Malaysian markets still seen facing uncertainty
Azhar Sukri
Kuala Lumpur, Jan 18: Investors are not convinced it is time to start buying Malaysian stocks and its currency despite a partial recovery last week and some soothing words from the IMF, analysts say.``The (ringgit) currency has yet to show signs of really stabilising. Investors want to see measures they feel would really put the economy back on track,'' said, head of research Ken Loo at Amsteel Securities in Kuala Lumpur. ``It is definitely a market for the bold,'' said Loo. The ringgit rose around 10 per cent against the US dollar last week, standing at 4.1800 late on Friday. Share prices on the benchmark Kuala Lumpur Stock Exchange Composite Index rose 9.84 per cent over the week, mostly due to trading opportunities presented by the firmer ringgit on blue chips with large foreign currency exposures. ``Malaysia is not facing a crisis as some other countries in the region,'' said IMF managing director Michel Camdessus in Kuala Lumpur on Friday. The ringgit had lost around 40 per cent of its valueagainst major currencies between July and early January, triggering a similar fall in share prices. The slump was exacerbated by a regional economic crisis which hit Thailand, Indonesia and South Korea the hardest. Fund managers and rating agencies downgraded the region wholesale, as they saw similar trends among the various countries. Even though Camdessus' remarks suggested it was time for analysts to begin making distinctions between individual markets, they are not convinced Malaysia's basic economic problems will vanish quite so easily. Chief among those concerns are an overvalued property sector with huge supply and a commercial banking system that is fragmented and exposed to worrying levels of bad and doubtful loans. ``We have still not seen any hard evidence of the difficulties in the banking and property sectors. We are probably lagging behind other countries in that respect,'' said senior economist Ng Bok Eng at the Daiwa Institute of Research in Singapore. ``These will most likely
only be seen in around 12 months time,'' he said.To remedy these, the government introduced a hard-hitting austerity package in December aimed at diverting expenditure from wasteful infrastructure and property development into the manufacturing sector to help boost exports. Malaysia's central bank, Bank Negara has since stepped up its call for banks and financing companies to merge. It has set a March 31 deadline for finance companies to submit their consolidation plans. But so far only one firm merger has been announced among the country's 39 finance houses. Also preying on the minds of analysts is the prospect that interest rates will have to rise to prevent currency outflows. This will inevitably put a further dampener on economic growth, forecast to rise by four to five per cent in 1998, from an estimated seven per cent in 1997. The IMF's 1998 forecast is even more pessimistic at 2.5 per cent. Malaysia's benchmark three-month Kuala Lumpur Interbank Offered Rate (KLIBOR) has already been moving
upwards as liquidity has become tighter. KLIBOR was quoted at 9.49 per cent on Friday, up from 9.04 per cent on December 18. ``It is certain that (Malaysia's) monetary policy should be tightened,'' said Camdessus. Analysts said last week's rise in the ringgit was mostly due to traders unwinding long dollar positions rather than an active move back into the currency. Also the upcoming Chinese Lunar New Year celebration later in January was causing a temporary influx of Singaporean shoppers looking to take advantage of the weakened ringgit, said analysts. ``Investors are taking it one day at a time. They are waiting for a further strengthening of the currency, stable interest rates and a general feel-good factor,'' said Loo. ``They are not convinced the bad news is over.''
Copyright © 1998 Indian Express Newspapers (Bombay) Ltd.
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