Malaysia has broken new ground in Southeast Asia by ploughing billions of dollars into equities in a China-style effort to lift its faltering stock market — but few predict either long-term gains or a rush of neighbours to follow suit.
The benchmark Kuala Lumpur composite index has climbed more than 2.3 per since Najib Razak, the embattled prime minister, made the 20bn ringgit ($4.6bn) pledge on Monday to boost confidence amid economic troubles and a corruption scandal.
But analysts say the intervention is relatively modest and, as in China, more likely to soften a decline than trigger a boom. While Indonesia has previously used state funds to support its bond market, public government intervention in equities is rare in Southeast Asia, and likely to remain so.
“My sense is that the [Malaysia] measures are more to try and prevent a sharp fall than to get the market to rally,” said Rahul Bajoria, an Asia regional economist at Barclays. “Even in Malaysia, it is a very small level of support, and will probably only mitigate the impact of capital outflows, not offset it.”
The Kuala Lumpur composite edged higher on Tuesday after gaining almost 2 per cent on Monday following Mr Najib’s announcement that the government would inject 20bn ringgit, equivalent to roughly a fortnight’s turnover, into the ValueCap state investment fund.
Malaysian markets were closed on Wednesday for a public holiday. ValueCap was set up in 2002 to boost stocks seen as undervalued. Khazana, Malaysia’s main sovereign wealth fund, also announced 6.8bn ringgit of additional investment across a range of industries.
The announcement, together with Mr Najib’s reassurance that capital controls would not be introduced, buoyed investors ahead of the US Federal Reserve decision on interest rates this week. But the Kuala Lumpur composite is still trading more than 10 per cent lower than its April peak.
Malaysia’s action has highlighted the government’s willingness to use the heft that a web of state-linked companies enjoy in the economy. Mr Najib is embroiled in a scandal over his stewardship of 1 Malaysia Development Berhad, a government investment fund whose advisory board he chaired while it ran up debts of more than $11bn.
Mr Najib, who is also finance minister, has denied wrongdoing over both 1MDB and reports that surfaced in July of payments of more than $675m made to bank accounts in his name. He has denied taking money for personal gain and said the funds came from an unnamed Middle Eastern donor. The country’s anti-corruption commission has confirmed that this was the source.
Some analysts see Malaysia’s stock market intervention as a regional outlier, reflecting the country’s acute economic difficulties. Malaysia has been under greater pressure than most of its neighbours given its high levels of household debt and the impact of falling international energy prices on government revenues. In the past year the ringgit has fallen more than a quarter against the dollar to levels last seen at the time of the Asian financial crisis in the late 1990s.
Euben Paracuelles, an analyst at Nomura, noted that other Southeast Asian countries, including Indonesia and Thailand, were seeking to stimulate their economies with more conventional methods such as tax cuts.
“I think the goal [in Malaysia] is to shore up confidence in the currency, given that the stock market has had significant outflows,” Mr Paracuelles said.
Kevin Kwek, a senior analyst at Bernstein Research, said that while Malaysia’s pumping of government money into the stock market was “not the best option”, it was not “100 per cent bad”. “It depends on how deep the pocket is, and whether negative sentiments outlast resources,” he said.
The allegations around Mr Najib show no signs of going away, with investigations linked to 1MDB under way in Switzerland and Hong Kong, as well as Malaysia itself. The prime minister is under sustained attack not just from the political opposition but from Mahathir Mohamad, the influential prime minister of 22 years who was once his patron. (ft.com)
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