Crucial for new govt to act quickly, take bold measures to boost confidence

KUALA LUMPUR (March 2): The new government of Prime Minister Tan Sri Muhyiddin Yassin needs to act quickly and take bold measures to boost public and investors confidence in the near term by ensuring the sustainability of economic growth, raising the people’s income and reducing the cost of living.

Affin Hwang Capital believed the government will continue to focus on the current development of strategic projects which aligns with the five-year 12th Malaysia Plan, that is likely to be unveiled in the second half of this year.

“Market observers will likely be keeping a watch on policy changes and structural reforms, although judging from the foreign outflows over the past two years, it would likely take strong and speedy execution before we see funds flocking back in a big way,” it said in a note today.

Affin Hwang Capital said should the political uncertainty be prolonged and combined with global economic uncertainties and Covid-19 outbreak, many local and foreign investors comprising both long-term and portfolio investors, may hold back their investments pending further clarity on the political environment.

Meanwhile, MIDF in its weekly fund flow report today said offshore investors upped the selling activity last week to a whopping RM1.26 billion net of local equities, the largest weekly foreign net outflow in 88 weeks.

It added that February saw a foreign net outflow of -RM1.97 billion, the largest monthly foreign net outflow since August 2019 which saw international funds taking out -RM2.60 billion from the country.

Meanwhile, the foreign net outflow from Malaysia on a year-to-date basis stood at -RM2.11 billion, the third smallest amongst the seven Asian markets under its coverage.

Affin Hwang Capital said despite the uncertainty on the political front in the near term, the research firm maintained its real gross domestic product (GDP) growth forecast of 4.0% in 2020 compared to 4.3% in 2019, in view of the implementation of the economic stimulus package.

“As soon as the political uncertainty stabilises, we believe the risk of a sharp slowdown in private investment is unlikely, with possible improving country’s domestic demand, in a relatively low-interest-rate environment,” it added.

The research firm noted that in the medium term, market observers will focus on the new government’s strategies to fix the country’s fiscal deficit position, improving macroeconomic fundamentals to maintain the country’s sovereign credit rating outlook by international rating agencies.

It noted that Malaysia will likely still face a period of political uncertainty but if the government garners support from members of parliaments and public, the newly formed government will be able to carry out its functions and also address the current economic challenges.

“We believe policies which could boost Tan Sri Muhyiddin’s credibility would include areas of institutional reforms, corporate governance, fiscal transparency and consolidation, as well as structural reforms to improve on productivity and income of the people,” said Affin Hwang Capital.