Disappointing show: Falling exports, concerns deficit will widen dampen trading

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The benchmark Kuala Lumpur Composite Index (KLCI) ended the week at 858.22 points, 2.1% lower than the previous Friday’s close of 890.67 points.The index hit a high of 869.24 points last  Thursday but dropped the next day on disappointment over poor export figures and the government’s soon to be announced second stimulus package.Last Friday, the Department of Statistics announced that Malaysia’s exports slid 27.8% in January to RM38.3 billion from RM53.04 billion a year ago as electrical and electronic and crude petroleum exports fell. Total imports fell 32% to RM29.47 billion from RM43.31 billion a year ago.“These numbers show that Malaysia is no different from other countries in the region,” says Pong Teng Siew, head of research at Jupiter Securities Sdn Bhd.He believes the country cannot avoid a recession because exports are shrinking as major markets are facing a contraction in their own economies. In 4Q2008, Malaysia’s GDP grew only 0.1% while manufacturing shrank for the first time in 28 quarters.Nevertheless, says Pong, the current price stability in some commodities may help offset the contraction in  the whole economy. Crude palm oil (CPO) futures prices rose 45.8% from a low of RM1,331 in November to RM1,940 a tonne last Friday as the CPO stockpile fell from the 2.2 million tonne mark in November last year.Last Thursday, Plantation Industries and Commodities Minister Datuk Peter Chin said February’s CPO stockpile was likely to fall below January’s level of 1.83 million tonnes due to floods in some CPO-producing states.On the same day, the government asked for at least RM10 billion to implement the second stimulus package, a figure that comes in at the low end of economists’ expectation.“The market is quite disappointed with the stimulus package and the spectrum it offers,” says Pong. “We will be seeing a rather weak market ahead.” He pegs support for the KLCI at 835 points and resistance at 866 points.Deputy Prime Minister and Finance Minister Datuk Seri Najib Razak will announce the details of the stimulus package, dubbed a mini-budget, this Tuesday.It has been reported that the package will include ready-to-roll projects and measures to help the business community weather the economic downturn, including the possibility of tax incentives for small and medium enterprises.Speculation is rife that it could also include a further reduction in Employees Provident Fund (EPF) contributions by employees and employers as well as the withdrawal of EPF dividends.“No matter how, the government has to keep an eye on the deficit,” says Pong. “The bigger the deficit, the weaker the ringgit becomes.”Citibank in a report last Thursday said a RM10 billion to RM15 billion package could bring the 2009 fiscal deficit to between RM52 billion and RM56 billion, or 6.9% to 7.6% of GDP, possibly triggering a downgrade on local currency sovereign credit rating.Indeed, the ringgit has weakened further and is edging closer to the 3.80 level vis-à-vis the greenback. This article appeared in The Edge Malaysia, Issue 745, March 9-15, 2009