THE reduction in stamp duty on share sales from 0.15% to 0.1% of contract value is a welcome initiative to cut the cost of securities transactions. It will make the stock market more competitive.

The prime minister said the move is to grow market liquidity to attract more domestic and foreign investors and encourage small and medium enterprises (SMEs) to pursue initial public offerings (IPOs) to expand their businesses and create more job opportunities.

However, stock market performance is generally influenced by sentiment.

The KLCI has sunk 7.14% since the beginning of the year. Compared to April 2018, the KLCI has dropped 25%.

According to MIDF Research, sellers have dominated 18 of the 24 weeks this year with a net foreign outflow of RM3.66 billion. Local institutional investors are the net buyers with a net inflow of RM3.2 billion. Retail investors make up a small portion only.

The stock market is a playground for the rich. We may attract foreign money when share prices are low as they are now but once they go up, there will be profit-taking and outflow once more. This affects the ringgit. Foreign investors tend to gain more. 

The focus now should not be on the rich.

The ringgit is expected to come under pressure against the US dollar in the near term due to less favourable external developments. Pegging can be safely ruled out.

At time of writing, the ringgit is trading at RM4.649 to US$1. Since April 6, 2018, it has dropped about 20%. The ringgit has been among the worst performing currencies in the region this year.

What’s needed now are good and implementable structural economic reforms. Six months have passed for the new government.

The deputy finance minister said the government remains committed to and focused on implementing structural policies that boost economic growth and the country’s competitiveness to attract inflows of funds and foreign investment that will support the ringgit.

Foreign investors start by determining the economic, political, business and sovereign-default risks before they invest. They use information that should be readily available and up to date. 

Word of caution here, when offering generous FDI incentives, bear in mind future investors will demand a similar degree of generosity.

We have had 26 consecutive years of a budget deficit on a narrow revenue base relative to high operating expenditures. The budgeting process needs a revamp to avoid wasteful spending and high emolument expenses. The public expenditure review in collaboration with the World Bank has to be completed.

The government needs to pursue initiatives aimed at enhancing efficiency and effectiveness, growth potential and fiscal resilience and creating a future-ready workforce. 

The enactment of the Fiscal Responsibility Act (FRA) should be the immediate priority. The FRA will help to reduce the fiscal gap and debt burden, as well as improve transparency and governance of fiscal policy.

Malaysia had experienced various episodes of sizeable capital reversals, which affected foreign reserves and the ringgit. 

What’s needed are expert advice, transparency and no flip-flops.

What say you… – June 22, 2023.

* Saleh Mohammed reads The Malaysian Insight.

* This is the opinion of the writer or publication and does not necessarily represent the views of The Malaysian Insight. Article may be edited for brevity and clarity.