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Some comments from S'pore Business Times
- S&P sees Malaysian deficit widening
This could happen if govt fails to raise fuel prices after poll setbacks, it says
(SINGAPORE) Malaysia's budget deficit may widen if the government fails to raise fuel prices after losing its two-third majority in Parliament in weekend elections, according to Standard & Poor's (S&P).
South-east Asia's third-largest economy also faces the risk that private investors will 'stand aside' amid concerns about the nation's political stability, said Sani Hamid, S&P's director of sovereign ratings on Malaysia.
'This is something really new,' he added.
Malaysia's ruling Barisan National coalition suffered its worst defeat since the nation's independence in 1957, winning 63 per cent of the legislature compared with 91 per cent in 2004. It is also now out of power in five of the country's 12 states.
'We will be watching to see if the government's plans for investments in the northern corridor will fall through now that the states involved there have lost out to the opposition,' Mr Sani said.
Prime Minister Abdullah Ahmad Badawi's government last July said it expects to generate RM177 billion (S$76.8 billion) of investment by 2025 to spur growth in the country's northern states. The northern corridor includes Penang, Perak and Kedah, three states that fell to opposition parties in this election.
'We will be watching closely for any significant policy changes or potential impediments to the policy-making process and passing of legislation,' said Elena Okorotchenko, S&P's senior director for Asian sovereign ratings in Singapore.
Still, Ms Okorotchenko said the weekend election result would have 'no immediate impact' on Malaysia's credit rating.
S&P has an 'A-' rating on the country's long-term foreign currency debt with a positive outlook. Its last revision was in July 2007, when it raised the ratings outlook to positive from stable.
S&P said it will be monitoring Malaysia's budget deficit, especially fuel subsidies.
'If oil prices stay above US$100, the budget deficit will definitely widen if the government can't pass on some of these costs to the public,' Mr Sani said. He warned that Barisan National's reduced majority in Parliament could make it harder for the government to cut fuel subsidies to keep the budget target on track.
Mr Abdullah's government aims to trim the budget shortfall to 3.1 per cent of gross domestic product this year from 3.4 per cent in 2007. The government spent RM35 billion in subsidies to keep fuel prices low last year. A pledge not to increase fuel costs expired at the end of 2007\. \-- Bloomberg
And
- Malaysian economic outlook uncertain after polls shock: analysts
KUALA LUMPUR - Malaysia's shock election results, which have left an untested opposition ruling key states, have raised fears over economic growth and investment prospects, analysts said on Tuesday.
The stock market plunged 9.5 per cent on Monday in a panicky reaction to the gains by the opposition, which on Tuesday moved to reassure investors that it would implement 'business-friendly' policies.
Economists said growth could be affected if the new coalitions running five states clash with the federal government over planned infrastructure mega-projects and funding allocated under a national development blueprint.
But they said that while the stock market will remain under substantial short-term selling pressure, when the political dust settles it could reveal a brighter future under a revitalised government.
In Saturday's watershed elections, the Barisan Nasional coalition failed to secure two-thirds of the vote for the first time in almost 40 years, and conceded four states to the opposition in addition to one it already held.
They include Selangor and Penang - Malaysia's most developed and industrialised states which account for nearly half the national economy.
A funds manager with an insurance firm said the changeover could derail contracts that have already been awarded, and jeopardise the government's stated plans to lure billions of dollars in investment to Malaysia's regions.
'The country's political risk premium has gone up a few notches because of the uncertainties. Land approvals are handled by the states. The fear is that projects could be scrapped,' he told AFP on condition of anonymity.
Credit Suisse analyst Stephen Hagger predicted a bearish mood on the local bourse until questions over beleaguered Prime Minister Abdullah Ahmad Badawi's future are resolved.
'Malaysia will be dead money until there is some political clarity that emerges over the next six to 12 months,' he said.
Foreign research firm Merrill Lynch said the negative reaction on the stock market, which staged a partial recovery on Tuesday, was due to an expected slowdown in the decision-making process with a strong opposition in parliament.
'There will also be some short-term uncertainties with regards to investment growth especially in states which are now held by the opposition parties,' it said.
Anwar Ibrahim, the former deputy premier who rallied three opposition parties to the resounding election result, said on Tuesday that there could be a review of state projects.
'We will have to respect the existing agreements. But where adjustments are required, we have to look at it, especially those that imposed hardship to the people,' he told reporters.
He nevertheless downplayed concerns projects could be cancelled.
'I may be in the opposition but I will not sacrifice the economic performance of this country. I assure that we will be market friendly and implement all the initiatives (of the previous administration),' he said.
'The country should be stable and we should be able to instill confidence among domestic and foreign investors.' -- AFP
Market commentaries from Dow Jones
- KUALA LUMPUR (Dow Jones)--Malaysian stocks staged a mild recovery Tuesday after a 9.5% plunge Monday, helped by a technical rebound and gains in regional markets.
However, analysts said the market's rebound may be short-lived due to prevailing political uncertainty and a slew of downgrades by brokerages and research houses after the ruling coalition Barisan Nasional emerged weaker from a poll Saturday. In an unexpected result, the ruling coalition failed to garner a two-thirds majority for the first time in four decades.
The benchmark Kuala Lumpur Composite Index ended up 2.8% at 1206.54, to close off an intraday high of 1211.75 points at the midday break, led by gains in shares of construction, plantation and government-linked companies.
The modest recovery in equities helped the Malaysian ringgit to close marginally firmer at MYR3.2030 against the U.S. dollar from Monday's two-week low of 3.2020.
Several houses have already slashed their market forecasts. AmResearch lowered its fair value for the KLCI to 1,300 from 1,590; Aseambankers reduced its year-end target to 1,350 from 1,450; OSK shaved its year-end target to 1,340 from 1,650 and CIMB cutting its year-end target to 1,380 from 1,700 previously.
"Investors should avoid getting distracted by taking trading positions until the dust settles," said Citigroup Malaysia's Head Of Research Choong Wai Kee in a report Tuesday. "We advocate a strategy of staying focused, targeting just blue chips. Our picks are Telekom Malaysia, IOI Corp, Public Bank, Malayan Banking and Resorts World."
ING Funds (Malaysia) Head of Investment Wu Yah Ning is less bearish on Malaysian equities.
"We expect some degree of volatility in the near term but there's good value in this market. The KLCI is now trading at a price-to-earnings ratio of around 13 which is close to the lower end of its historical P/E trading band of 12 to 16 times," she said, maintaining a positive stance on plantation stocks and oil and gas related companies for solid earnings growth.
Edward Ong of Macquarie Research also maintained his positive outlook for Malaysian equities.
The ruling coalition's "loss of a two-thirds majority is likely to be perceived as negative in the short-term but this could also mean stronger checks and balances, particularly in terms of constitutional changes, and potentially spur reform in the medium term," Ong said in a note.
"In the larger context, with ongoing global liquidity contraction, we foresee more potential multiple contractions in the short term. This would be amplified by the recent election results, which would also dent market sentiment in the immediate future," he said.
Among the biggest gainers, IOI Corp added 3.8% to close at MYR6.90, Sime Darby rose 4.3% to MYR9.80, Bumiputra-Commerce Holdings gained 6.3% to MYR9.35 and property concern Equine Capital jumped 31.7% to 93.5 sen.
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