When Fitch comes out and downgrade our sovereign rating from stable to negative, this should be looked at it entirely and is serious. Few times, I have highlighted the danger of over lending by the banks, but little did I mention about the government's debt.
With that downgrade in rating, it seems that we have a dual problem, i.e. not just on the overly high consumption debt among the people, but it includes national debt which if not kept in check may turn out into a problem to the country. With the negative outlook, our borrowings cost may just go up. If you have noticed, we have gone more overseas to get our funding although a large portion of our national borrowings still come from within i.e. from EPF, KWAP etc.
Besides the published national debt, another cause of concern is the off balance sheet debt where it seems that many people do not even know the extent of the off balance sheet debt. Frankly, if the off balance sheet debt is not kept in check, the government itself may not even know the quantum of the guarantees and other contingent liabilities that may have already been in place.
I think with the extent of the downgrade, it would be good for any investors to reposition their investment portfolio to assets which are not too overexposed to the consumption, government awarded projects or rather who are dependent on those projects. In fact, concentration should be focused on companies which are export led and companies where the assets are located overseas rather than those which are fully dependent on local consumption.