KUALA LUMPUR, March 22: Malaysia's stock and currency markets are expected to be cautious ahead of two major government announcements this week, analysts said at the weekend.They said the "buy-on-rumour" rally last week -- anticipating deputy prime minister Anwar Ibrahim's budget announcement due on Tuesday and the central bank's annual report on Wednesday -- could change to "sell-on-fact" after the announcements.
"Buy on rumour and sell on fact is a distinct possibility, even if the announcements are within expectations," said an analyst at a Singapore-based brokerage.
But after an immediate sell reaction the markets are expected to stabilise, analysts said.
On Friday the Kuala Lumpur Stock Exchange Composite Index ended at 731.24 points, up 23.08 or 3.26 per cent from a week before.
The ringgit gained 1.6 per cent to 3.65 per US dollar in the same period.
While Anwar's measures are expected to be aimed at boosting international confidence in the country's economy, the annual report of thecentral bank, Bank Negara, is expected to reveal the extent of damage caused to the economy, particularly the financial sector, by a regional currency crisis.
"The markets are certainly going to take a cue from the two announcements, particularly for a longer-term trend," said an economist with a Malaysian brokerage.
Analysts expect Anwar to announce fresh government spending cuts and measures to entice foreign investors in a package aimed at restoring confidence in the currency, the ringgit.
Anwar is expected to trim the government's 1998 economic growth targets a second time and also ease restrictions on foreign ownership of equity in industries like telecommunications and construction.
The government in December announced that it would cut its spending by 18 per cent and postponed many large infrastructure projects, which foreign investors said were causing the economy to overheat.
It had cut the 1998 gross domestic product growth estimate to four to five per cent from seven per cent earlier and,according to analysts, is now expected to lower it further to between two and three per cent.
The ringgit has lost more than 35 per cent against the US dollar since the regional economic crisis erupted last July.
Analysts said the Bank Negara annual report is expected to outline the state of the financial sector and progress in the mergers and consolidation process in the banking industry.
Bank Negara wants local banks to merge among themselves so they can grow fast and become more efficient and financially healthy before the industry is opened to more foreign competition.
Malaysian finance companies have been given until March 31 to merge among themselves or with eight large firms identified by the central bank.
However, Bank Negara was unlikely to make any changes in the monetary policy, the analysts said.
"They should raise interest rates further to support the ringgit and curb loans growth, but they will not at this point because it will seriously hurt their industry," said an economist with aEuropean research house in Singapore.
Malaysian brokerage Innosabah Securities said it believd investors would react favourably to the announcements.
"Investors' reaction should be favourable as this reflects the government's prudence and seriousness in pulling the country out from the economic crisis," Innosabah's institutional equity Chief Razani Radzi said at a seminar on Saturday.
"Going slow in 1998 provides the platform for a recovery in 1999," he said. Meanwhile, the Malaysian government announced slashing of expenditure by 18 per cent and large imports like ships and aircraft and big construction projects were deferred indefinitely in the December announcement.
Anwar said on Sunday that he would announce more measures on Tuesday to deal with imports and exports as the two sectors had an impact on the current account deficit, balance of payments and trade.
"We must control imports. We must only import goods which are necessary, if not, use local items," he said.
He said Malaysia importedfood-stuff worth 11 billion ringgit ($3.01 billion) a year, with animal feed as the main component.
Analysts also expect Anwar to liberalise foreign equity ownership in areas such as telecommunication, construction and banking. They said the new set of measures would be primarily aimed at boosting international confidence in the country's currency, the ringgit.
The ringgit has declined by more than 35 per cent against the US dollar since a regional financial crisis began last July.
Copyright © 1998 Indian Express Newspapers (Bombay) Ltd.
