ECONOMISTS are doubtful that Malaysia’s stock market can recover in the short term due to global instability and local political turmoil, saying that the government needs to focus on the economy.

Although Malaysia’s foreign direct investment figures and gross domestic product growth are better than expected in the first quarter of 2019, the stock market showed a weakening economy.

The Finance Ministry’s policies to boost the economy at the start of the year, such as the goods and services tax refunds and income tax rebates, have not seen the desired effects.

Instead, both the stock and bond markets have seen foreign investment outflow in the past 10 weeks.

Economist Hoo Kee Peng said the slow stock market and bond market was due to the constant stream of negative news, leading to a loss of confidence by investors.

Such news includes Malaysia’s potential downgrade by stock market indices provider FTSE Russell, and the pull-out of Norway’s sovereign wealth fund from emerging markets and corporate bonds, which includes Malaysia. 

Coupled with global instability due to the US-China trade war, many foreign investors are returning to the US market, causing developing economies, such as Malaysia, to suffer.

Hoo told The Malaysian Insight that some foreign investors viewed Malaysia’s economic policies as putting the cart before the horse, which does not inspire confidence.

“Some are due to contradictory statements, such as the national debt being close to RM1 trillion, or is it at RM800 billion?” he said.

Hoo said the state of local politics was also creating a perception of instability, including persistent rumours of a cabinet reshuffle, which can cause investors to be apprehensive.

“For example, if Dr Mahathir Mohamad refuses to step down as prime minister, that will cause instability. Add that to the unstable economy, and (it’s likely) investors would rather buy the US dollar,” he said.

Hoo said the US-China trade war could also have a direct impact on Malaysia as, more often than not, the negative impact of external factors will be felt before positive ones.

He said the market is also seeing fewer rebounds due to the deluge of bad news following FTSE Russell’s placement of the Malaysian market on a watch list.

“Both big and small investors are not touching the Malaysian market,” Hoo said.

Focus on markets, not stocks

He said discussions about the economy should be on markets instead of stocks because when a large number of stocks don’t perform well, then even good stocks are affected.

In the past week, Malaysian stock market figures showed that the lowest foreign investment outflow was on May 15 at RM92 million, while the highest was on May 16 at RM372 million.

For the local market, the net transaction figures for the same period were similar, with the lowest outflow on May 15 at RM146 million and the highest on May 16 at RM342 million.

According to MIDF’s weekly fund flow report, foreign fund outflows extended for the eighth week in a row.

Net selling hit a new fresh start since October with RM1.18 billion net of local equities sold.

“On a month-to-date basis, Malaysia has recorded a foreign net outflow of -RM1.71 billion in May 2019. This brings the year-to-date foreign net outflow from Malaysia to -RM4.46 billion.”

Bursa Malaysia has lost about 5.2% year to date.

It closed 1.87 points lower at 1,601.87 points after a weak start at the opening bell yesterday.

Trade war fears set the FBM KLCI to a weak start, opening 3.8 points lower at 1,599.94 yesterday morning in tandem with other Asian stock markets.

However, the stock market pared its loses by crawling back to close above 1,600 points.

All indices except for the FTSE Asean 40 were in the red. – May 24, 2019.