresses the challenges of an ageing population and strengthens the fabric of Malaysian society.

Source: Theedgemarkets

Competition from new entrants grows, but short-term reality prevails

The European car industry is facing challenging times in keeping up with the historic transition to electric vehicles, while competition from new entrants like BYD mounts. It's fair to say that short-term interests are heavily influencing the course. 

You can perhaps see that in the latest news from Volvo. It announced on Thursday that it's U-turned on its heavily promoted targets to produce only electric vehicles by 2030 as demand slows. 

The shift to EVs is a non-linear journey with many uncertainties, as we have seen over the last couple of years. But it’s increasingly putting European carmakers under pressure while total new car sales fail to return to pre-pandemic levels in their home markets. Volkswagen’s CEO, Oliver Blume,  sees the competitive environment becoming tougher and emphasises the importance of focusing on production costs and competitiveness as the group's global market share has started to erode with the uptake of EVs.

At the same time, Volkswagen, as well as several other European carmakers, including Ford and Mercedes, have announced plans to push back earlier targets to phase out sales of internal combustion engines (ICE-)vehicles in Europe. This is remarkable, so what’s going on? Well, there are a number of considerations behind this:     

Due to production costs and severe competition, margins on BEVs are still poor and much lower than on plug-in hybrids, PHEVs, conventional hybrids HEVs or petrol cars. Pushing too hard would hurt profitability in the short run.

Demand for EVs is currently stagnating in Europe as middle-class drivers are hesitant to make the shift, and lease and rental companies struggle with low residual values.

The European EV supply chain still needs time to develop, while lower lithium-ion battery prices, and Chinese levels dropping below $100 per kWh challenging new local facilities. Meanwhile, carmakers still depend on China, which entails risks.

Carmakers made their ICE phase-out pledges prior to the final decision by the European Union and UK to enforce 2035 as the deadline to make the shift. This gave manufacturers more spare time compared to the initial proposal (2030).

Carmakers also seek flexibility in the current uncertain (fiscal support and trade) policy environment, with government changes potentially having a significant impact.

Electrification temporarily decelerates in Europe, but continues globally

Share of electric vehicles (BEV*) in total new car registrations per region 

Source: BNEF, ACEA, ING Research *forecast

EV product shift still requires speed to avoid missing out on long-term performance

Amid all the short-term interests and uncertainties, carmakers realise they can't afford to miss out on EVs, and the direction of travel remains clear. The EU is not expected to soften its CO2 targets for production either. This means EV investment programmes and new model development still require speed.

The decision to temporise the shift is very much intended to maintain profitability and preserve flexibility in a highly uncertain environment. Western EV sales are slowing for several reasons, but this is a temporary development. The direction of travel has not changed, and investments in the makeover of product portfolios still need to continue to secure long-term positions in the market over the next decade.   

Tech stocks have dominated US stock markets this year. Nvidia is the best performing stock on the S&P 500 YTD, rising 115%, and the semiconductor index is the best performing sector, rising more than 50%, as AI has been the main trading theme in financial markets. Even amongst US mega cap tech stocks, Nvidia was by far and away the best performer for most of this year. However, there has been a major shift in the leadership of US tech stocks as volatility has risen and the stock market rally in the US has broadened out.

Apple’s resurgence

Earlier this year, Apple was one of the weakest performing stocks in the Magnificent 7. However, times have changed. Apple is now outperforming Nvidia. Nvidia has been plagued by volatility, concerns that its stellar earnings growth cannot be maintained, and worries about the uptake of AI. Apple has been able to take advantage of the decline in global inflation rates, which is good news for the consumer, along with falling interest rates. Its stock price has also risen on the back of its tie up with Open AI.

But the question now is, can this outperformance last? After underperforming other big tech firms in recent years, Apple is hoping that its latest product launch, the Apple 16, will help to sustain interest in its stock. However,  the market is not that impressed. The new Apple iPhone offers new AI features, but it is hardly groundbreaking. It does not look particularly different: there are new colours and a few new camera features.

Added to this, Apple’s rally also looks intriguing because it is a lot less profitable than Nvidia, as you can see below. This suggests that Apple is rallying due to defensive qualities that Nvidia does not have, perhaps because of Apple’s qualities as a consumer stock and its long track record of generating huge cash piles.

Apple and Nvidia, EPS growth

Source: XTB and Bloomberg

Another development to note, is that Tesla has also seen its share price outperform. It had been the weakest performer in the Magnificent 7 in the first half of the year, but in recent months it has outperformed Google, Amazon and Microsoft, even though its revenue growth has sunk along with earnings per share.

Why has Nvidia fallen from the top spot

The shift in performance among the Magnificent 7 suggests two things about investor behavior: 1, they are favouring stocks that are linked to the consumer. Nvidia is not a consumer tech firm yet, it is an AI software wholesaler to industry as companies build up their AI infrastructure. Also, the rise of Tesla suggests that investors are looking for bargains and are now willing to buy stocks that have sold off sharply this year. Tesla’s share price is up nearly 10% in the past month, but it is still down 13% YTD.

Nvidia’s volatility surges

Tech market leadership is changing, and there is no denying that Nvidia has become more volatile in recent weeks. The 3-month implied volatility rate for Nvidia is nearly 55%, compared with less than 20 for the Vix, which measures volatility for the overall S&P 500, so it is no wonder that investors are staying away. Investors are also wary of the potential legal wrangles Nvidia may face due to US regulators probing anti-trust accusations against the chip maker.

Apple is also facing challenges of its own, including losing a legal battle in the EU, which means that it will have to pay $13bn to the Irish government.

The future for big tech

As we enter the final months of the year, price action tells us that investors’ attitudes towards tech are shifting. Apple and Tesla are outperforming Nvidia, Google and Microsoft. This suggests that AI is falling out of favour, investors are worried about Nvidia’s potential legal woes (Apple is an old hand at dealing with complicated legal situations) and investors are also happy to pick up unloved Magnificent 7 stocks like Tesla. However, if the AI darlings see their price fall further, maybe investors will once again warm to the AI theme.

Source: FXSTREET

Let the Fed cuts begin

Will the BoE confirm November cut bets?

Strong yen awaits BoJ decision

Canadian inflation and BoC Summary of Deliberations

Source:XM