RECENT positive signals in the Malaysian economy do not mean that the country is out of the woods, said economists, adding worries over political stability and the global economy are dampening the mood of investors and consumers.

Although Putrajaya recently announced that foreign direct investment (FDI) has almost doubled in 2018 from the previous year, analysts such as Dr Lim Teck Ghee said other indicators like the Malaysian stock market told a different story.

The stock market has dropped 200 points since the general election last May and it has been the worse performer in the region so far this year, said Lim of the Centre for Policy Initiatives.

Another expert, Ramon Navaratnam, claimed that even racial rhetoric against the government, which has been dialled up since after GE14, can dissuade investors as it creates the specter of political violence.

“Politics does effect economics. There are text messages going viral threatening to harm the finance minister (Lim Guan Eng) if he goes to Rantau,” said Navaratnam, referring to the by-election next month in Negri Sembilan.

“The police are doing nothing about it. If you are a foreign investor and you see this, are you going put your money in the country? You may say you are interested but you will hold on to see if the situation improves,” said Ramon, who is a former Treasury deputy secretary-general.

The PH administration has been locked in a battle of perception about the economy since its historic victory in GE14.

Its critics have accused it of spooking investors with such revelations as the country’s trillion ringgit debt, and its decision to review mega projects like the East Coast Railway Line (ECRL) and the KL-Singapore High Speed Rail (HSR).

As of December, foreign funds to the tune of RM11.1 billion have flowed out from the local stock market since Pakatan’s victory.

But the PH administration has stuck to a policy of honesty about the country’s finances and the need to review projects of doubtful value that the country ,cannot afford such as the ECRL, HSR and a Sabah gas pipeline.

The government has also embarked on a plan to pay off the country’s debts, plug leakages and wastage in government spending and recover funds allegedly stolen in the 1Malaysian Development Berhad (1MBD) scandal.Yet investors appear to remain sceptical about these policy directions.

It was reported on March 12 that Bursa Malaysia was the worst performer among its Asian peers, falling 1% in the first two months of 2019 while Singapore and Indonesia’s stock exchange climbed by 5% and 3%, respectively.

Other indicators

On the heels of the stock market story was the government’s announcement that Malaysia attracted almost double the volume of FDI in 2018 compared with 2017, signalling that the country still had the confidence of investors.

The FDI announcement, said economist Lee Heng Guie, was a forward indicator that investors were committed to Malaysia in the long term.

“The approved investment will translate into actual investment in 18 months based on an average implementation rate of 60-70%, also contingent upon the global outlook and investor sentiment,” said Lee of the Social-Economic Research Centre (SERC).

He said although the stock market was a gauge of the economy, it was not the only important indicator.

“Other high frequency economic indicators such as exports, industrial production, banking, including loan statistics indicate domestic economic and business activities are still humming along although not that strongly.”

Lee, however, cautioned that consumer sentiment and investor confidence had weakened over the past months and SERC’s studies suggest this was because of lingering worries about domestic issues and “external headwinds”.

These headwinds include worries that the global economy could slow later in the year as Brexit negotiations stall and the US-China trade war continues, which could decrease demand for Malaysian exports.

Malaysians should be worried about falling exports, sustained decline in the local stock market and in the value of the ringgit, as well the lack of clear policies, which could damage investor confidence, said Lee. – March 21, 2019.