Budget surplus can change ringgit’s fortunes
Fund manager says investors want to put more money into Malaysia
PETALING JAYA: The ringgit would find itself on a much better footing should the new Pakatan Harapan government manage to turn the country’s current account deficit into a surplus, says Aberdeen Standard Investments Malaysia managing director Gerald Ambrose.
“Everybody agrees that the ringgit is undervalued now. It would put the ringgit on a better valuation. The ringgit has underperformed over a very long period of time likely because of capital controls then, and certain decisions that were made but reversed thereafter have made investors a little bit more cautious,” Ambrose said on the sidelines of the Aberdeen Standard Investments’ investment conference 2018.
“To reduce the deficit to achieve a balanced budget would be very positive for the ringgit. Perhaps, the priority should not be to achieve a surplus because Malaysia is a developing country and there is a need to develop the infrastructure. Pakatan did say that they could save money by eradicating corruption within the system,” he added.
Prime Minister Tun Dr Mahathir Mohamad said recently that he is expecting Finance Minister Lim Guan Eng to achieve a budget surplus just like how Penang had managed to achieve a budget surplus during the latter’s term as its chief minister.
Meanwhile, Ambrose said that the economy wasn’t running on “all cylinders” or at full speed at the moment, but the 14th general election had indeed removed a major obstacle for foreign investors.
“They are really encouraged by the election results and they want to put more money into Malaysia, but they are waiting more than just a hundred days. Unfortunately, at the moment, emerging markets are out of fashion. The US dollar is the central theme. The likes of Indonesia, the Philippines, Argentina and Turkey have had to push up interest rates to protect their currency whereas we have not,” he said.
“I do believe that once all these things neutralise, Malaysia would do very well provided the reforms do continue and I doubt it is over yet at this moment. People I speak to believe it is not over and that there are more things to happen (first),” Ambrose added.
On a related matter, Aberdeen Standard Investments’ head of Asian Sovereign Debt Kenneth Akintewe said that the Malaysian debt was on the high side when compared to other Asian countries, but noted that it was not unsustainably high.
“A 60% debt-to-GDP level is an entirely manageable position to be in. Growth conditions here are favourable, demographics as well. Countries like Italy are well over 100% but with much lower growth levels there, much lower labour force productivity, much less favourable demographics. We aren’t overly concerned with Malaysia’s debt situation,” Akintewe said.
He noted that the trade war could potentially see Malaysia as one of the beneficiaries, as companies in China may need to set up manufacturing facilities in other countries.
“Not to mention that Malaysia is also part of the One Belt One Road initiative,” Akintewe said.
Commenting on the government’s move to introduce new forms of taxes, Ambrose said that he hoped it would not be a capital gains tax.
“Malaysia’ equity market needs to show that it can lure money in from foreign investors. Malaysia used to be a quarter of the Asia ex-Japan index in the 1990s, but now the KL market is about 2% plus. Australia has capital gains tax and that’s been imposed for many decades. But the last Asian country that tried to impose it was India and it was a bit of a mess,” Ambrose said.
“I don’t think that it would raise much money and if it would be a good idea at all. And there are other transaction levies for share trading as well presently. And this (capital gains tax) is not a good thing,” he added.