Does Indonesia need Policy Tightening?

Speedy economic growth, together with massive credit increases and deteriorating current accounts have spurred fears among many analysts that Indonesia’s economy may be overheating, which may see the central bank of Indonesia being forced to increase interest rates.

Indonesia has seen a sharp deterioration in its current account position over the past year. However, this is largely explained by a slump in foreign demand rather than an unsustainable consumer boom driving up imports. Large inflows of foreign direct investment mean the country should have few problems sustaining a deficit over the medium term. While credit is growing rapidly at the moment, strong credit growth in part reflects a period of catch-up after a prolonged period of deleveraging which followed the Asian financial crisis. In addition, unlike in Hong Kong and Vietnam, there is little evidence that strong lending growth is fuelling asset price bubbles. Most new lending is being directed to productive sectors of the economy.

The recent performance of the economy has certainly been impressive. In 2011, GDP grew at its fastest pace since the Asian financial crisis (1997-98), and the strong growth has continued into the first half of this year. However, strong growth on its own does not mean the economy is overheating. To determine whether the current impressive expansion is sustainable, let’s look at four main indicators: the current account; credit growth,; inflation; as well as our estimates of trend growth.

There has been a sharp and sudden deterioration in Indonesia’s current account position, which has been in deficit for the past three quarters. However, while a current account deficit can sometimes be a symptom of overheating, this does not have to be the case. The worsening of the current account is not the result of an unsustainable consumer boom driving up imports. Instead it is due mainly to a sharp fall in exports, which is the result of weaker global growth and falling prices for the goods that Indonesia sells abroad.

As a low-income, fast-growing economy with plenty of opportunities to invest, it arguably makes sense for Indonesia to be importing capital from the rest of the world (in other words, running a current account deficit). Moreover, while a current account deficit can be a source of instability, this is unlikely to be the case in Indonesia. Unlike the last time Indonesia ran a current account deficit in 1997, the country is much less dependent on volatile portfolio inflows to fund the deficit. As a result, Indonesia is much less vulnerable to a balance of payments crisis than it was 15 years ago.

Another possible sign of overheating is rapid credit growth, which is now expanding by 25% y/y – one of the fastest rates of growth in the region. Strong credit growth which is sustained over a number of years is certainly something the authorities need to keep an eye on. Indeed, rapid credit growth was one of the main causes of both the Asian financial crisis, as well as the problems that Vietnam is now experiencing. Recent rapid credit growth in Indonesia in part reflects a period of catch-up after a prolonged period of deleveraging which followed the Asian financial crisis. Credit as a share of GDP in Indonesia actually fell from over 60% in 1997 to less than 20% in 2000. In 2011, credit in Indonesia was still the equivalent to only 30% of GDP, one of the lowest levels in the region. In addition, as an economy develops and the financial sector becomes more sophisticated, it is normal and healthy for credit to grow faster than nominal GDP.

As important to how quickly credit has been growing is where the new lending has been directed. There is little evidence that strong credit growth in Indonesia is fuelling asset price bubbles. Whereas places such as Hong Kong and Vietnam have seen a surge of lending into property, only 8% of bank lending in Indonesia has been into property-related sectors. As a result, while property prices have massively outstripped wage growth in Hong Kong, prices in Indonesia are increasing at a much slower pace than incomes. In addition, the stock market is also showing little sign of excess. Since the start of the year the Jakarta Composite has moved roughly in line with trends in the rest of the region. Moreover, the current price-earnings ratio of the Indonesian stock market is broadly in line with its long-run average.

Consumer price inflation was just 4.6% y/y in August, and is comfortably within Bank Indonesia’s (BI) central 3.5-5.5% target range. Admittedly, inflation is likely to rise before the end of the year due mainly to rising food prices which are being pushed higher by unfavourable base effects. A good harvest and the suspension of some import duties on food helped to suppress food prices last year. However, the any spike in inflation is likely to be temporary, and is not a sign of economic overheating. Core inflation, which is a better guide to underlying inflationary pressures, has been stable and is likely to remain low.

Indonesia’s economy grew by 6.5% in 2011. Despite the downturn in global demand, growth in Indonesia has barely slowed, with GDP expanding by 6.4% year-on-year in the first half of 2012. This compares with average growth since 2001 of just over 5%. This on its own is not evidence of overheating. Increased political stability and a rising investment rate have all helped to boost trend growth in Indonesia, which is now estimated to be around 6.5%. In addition, capacity utilisation in Indonesia is not unusually high, and is broadly in line with the average level of the last few years.

There also seems little danger of a wage-price spiral developing in Indonesia. Limitations with the data make it difficult to form firm conclusions, but wages appear to be increasing slowly. Meanwhile, a relatively high unemployment rate suggests there is still plenty of slack in the labour market.

Considering all of the evidence, it is rather unlikely that Indonesia’s economy is overheating. As a result there is little urgency for Bank Indonesia to tighten monetary policy. Indeed, given the poor outlook for global demand and the likelihood that the crisis in the euro-zone will worsen again soon, we believe interest rates in Indonesia will remain at their current record low level for the rest of this year and next. That being said, a further significant deterioration in the current account or a step-up in credit growth may see policy tightening.

I hope that you enjoyed reading.

Stuart Yeomans 


Farringdon Group

Kuala Lumpur : Malaysia

Progress….. for Quality Expatriate Financial Advice in Malaysia

As some of you will be aware, I have been working hard with my colleagues at the LIIA to help increase the advice standards in Malaysia, through developing a progressive qualification pathway which will increase the advisory standards in Malaysia.

Helen Burggraf from International Adviser, interviewed me last month for an update on our pathway and to give readers an insight into what we plan. Below gives you a snippet into what we have accomplished so far. For the full story click here

Labuan in Move to be a Top International Insurance Centre

“Labuan, a group of tiny islands off the coast of Malaysia, this month is pulling the wraps off an ambitious plan to transform the regulation of its insurance industry.

It is counting on the introduction of a new regulatory environment to enable it to further develop its own insurance industry – and by association, that of Malaysia, of which Labuan is a part.

As part of this effort to raise the jurisdiction’s regulatory bar, a new qualification regime has been drawn up, with the intention of setting   rigorous and consistent standards for insurance brokers active in Labuan and Malaysia who look after international clients. As part of the scheme, these brokers will be listed, on a central database, to enable would-be clients to find them easily.

These measures are being paired with a marketing campaign that aims to ensure that all expats and other potential clients living in Malaysia know that they should do business only with qualified IFAs and brokers while there.

“By the end of next year, every adviser in Malaysia who looks after expat high-net-worth Malaysian clients will have a minimum of the Chartered Insurance Institute’s Certificate in Financial Planning (CFP),” said Stuart Yeomans, group chief executive and partner of Kuala Lumpur-based expat-specialist advisers Farringdon Group, and  member of the council of the Labuan International Insurance Association (LIIA), an insurance industry trade group. 

 “This will effectively pole-vault Malaysia, as a jurisdiction, to being at least the equivalent of the UK, qualification-wise.”

One side effect of this strategy is expected to be the quick end to what is said to be a relatively widespread practice – for now – of financial advisers and insurance brokers “tripping in” to Malaysia to look after foreign clients there, in spite of not holding the necessary Malaysian licences.

A crackdown on such in-tripping brokers has already begun, Yeomans said…….

The qualification pathway began on the 1st of September 2012

Features of the new standard

The new minimum standard for advisers in Labuan and Malaysia is described as being equal to the UK’s “CFP4” level, and is being accompanied, as it is in the UK, by a requirement for 35 hours a year of continual professional development.

Where it departs from the UK norm, though, is in the fact that it has been developed in a “matrix” format that provides a standard certification for individuals whose qualifications are based on different countries’ exams – for example, Australian, Malaysian, Singaporean or American, as well as British, according to Yeomans.

Another feature is a compulsory three-and-a-half-day “induction” course, the first of which will begin being held this month, which is aimed at all advisers currently practicing in Malaysia.

This is seen as an ongoing scheme that ultimately will aim to reach all new foreign IFAs and insurance brokers, to ensure they are up to speed on such topics as the Malaysian tax system, anti-money-laundering rules, and the full range of investment products available in the Malaysian market to foreign clients.

A half day of ethics training is included as part of the programme, as it has been drawn up, and all advisers – who will, as part of the new regime, be required to join the CII and MII – as a matter of course be expected to comply with the CII’s ethics code.

According to Yeomans, the induction course is a step beyond what most if not all other jurisdictions currently offer.”

Thanks to Helen Burggraf from the International Adviser for a great story.

I am going to publish a full detailed story about this new qualification pathway, which give you a detailed view into Labuan and Malaysia’s plans for the future!

I hope that you enjoyed reading.

Stuart Anthony Yeomans 


Farringdon Group

Kuala Lumpur : Malaysia

Was Facebook the Best Pump & Dump to Date?

Before reading this article, ask yourself a few simple questions:

With a PE Ratio of more than 100 Facebook will take around 100 years to pay your initial investment back

What was Facebook’s value, at its Initial Public Offering launch?

“$104 billion”

What was Facebook’s operating profit in the previous year?

“$1 billion”

So how on earth did they reach that outrageous valuation & how does a pump and dump really work?

This question will take a little more explanation.

So you have probably already realised that I am less than impressed with the way Wall Street has handled Facebook’s IPO!

Yet again they seem to have convinced the average investor and pension fund managers to throw more money down the drain, on an asset that does not justify its price tag. Is this a pump and dump or is it just clever marketing?

Let’s think about this numerically; would a company with a profit of around $10,000 in 2011 be sold for $1,000,000 the next year?

If this proposition was put on BBC’s “Dragons’ Den”, the Dragons would have ripped the its balance sheet  to shreds!

So how have Facebook managed to get this preposterous value attached to it?

Let’s start by finding out exactly what a pump and dump really is? (Courtesy of

“A scheme that attempts to boost the price of a stock through recommendations based on false, misleading or greatly exaggerated statements. The perpetrators of this scheme, who already have an established position in the company’s stock, sell their positions after the hype has led to a higher share price. This practice is illegal based on securities law and can lead to heavy fines.

The victims of this scheme will often lose a considerable amount of their investment as the stock often falls back down after the process is complete.

Traditionally, this type of scheme was done through cold calling, but with the advent of the internet this illegal practice has become even more prevalent. Pump and dump schemes usually target micro- and small-cap stocks, as they are the easiest to manipulate. Due to the small float of these types of stocks it does not take a lot of new buyers to push a stock higher.”

So the above explanation gives you the basic principles and then goes on to explain how cold calling is traditionally used as a sales method, to dupe willing investors into parting with their cash.

In my opinion, the above explanation seems pretty spot on.

However, Facebook and the bankers went a lot further to convince people of its massive price tag; they created a media buzz and I must say, hats off to the marketing drive, it almost had me convinced!

They used some the biggest banks and underwriters to launch the IPO, they did this shortly after a blockbuster movie and used their own user base to spread the news around, in almost every country in the world.

I’m not suggesting that “The Social Network” was secretly funded and made by Zuckerberg, but it certainly played a part in pushing up this historic IPO’s launch price.

Once this price tag was put on the company from subscriptions, it was pretty simple for the initial investors to dump their shares and flood the market.

Let me explain this in more detail and give you a step by step guide to what happened.

Step one: Boost the share price, by exaggerating statements.

At the beginning of a pump and dump, the company must build its reputation.

They essentially need to create demand, so that people want to buy shares in the company. Facebook and the bankers had the task of convincing all of us, that they are potentially going to be one of the most profitable companies in the world.

This was not too difficult with Facebook’s user base and following; the bankers knew that this was a prime target to pounce on and reap the benefit.

Many people didn’t ask why Facebook’s profit was only 1% of the company valuation. I’m sure the public simply thought……. “Who cares, its Facebook; I love Facebook!”

I personally can’t detract from Facebook’s user base, there are more than 840 million users worldwide and more than 55% of those users, actually log on every day; I personally log on at least a few times a week!

Facebook is no doubt a fantastic idea and truly has revolutionised the way we connect with friends and family online…….. Oh dear, they have got me saying these things too!

Step two: The Pump

Now that Facebook has made its name and has some good strong partners from Wall Street, they can begin by going hell for leather on the marketing.

If you didn’t know already, Facebook’s original partners and the insiders got their shares for between $1 – $5 per share, so its not too hard to make a large profit from this point forward.

You are right to think that some of the large investment banks got in at this price. I personally would have snapped Facebook’s hands off, if they offered me that share price.

Step three: More pumping

Now that the subscriptions are flowing and a desirable price has been set, hype up the launch further, inform the general public that the price is going up and up and it’s the buy of the century.

Unfortunately even pension accounts dropped millions and possibly billions into this stock; fingers crossed your pension scheme didn’t do this!

By the end of the marketing, the IPO confirmed a price tag of $38 per share and was officially the largest technology IPO ever; they raised a whopping $16 billion in total.

This gave Facebook a Price to Earnings Ratio of around 100!

Just for the record, an average PE ratio is around 5 – 15 and it effectively means that Facebook will take around 100 years to pay your initial investment back. Does that sound like a bargain or what?

Even some of the News channels were convinced; Jim Cramer from CNBC was saying that it could hit $70 per share in the first day…….. well done Jim, well spotted!

Step Four: The IPO’s launch date

Now you have millions of zombie followers who want to purchase the stock; open the flood gates and let the lambs come to slaughter.

The unfortunate part of this, is that a lot of pensioners don’t even know how to switch a computer on, let alone understand how to log onto Facebook and their pension money has been dropped into this IPO and flushed away!

Facebook had subscriptions coming out of their ears, the marketing was fantastic and they have hundreds of millions of loyal followers. This really was the bankers dream and they could not have done a better job.

Step Five : The Dump Begins

So how and when do the big investors jump out, how do they break some negative news and get away with it?

Not surprisingly, Morgan Stanley published an article saying that they are reducing Facebook’s profit outlook and even Facebook themselves issued an amended prospectus with the SEC, where they stated that the company expressed caution about their revenue growth, because of users migrating over to mobile devices! (See Reuters)

So literally days before the subscriptions go live, they drop a huge bombshell on the consumers and for your average Joe, it was simply too late.

The price is sitting above $38 and the insiders have a huge profit margin to play with.

This was the nail in the coffin for me, I was now fully convinced that the banks have done it again; they have duped the general public into forking over their hard earned cash. The insiders creamed between 7 – 38 times what they originally invested and were laughing all of the way to the bank ……… not a bad 3 and a half months work for Wall Street indeed!

Step six: The Dump ends

The insiders and big banks dump their shares on unsuspecting buyers and then watch the share price crash and burn over time.

Some people see this as clever marketing and some as a pump and dump. Whichever way you see it, the fact of the matter is that the bankers are triumphant and the consumer, which don’t forget includes pensioners, are worse off again!

So where does Facebook stand now?

Facebook is now valued at around $20 a share, which is around half of its original offering; in my opinion a new age pump and dump and they have gotten away with it. Its just a little better put together than a dodgy boiler room scam, because of the huge marketing budget and highly experienced Wall Street partners.

Facebook’s share price has declined from $38 to $20 in less than four months!

The classic adage, the rich get richer and the poor get poorer is pretty accurate and to top things off the biggest holders are pension funds all over the world. The key difference here is that Facebook are a real company with a good business plan, it’s just that Wall Street jumped on at the start and used their experience to milk the consumer.

So, do I think Facebook will go bust?

The short answer is No; they have a large following base and can make profit to stay afloat.

However, and it’s a BIG HOWEVER, they really don’t command a share price of $38 a share at the moment. Let’s see the ideas that Mark Zuckerberg has first, before putting a price tag on of that amount!

I’m just sorry for the pensioners that simply don’t know what Facebook is, let alone that part of their pension money has been lost in it.

If you honestly fear that your pension fund is not safe, please don’t hesitate to contact me right away; I have helped many expats move their pensions to QROPS and SIPPS. These structures give my clients full control of where their money is being invested.

Intelligent financial architecture is what is needed in the world today and if you don’t keep an eye on your investments, then who knows what you may be holding!

I hope that you enjoyed reading.

Stuart Anthony Yeomans 


Farringdon Group

Kuala Lumpur : Malaysia

International Will Writing

Your last Will and Testament is a very important part of the financial planning process; it ensures your wishes are carried out after you die. Many people think they need to be old, sick or wealthy to need a Will. However, the truth is, everyone of legal age should have one. Even if you’re young, you probably have possessions that you care about!

No one can plan for death, so in the case of accidental or unexpected death, without a Will there’s no way the courts can know what your intentions were for your possessions; be it money, land, your computer or your pet rabbit!

A Will is the only way to be certain that your estate is dealt with according to your wishes. Without a Will your estate may end up being distributed by government prescribed regulations or even an ex-spouse could get their hands onto your estate!

Having a Will ensures that your family is properly provided for once you are gone. In addition a Will can protect your wealth against many taxes that can be imposed on your estate.

Why make a Will part of your financial planning?

It is a fact that three quarters of expatriates who die, do not have a Will.

If you do not take the necessary steps to make a Will, you could reduce the value of your family’s inheritance, and cause many legal problems that cost time and money to put right.

Will Writing Jargon…

Testator – the person whose will it is

Executor – the person named by the testator to carry out the terms of the will

Beneficiary – the person or group that receives assets from the deceased

Probate – the court that proves the validity of the will and oversees the executor

Bequest – the gift of personal property from the testator to the beneficiary

Codicil – a written amendment to a will

Intestate – when a person dies without a will (the opposite of “testate”)

Trust – an entity that holds assets until a later date and allows a beneficiary to bypass probate

If you feel that an International Will is missing in your life, then please contact me on or give me a call on +60 17 315 7543

Thanks for reading

Stuart Anthony Yeomans 


Farringdon Group

Kuala Lumpur : Malaysia

Spain’s Woes….

Economists are well aware that Spain will be next to seek a bailout, however it still remains unclear when they will need the funds and the levels of funds they would need. With Spain’s economy being the twelfth largest worldwide and the fifth largest in the European Union, as well as the Eurozone’s fourth largest, it would suggest that Madrid would be seeking a multi-billion Euro bailout for its banks and possibly for the state itself.

Spain’s Prime Minister Mariano Rajoy has repeatedly said Spain doesn’t need or want a bailout, and is trying to convince investors that Spain’s finances are under control after his refusal last month to meet deficit targets set by the European Commission. Economists refuse to agree, and believe that Spanish banks will eventually have to turn to the Eurozone’s rescue fund – the European Financial Stability Facility (EFSF) – to cover losses caused by a property crash which is still ongoing!

According to the Bank of Spain, levels of non-performing loans were at 8.16% in February, compared to 7.91% in January, as an additional 3.8 billion Euros of loan went bad in February. This is a 110% increase on a year on year basis, the highest level since 1994 and from less than 1% in 2007! This brings the total credit in the economy which the regulator lists as “doubtful” to 143.8 billion Euros.

Investors are fretting about the capability of Rajoy’s centre-right government to enforce deep austerity whilst reviving a recession-bound economy which has “one out of five” unemployed.  Defaults are continuing to rise and credit is steadily shrinking at a record pace, which reduces the quality of loans built up in the country’s credit boom and weakens the need for banks to produce new ones. Due to doubts on the high level of non-performing loans being held by the banks, financial stocks are taking a hit and costs on supporting lenders are driving up the government’s borrowing costs as investors are concerned this may add to the debt burden.

In the past week we have seen the markets reacting to fears about the Eurozone’s fourth largest economy. Yields on 10-year bonds, which reflect the risk investors attach to owning Spanish debt, have risen to over 6%, a level that has proved a trigger point for other troubled Eurozone countries. However, economists believe that Spain will be able to hold out for some time and are not in need of immediate funding, though they will eventually need EFSF money to recapitalize their banking sector.

Interestingly, Eurozone leaders are in same view as Rajoy and believe that Spain is incomparable to other Eurozone countries which are already in bailout programmes. Jean-Claude Junker, who chairs the Eurogroup of Eurozone finance ministers, believes that Spain is taking necessary steps to get back on track, despite being in recession and having unemployment at 24%. German Finance Minister Wolfgang Schaeuble mentioned that fundamental data in Spain is not comparable to those that are in a bailout plan and that Spain will need to work to win confidence if positive developments are to continue.

Some believe that the four-month-old government may have just started to knuckle down to meeting the new targets which includes deeply unpopular austerity and tackling the economy’s structural problems. However, others beg to differ and fear Spain will drag in Italy, which has suffered similar problems with rising borrowing costs.

Stuart Anthony Yeomans 


Farringdon Group

Kuala Lumpur : Malaysia

Greece In Ruins

Currently 70% of Greek’s support an end to austerity measures!

The financial crisis in Greece is a long-standing issue that sees little improvement with its unstable political situation. Placing their ideology aside, contesting parties are either for austerity measures or against it. Most recently, Socialist leader Evangelos Venizelos gave up the mandate to form a coalition government after negotiations proved fruitless. Although a coalition may be formed amongst pro-bailout parties, it is not sustainable with strong anti-austerity sentiments, resulting in the need for a new election. Apart from prolonging all the uncertainty in Greece, what does this point to the future of the country?

Currently, 70% of the Greeks support an end to austerity measures, evident from the increasing support SYRIAZ is enjoying. Ironically, a survey reveals a similar percentage of Greeks wanting to stay in the Eurozone. Although there is a commitment by European leaders to keep Greece in it, they face accusations of forcing Greece to leave the EU by dismissing any renegotiations of the bailout terms.

It seemed like an exit is imminent when rising political star, Alexis Tsipras, denounced the bailout terms. Uncompromising, authorities have made it clear that Greece will not receive the next tranche of aid and this is something that cannot be afforded. Furthermore, as much as newly elected leaders would want to satisfy their people in moving away from austerity, they are constrained by the fact that debt payments must still be made and therefore, tightening their belts will be inevitable.

On the other hand, an exit presents the option for Greece to reinstate the Drachma and undergo massive devaluation of the currency. Proponents argue that this may help to improve the economy’s competitiveness by making its exports look more attractive. What Greece needs is to reposition its economy to support growth in the long run and not merely be sustained by aid at the expense of other countries. However, others contend that this radical solution will leave Greece with a crippled economy with higher levels of debt and hyperinflation.

Other negative short-term effects can also be seen in the collapse of the banking sector, severely affecting liquidity locally and economies that have exposure to Greek Banks, mostly Eastern Europe countries like Romania and Bulgaria. In view of a certain degree of contagion effect, we expect more volatility in global markets due to natural risk aversion and negative market sentiment. Previously we have seen stock indexes in London, Paris and Frankfurt all dropping by more than two percent and we are likely to see dips exceeding or at least on par with these percentages following a sell out. Portfolios are likely to see similar trends, the extent of which is limited to how resilient stock picks are.

Looking long-term, market expectations should start to adjust and the EU will be in a better position to ride out any remaining traces of the crisis. Portugal, Ireland or Spain might be next to default but talks to build up a “Financial Firewall” can circumvent a Greek domino effect with the issuance of Eurobonds and greater political will to effect a proper recovery of the Eurozone. Hence, a fall in stock markets presents investment opportunities, especially with a rebound well on its way.

Stuart Anthony Yeomans 


Farringdon Group

Kuala Lumpur : Malaysia