Bursa Malaysia ends slightly lower in knee-jerk reaction

PETALING JAYA: Bursa Malaysia settled lower on the first day of trading post-Budget 2019 announcement, possibly due to concerns over the risk posed by higher fiscal deficit on the country’s sovereign credit ratings.

On Monday, the FBM KLCI opened 6.2 points higher at 1,720.07 from last Friday’s close of 1,713.87. However, it ended the day 5.07 points lower at 1,708.80.

“It could be a knee-jerk reaction by investors who are worried about a sovereign rating downgrade due to the higher fiscal deficit and the high dependence on oil revenue,” said Sunway University Business School’s Professor of Economics Dr Yeah Kim Leng.

However, he noted the government’s clearer debt management plan that is projected to reduce the country’s overall debt level, which in turn reduces fiscal and debt vulnerability.

“As long as the government maintains a moderately strong economic growth, including employment and consumer spending, the risk of a rating downgrade will be less,” he told SunBiz.

Yeah said clearer fiscal integrity and transparency will demonstrate the new government’s determination to “clean up” so that financial abuses will be a thing of the past.

In the longer term, he said, foreign investors have a favourable outlook on Malaysia as the government has demonstrated fiscal prudence and gradual fiscal consolidation by rationalising some of the mega projects as well as strengthening its governance.

Besides the knee-jerk reaction, Yeah said external developments also have implications on the Malaysian market and he sees downside risk from the better performance in the US economy, which has resulted in some investors pulling out.

“It could be due to the repositioning of portfolio adjustment by international investors. They could be reducing weightage in the emerging markets,” he said.

Overall, he said Budget 2019 is expansionary and should support growth, given the number of incentives that would support consumer spending.

“There is enough fiscal support given within fiscal constraints to sustain growth and to ensure enough employment creation, which in turn would ensure momentum in facing headwinds that are expected next year especially if the US and China trade war intensifies,” he added.

Meanwhile, Socio-Economic Research Centre executive director Lee Heng Guie said certain sectors, such as gaming, would definitely pull down the overall market.

On Monday, Genting Malaysia Bhd was the most active stock on the local bourse and the second biggest loser as its share price tumbled 93 sen or 20.48% to close at RM3.61 with 379.04 million shares done.

This came on the back of the government’s decision to raise the annual casino licence fee from RM120 million to RM150 million.

“There will be some winners and some losers. We cannot expect the Budget to address all needs. Also, the government needs to consider legacy commitments such as the off-Budget items … they need to reset on a new level and work from there,” said Lee.

In the medium term, he said, investors will still find value in Malaysia but the government has to fix the country’s finances and execute other reforms first in order to regain trust.

“Eventually, investors will find that the new government is more sincere in improving the ease of doing business.

SEE