Friday 29 Mar 2024
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KUALA LUMPUR: Sentiment on Bursa Malaysia was boosted yesterday after Prime Minister Datuk Seri Najib Razak announced broad-based stimulus measures aimed at strengthening the economy.

Analysts said the market welcomed a RM20 billion injection from the government as the FBM KLCI gained 2.25%, or 36.03 points, to 1,639.63 at the end of the trading day, while the FBM Emas Index increased 1.99%, or 219.72 points, to 11,248.84. However, gains in the FBM Small Cap index were muted as the index increased only 0.37% to 14,505.68 points.

The promise of a RM20 billion injection into ValueCap Sdn Bhd was a positive for investors, which will then be used to invest in undervalued Malaysian companies. To give some context, RM20 billion represents about 2% of the KLCI’s market capitalisation of RM944.21 billion as at yesterday’s close.

Established in 2002, ValueCap is an equity investment firm that is owned by Khazanah Nasional Bhd, Kumpulan Wang Persaraan (Diperbadankan) and Permodalan Nasional Bhd.

Hong Leong Investment Bank Bhd economist Sia Ket Ee is of the view that the additional fund would help to restabilise the local equity market and give investor confidence a much needed boost.

This confidence, reflected in the better performance of the stock market yesterday, could translate into investors realising that the economic fundamentals are still strong which would end up benefiting the economy, said Sia.

Inter-Pacific Securities head of research Pong Teng Siew, however, believes otherwise. He opined that the RM20 billion injection into ValueCap would have a limited impact on the real economy.

He does not think that there is a pressing need for the fund at this present time to be injected into the stock market as the market has not fallen to levels so low that it would require such assistance.

Currently, the KLCI trades at a price-earnings ratio of 16.65 times, which is valued higher than Singapore’s Straits Times Index at 12.91 times. In 2014, the benchmark index was priced at 16.29 times.

“Yes, it will make money for investors but stock prices are asset prices and underlying volume of business activity of a company are two different things,” Pong said.

Pong added that the fund could lend some assistance to the Employees’ Provident Fund (EPF) whose profit this year could come under pressure due to the volatile performance of stock markets.

“It may help the EPF and give it some leeway to maintain the dividend the fund declared last year,” he said.

AllianceDBS Research head Bernard Ching said ValueCap’s effectiveness in helping to support the market through the additional RM20 billion would depend on whether there is sustained selling pressure from foreign investors and how quickly and effectively the fund could be deployed.

“Over the near term, bombed-out KLCI component stocks and government-linked companies (GLCs) are likely to be the target of buying support by ValueCap. While this injection alone cannot alter the fundamentals and direction of the market, we expect it will moderate market volatility going forward,” he said.

Yesterday, the prime minister once again urged GLCs as well as the private sector to repatriate their profits overseas and invest locally.

Ching said this move will definitely be a boost for the Malaysian economy. He said the focus of new investments must be in new growth areas in order to avoid crowding out private investors, given Malaysia’s relatively small population and the current dominant position of GLCs in the domestic economy.

EPF chief executive officer Datuk Shahril Ridza Ridzuan said in a statement yesterday that domestic investments continued to be an integral part of the fund’s investment.

“The EPF is constantly seeking appropriate local investments and will actively invest in long-term strategic industries and companies. In recent months, we have also been encouraging our global partners to invest with us in Malaysia. This includes our recent logistics hub with the Goodman Group of Australia and separately, with several global pension funds,” he added.

Other measures announced by the premier yesterday included an exemption on import duty for factory sectors, an additional RM2 billion for small and medium enterprises under the working capital scheme, RM80 million for the tourism sector to boost promotional activities in Asean, China and India as well as a housing loan assistance of RM200 monthly for two years to be extended to 20,000 married couples aged between 25 and 40 years earning below RM10,000 per month for the purchase of their first home valued between RM100,000 and RM500,000.

Sia said these measures bode well to safeguard gross domestic product (GDP) growth.

He added that Budget 2016, which will be presented next month, will probably present the fine-tuning of these measures and a focus on the cost of living.

In a separate statement, CIMB Group Holdings Bhd group chief executive Tengku Datuk Zafrul Tengku Abdul Aziz said if all the economic stimulus measures announced yesterday are executed well, GDP growth could actually be closer to the upper end of the official target of 5.5%.

He noted, however, there may be some time lag before the full positive effects work through the financial and capital markets and in turn, the real economy.

The ringgit was largely unmoved yesterday, to close up 0.16% to 4.31 against the US dollar. The local currency has lost almost 19% of its value against the greenback so far this year, while the KLCI has retreated 8.95% this year.

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This article first appeared in digitaledge Daily, on September 15, 2015.

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