Foreign sell-off, economy top concerns despite reforms push

Najib’s political reforms do not have a bearing on the stock market, said one analyst. — File pic

KUALA LUMPUR, Sept 19 — Despite the Najib administration’s political reforms, a Bloomberg report today said foreign funds may continue paring down local share stakes in an indication that the world economy will remain the government’s biggest headache ahead of an expected general election.

Terence Wong, head of research at Kuala Lumpur-based CIMB, was reported as saying that worsening global economic turmoil may cause investors to keep unloading the nation’s equities.

Wong also said that promises made last week by Prime Minister Datuk Seri Najib Razak to burnish Malaysia’s democratic credentials and abolish the controversial security and media laws will not be enough to boost confidence.

The Bloomberg report said that KLSE data showed that foreign funds sold RM3.8 billion worth of Malaysian shares last month, the most since at least October 2009 after four consecutive months of inflows.

A continued outflow of funds could damage economic confidence during the crucial months ahead, as the prime minister is expected to call for a general election by the first half of next year.

The latest survey from local pollster Merdeka Center, which was done before the recent reform announcements, showed that Najib’s popularity slid to 59 per cent this August from the highest of 72 per cent in May 2010, fuelled by rising concerns over the surge in living costs and his government’s handling of the July 9 Bersih 2.0 rally.

Mark Matthews, head of research for Asia at Bank Julius Baer & Co in Singapore said that the repeal of repressive laws such as the ISA will unlikely boost share investor sentiment in Malaysia.

“It doesn’t have anything to do with the stock market; it’s already a fairly advanced economy and I’m not sure if anything political would be a huge catalyst,” said Matthews.

“It certainly won’t change perceptions of Malaysia in and of itself, but if it is part of an overall trend of a more open-minded stance in politics, maybe it is meaningful in some way.”

A report by HwangDBS Vickers Research, meanwhile, said today that Malaysian equities would continue to slump unless action is taken to raise investors’ confidence.

The research house said the benchmark FBMKLCI index is still on a declining course, and beyond any short-term relief rebound, the index would probably dip below the psychological 1,400 level soon.

It added that foreign funds would continue to withdraw from emerging markets across the region if risk-averse investors believe the unstable economic and monetary conditions in the United States and Europe was poised to deteriorate further.