Malaysia Dateline

Bursa Malaysia Index is heading for its best quarter

KLCI Index is heading for its best quarter since the end of 2011.

The electoral upset of May 9 2018 didn’t just end kleptocracy but it brought hopes to Malaysians and international investor community. And, the feel good factor is beginning to translate into actual gains.

According to Bloomberg on September 17 2018: “With a 6.6 percent rebound, the FTSE Bursa Malaysia KLCI Index is heading for its best quarter since the end of 2011, while the MSCI Asia Pacific Index has lost 2.3 percent. That pushed the valuation of the Malaysian gauge to its highest level since at least 2009 relative to the regional benchmark.”

This is an important verdict, precisely because Malaysia has several key government linked investment companies (GLICS).

Among them they are:

-Ministry of Finance Inn
-Khazanah
-PBN (Perbadanan Nasional)
-EPF (Employees Provident Fund)
-LTAT (Lembaga Tabung Angkatan Tentera)
-KWAP

Research has shown that these GLICs have a weight of 70 per cent on the KLCI or Kuala Lumpur Composite Index.

Their importance also run into the running, and management, of some 999 companies according to Professor Terence Gomez at University of Malaya.

In fact, there are 94 development aid agencies, one of which is MARA. These development agencies are built to help improve the economic lot of the Bumiputeras.

Nevertheless, Malaysia has a political economy that can be easily misconstrued and misunderstood as pro Malays and Bumiputeras only—- when the original goal was to restore racial equality and equity.

Be that as it may, Bloomberg’s report seems to show that Malaysia still has a healthy economy at the top.

To begin with, by admitting Malaysia has a debt and contingent liabilities of up to RM 1.09 trillion, investors are aware of the government’s efforts to set things right.

Indeed, the optimism is returning after a shock election result in May 2018 that triggered a plunge of as much as 10 percent in Malaysia’s equity index as foreigners fled the market,” added a Malaysian analyst.

To which Bloomberg added: “While the outflows haven’t completely stopped, the pace has slowed, with August posting the smallest withdrawals in four months.

Morgan Stanley upgraded the nation’s shares last week, noting the recent outperformance for a market that tends to be less volatile.”

“Investors are starting to come back into the equities market after the post-election selloff because the new government is seen to be more pragmatic towards the country’s fundamentals in prioritizing financial stability over aggressive growth,” Bharat Joshi, a fund manager at Aberdeen Standard Investments, said by phone. “This has given investors renewed confidence on the country.”

The strength of the KLCI index is also sustained despite the deferral and outright abolition of various infrastructure projects when Pakatan Harapan took over on May 10th 2018.

One of them was to put on hold a high speed railway link between Malaysia and Singapore. On September 1, the government also implemented a new sales and services tax (SST), replacing a consumption levy it eliminated on June 1.

Such an attempt allowed a tax holiday of three months, during which no international credit rating agencies ever attempted to downgrade Malaysia too.

The slick move to introduce an SST, boosted hopes that the step will help increase consumers’ purchasing power. Instead of taking RM 45 billion from the consumers through GST, the abolition of GST returned the money back to the Malaysian consumers, thus boosting the aggreegate demand.

But if the new government can take a serious approach to eliminating corruption altogether, the international investor community would be excited even more, as such efforts are rare but precociously important.

As things are, Najib Razak has pleaded not guilty to several counts of corruption, money laundering, and abuse of power linked to a 1MDB probe in three court appearances.

Malaysian investigators are moving their sights overseas after compiling nearly all the domestic evidence they need.

The anti-graft agency said 60 percent of the work is completed in tracing the money flows from 1MDB, which lies at the center of multiple investigations spanning the globe.

Last week, the police said they found a total $972 million of transfers to Najib’s accounts involving 132 transactions through three channels that they identified as Good Star, Aabar and Tanore, Deputy Inspector-General Noor Rashid Ibrahim said in a statement.

Malaysian authorities are seeking cooperation from other countries, including Singapore that has returned S$15.3 million ($11.2 million) of 1MDB funds, as well as the U.S., Switzerland and Saudi Arabia.

If Malaysia keeps up such strong efforts and momentum, it will enjoy a resurgence that will alleviate some of the structural problems in the economy.

Pakatan Harapan has to move fast, as research by Khazanah has shown that the population of Malaysia will begin to age in twenty years too.
Thus speed, scale and urgency are vital to earning the international investor community’s confidence.

Malaysian economy can be understood from the bottoms up, and alternatively, from the top down.

If the optic is focused on the people trapped in the wealth pyramid at the bottom, the statistics are galling.

—92 per cent of Malysians are earning less than RM 6000 per month;

—25 per cent of the people do not have properties to their names;

—Top 20 per cent of Malaysians control 80 per cent of the country’s wealth;

—-4 out of 10 Malaysians will retire without pensions

—70 per cent of those classified as B40, invariably those living below 40 per cent of the poor, are Bumiputeras

But from the top down, Malaysian economy isn’t doing too badly. Malaysia does have enough for everyone but not affordable to all the people.

Be that as it may there are reasons for good cheer. When the economy is going strong, any efforts to help the poor cannot be stalled indefinitely too.