Malaysian shares surged yesterday after Prime Minister Najib Razak announced a RM20 billion (S$6.6 billion) lifeline to bolster the stock market, even as concerns over state investor 1Malaysia Development Berhad (1MDB) continue to weigh on the economy.
State equity investment arm ValueCap will use the money to prop up undervalued shares that have been battered by a relentless exit of capital and a shrinking ringgit that is close to 18-year lows.
Malaysia has seen a net outflow of RM23 billion in foreign funds since the start of last year, with the bulk - RM16 billion - exiting this year. The local bourse itself has shed 9 per cent of its value so far this year.
The RM20 billion injection is one of several measures formulated by the Special Economic Committee that were unveiled yesterday.
Datuk Seri Najib also announced the manufacturing sector would be exempt from import duties for spare parts and research equipment until the economy improves.
Some RM6 billion in projects will give a fillip to the tourism industry while help for the property sector comes in the form of a RM200 a month incentive for couples under 40 years old to buy their first home.
Mr Najib, who is also Finance Minister, said: "There are signs of moderation in global economic growth in 2015 and 2016. To protect the real economy from these risks and to maintain the growth momentum as targeted, the government has decided to introduce pro-active measures."
However, analysts said these levers were not very surprising, although "market stabilisation" had been successful even in advanced capital markets such as Hong Kong.
"If we can expect more measures being announced going forward, then it will boost confidence," Affin Hwang Investment's chief economist Alan Tan told The Straits Times.
Mr Najib also repeated his assurance that the financial problems at 1MDB - which racked up RM42 billion in debt in just five years - would be resolved "in a transparent and market-friendly" manner, and that the government is committed to completing the ongoing probes into the company's business.
Kenanga Investment's economist Wan Suhaimi Saidie said: "A lot needs to be done to nurture back confidence on corporate governance, especially if you have 1MDB unresolved."
Malaysian shares surged 2.3 per cent, the biggest rise in two years. The ringgit strengthened to 4.31 against the US dollar but slipped to 3.06 against the Singdollar.