Malaysian PM Najib announces $6.6b boost for stock market

An employee counting ringgit bank notes at a currency exchange store in Kuala Lumpur on Aug 25, 2015.
An employee counting ringgit bank notes at a currency exchange store in Kuala Lumpur on Aug 25, 2015.PHOTO: BLOOMBERG

KUALA LUMPUR -  Malaysia will pump RM20 billion (S$6.6 billion) into the Kuala Lumpur stock exchange in a bid to shore up an equities market battered by flagging confidence that has also seen the ringgit near 18-year lows.

“The government will reactivate ValueCap with funds of RM20 billion,” Prime Minister Najib Razak told reporters on Monday (Sept 14).

ValueCap is a state equity investment firm set up in 2002 to support undervalued equities. The RM20 billion injection is just short of the RM23 billion net outflow of foreign funds since the beginning of 2014. The bulk of it - RM16 billion - exited in the first eight months of this year.

The measure is one of several formulated by a three-week-old "Special Economic Committee" (JKE) formed to address Malaysia's investor flight.

Other measures include import duty exemptions for inventory, parts and research equipment for the manufacturing sector, boosting tourism with close to RM6 billion in projects and giving property a boost by offering a RM200 monthly incentive to couples under the age of 40 and earning less than RM10,000 a month who purchase a first home valued under RM500,000.

"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," Mr Najib said.

But analysts said these levers were uninteresting, although the "market stabilisation" has been successful in the past even in advanced capital markets such as Hong Kong.

Finance executives have also told The Straits Times that concern over Malaysia's economy was due to more than just external shocks - as repeatedly outlined by the Najib administration - such as the soaring US dollar and slowdown in China, a major trading partner.

They said the concern was also fuelled by allegations against the prime minister regarding troubled state investor 1Malaysia Development Berhad (1MDB), whose advisory board is chaired by Mr Najib.

He insisted again on Monday that the financial problems of 1MDB's - which raked 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 ongoing probes into the company's business.

"But a lot needs to be done to nurture back confidence on corporate governance especially if you have 1MDB unresolved," Kenanga Investment's economist Wan Suhaimi Saidie told The Straits Times.

1MDB has repeatedly denied accusations that billions were channelled out from the company to unrelated parties instead of actual business partners, and Mr Najib has claimed that US$700 million (S$989 million) linked to the firm that was deposited in his private accounts was not public money but political funding from unspecified Middle Eastern donors.

Amid these growing concerns, the embattled Malaysian leader set up the JKE last month, whose members include CIMB chief Nazir Razak - the premier's brother who has been critical of 1MDB - as well as Tan Sri Nor Mohamed Yakcop, famed for implementing a currency peg and capital controls that the country put in place following the 1997 Asian financial crisis.

But the Najib administration has vowed not to return to those measures, insisting that economic fundamentals are solid and able to withstand current pressures.

The ringgit – Asia’s worst performing currency this year –  has traded at over 4.3 to the greenback all of last week and ended on Friday at 3.05 to the Sing dollar. But analysts believe the measures announced on Monday could stem the slide in the short term.

shannont@sph.com.sg