A CONFLUENCE of positive indicators is expected to drive the Malaysian stock market higher from its current level.
Mayban Investment Management Sdn Bhd chief executive officer/director Amin Rafie Othman said the current rise on the KLSE, where the benchmark Composite Index (CI) had shot up by 186 points or 30% from a low of 619.2 points in March to yesterday's 805-level, was not a flash in a pan.
Instead, it was due to several favourable factors, such as pent-up demand by foreign investors for Malaysian stocks after the Iraq war and the SARS outbreak, the shift to higher return investment assets, and the recent upgrade in Malaysia's long-term sovereign rating to A- from BBB+ by Standard and Poor's (S&P), Amin said when presenting his paper on “Focus on the Equity Market: Reinventing the Malaysian Equity Market” at the Malaysian Capital Market Summit 2003 yesterday.
Going forward, he expects stock prices on the KLSE to continue rising, with more foreign portfolio funds returning to Malaysia after leaving in 1997.
Among the factors that augured well for the KLSE were a leadership transition that was progressing well with no changes in existing policies, as well as upbeat economic indicators such as higher external and foreign exchange (forex) reserves, improving consumer sentiments, as well as accelerating growth in exports, Amin said.
He said Malaysia's external reserves were expected to exceed US$41bil by year-end, while forex reserves were expected to exceed US$45bil by the end of 2004.
Malaysia, as a result of the ringgit peg to the greenback, was also a beneficiary of the current weakness in the US dollar, as export growth would escalate further while the peg remained, he said.
Amin expects Malaysia's gross domestic product (GDP) growth to expand by 5.5% to 6% next year on the back of a sustainable recovery in the US economy and improving global economic outlook.
Later, AmResearch Sdn Bhd executive director Gan Kim Khoon said there was a need to re-invent the Malaysian equity market as the KLSE had lost its position as the premier exchange in South-East Asia.
Speaking on the same topic with Amin, Gan said foreign institutional investors owned less than 20% of all Malaysian equities as at end-December last year, compared with 40% in Singapore.
He said while foreign fund managers were net buyers in the second quarter of 2003, which resulted in a portfolio inflow of RM630mil into the KLSE, the amount was still relatively small compared with before the 1997 economic crisis.
In addition, Gan said a lot of the “old” money that left during the crisis had largely remained outside the country.
To make the KLSE more attractive to foreign investors, he recommended several measures aimed at improving market liquidity, capital market openness, and settlement efficiency.
To improve market liquidity, regulators could encourage foreign portfolio investments into Malaysia by removing all current restrictions or limits on foreign equity ownership in local and foreign companies, reduce holdings of government and government-linked entities in listed companies, raising the current limit imposed on the Employees' Provident Fund with regard to equity investments, as well as to develop the private banking industry and consider re-introducing securities borrowing and lending.