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Malaysia’s economic fundamentals far stronger than in 1998 — Maybank IB CEO

SINGAPORE (May 14): Malaysia’s economic fundamentals are very different today and far stronger than what they were in 1998, said Maybank Investment Bank Bhd (Maybank IB) chief executive officer (CEO) Ami Moris.

Citing some key economic indicators, she said Malaysia’s external reserves had increased to US$103.4 billion (RM430.14 billion) as of end-April 2019 compared with US$20 billion during the 1997-98 Asian financial crisis.

“The current account balance recorded a surplus of 2.3% of the country’s gross domestic product (GDP) in 2018 against a deficit of 5.6% of GDP in 1997, and the banking system’s total capital ratio stood at 18% as of March 2019 from 10.5% in 1998,” she said.

“Perhaps the question [of currency pegging] has not arrived at this point of time, as we are very different fundamentally from when we needed to peg the ringgit [to the US dollar] in 1998,” she told Bernama on the sidelines of the two-day Invest Asia 2019 event here, recently.

She was responding to a question on whether Malaysia should peg the ringgit to the US dollar after the local note showed little signs of recovering from lost ground against the greenback since the Pakatan Harapan regime took over the government administration on May 9, 2018.

At 9am yesterday, the ringgit was quoted at 4.1595/1625 against the US dollar, down 5.36% from the closing of 3.9480/9530 on May 8, 2018.

Commenting on the weakening ringgit that seems to see no light at the end of the tunnel, Ami said what the ringgit is experiencing now is not an isolated case involving Malaysia alone, as external pressure arising from US-China trade tensions has also affected many countries.

Meanwhile, asked if Bank Negara Malaysia’s (BNM) latest overnight policy rate (OPR) cut of 25 basis points (bps) to 3% would further hamper the already bad-performing ringgit, Ami opined that the move would be able to put the ringgit on a better footing in the medium term.

“The central bank is taking the cautionary step, and it is only 25bps of reduction, which is not overly aggressive.

“I think what is important is the timing, and the signal to the market that the central bank wants to ensure that the slower growth is well mitigated,” she said.

She hoped the move would also be able to help moderate the contraction in loan applications that the country has seen over the last five months.

While the ongoing US-China trade war is impacting most economies in the region, Ami believed that if BNM wanted to ensure Malaysia’s economic momentum is preserved, the OPR reduction would effectively lower the borrowing cost and enable consumers to have more money in their pockets.

“At the moment, here, [industry] might have the perception that the Malaysian economy is under a lot of pressure, but with growth drivers such as the construction and consumption sectors in place, that would put the ringgit on a better footing in the medium term,” she said.

The Maybank FX Research and Strategy report released on April 30, 2019 projected the ringgit to approach 4.08 versus the US dollar over the next three to six months, and potentially reach 4.05 in the third quarter, if regional currencies strengthen relative to the greenback and risk factors dissipate.

On the implication of the reduced OPR on the benchmark FBM KLCI as banking counters constitute a significant portion of the index, Ami was upbeat that the banking sector would not be overly impacted negatively, as a few banks had increased their base rates by 10 bps earlier.

“Therefore, this 25 bps, according to our house’s view, would either have a ‘neutral’ or ‘marginally negative’ impact on the banking sector, and our house’s view on the FBM KLCI remains at 1,760 at end-2019,” she said.

On foreign funds which continue to offload stocks on the local market, Ami hoped the worst is over, as there is a situation like two days of net buying and two days of net selling happening recently, compared with the continuous foreign outflows seen in the market previously.

“Hopefully, the very worst is over and behind us, even though there might be outflows due to news like the exclusion from the FTSE World Government Bond Index, the situation is still manageable for the market,” she said.

According to MIDF Amanah Investment Bank Bhd Research’s weekly fund flow report released yesterday, foreign funds offloaded RM450.9 million of Malaysian equities last week versus sell-off worth RM275.7 million the prior week, registering the largest weekly foreign net outflow in nine weeks.

Asked if Malaysia could still achieve the 2019 GDP growth of between 4.3% and 4.8% as projected by BNM earlier, amid the escalating trade war and contraction in loan applications, Ami said the confirmation of megaprojects such as the East Coast Rail Link (ECRL) and Bandar Malaysia would be the new growth drivers for the economy but the projects require a lot of funding.

“There is a concerted effort to ensure that various growth drivers are there to support Malaysia’s economy. It is not going to be an overnight change, this is a step-by-step journey towards the medium term to ensure that we are really on a solid platform to drive growth.

“So yes, the 4.3% to 4.8% [growth] is definitely achievable. In fact, our house view set in March [for the GDP target] is at 4.7[%] for 2019,” she said.

On the deal pipeline for Maybank IB this year, she expected the investment bank to bring at least one or two companies to be listed on the Main Market of the local bourse by year end.

“We are the principal adviser for Leong Hup International Bhd’s initial public offering on May 16 this year, which has been oversubscribed by 3.64 times.

“The oversubscription indicates how much liquidity there is in the market place, and investors still have the appetite to take on risk,” she said.

Overall, Ami believed Malaysia’s medium- to longer-term investment prospects remain positive.

“The government is doing what needs to be done, including making hard decisions. But doing what needs to be done is never easy, oftentimes not popular, and sometimes there can be lack of clarity, in what people say flip-flopping.

“Take the pains now for the gains later, rather than try to postpone or try to pretend that some of the institutional reforms do not have to happen,” she said.

To attract investors to return to the market, Ami stressed that the government needs to be transparent and consistent in its policies.

“But to make transformative changes, which will involve driving through policies, dismantling certain practices to ensure key institutional reforms take place, will take time.

“So as Malaysians, we should look positively at what is happening, this is really for the longer-term future,” she added.

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