Malaysian market to bounce back as risk appetite picks up

The worsening of China

KUALA LUMPUR: The Malaysian stock market is expected to bounce back as risk appetite picks up in the coming months resulting from the Pakatan Harapan led Federal Government's greater transparency, governance and clarity on the direction of the economy.

AmBank Economic Research said on Friday the government's annnouncement that public debt reached RM1.09 trillion or 80.3% of the gross domestic product (GDP) had raised concerns.

Among the worries were whether the borrowings will help improve growth or weigh on the economy and also future generations. 

“A key concern is the rising government-guaranteed loans and PPP lease repayments that lacks transparency, suggesting an easy way to shift the debt figures while holding public debt below the 55% level.  

“Also, the inability to reduce operating expenditure could lead to the need of raising revenue collection and driving GDP to help improve the debt/GDP ratio and fiscal balance position,” it said. 

AmBank Research pointed out that a high public debt results in more spending on servicing the interest for the borrowings, thus straining the resources.

This was reflected in the low ratio of operating and development expenditure to debt at 0.20 times and 0.04 times respectively in 2017 from a high of 0.50 times and 0.14 times respectively in 2008, lowest reading since 1988.

It said that though the current scenario shows some signs of similarities to the 1997/98 Asian Financial Crisis, it is not concluding this time around is somewhat similar to the AFC. 

“Our argument is that it is important to take note that one of the salient reason for foreign funds flocking into the emerging markets is the attractive growth rates and low inflation compared to the previous decades which are adequate tool to keep interest rates low. We believe the domestic emerging-market growth remains resilient. 

“Hence, we expect Malaysian market to bounce back in risk appetite in the coming months from greater transparency, governance and clarity on the direction of the economy,” it said.