The country may have broken new ground by ploughing billions of dollars into equities in a China-style effort to lift its faltering stock market, but few predict long-term gains.
The benchmark Kuala Lumpur composite index has climbed more than 2.3 percent since Prime Minister Najib Abdul Razak made the RM20 billion pledge on Monday to boost confidence amid economic troubles and a corruption scandal, reports the Financial Times .
Nevertheless, analysts believe the intervention is relatively modest and similarly with China, more likely to soften a decline than trigger a boom.
While Indonesia has previously used state funds to support its bond market, public government intervention in equities is rare in Southeast Asia, and likely to remain so.
“My sense is that the (Malaysia) measures are more to try and prevent a sharp fall than to get the market to rally,” said Rahul Bajoria, an Asia regional economist at Barclays.
“Even in Malaysia, it is a very small level of support, and will probably only mitigate the impact of capital outflows, not offset it.”
The Kuala Lumpur composite edged higher on Tuesday after gaining almost two percent on Monday following Najib’s ( photo ) announcement that the government would inject RM20 billion, equivalent to roughly a fortnight’s turnover, into the ValueCap state investment fund.
Some analysts see the country's stock market intervention as a regional outlier, reflecting the country’s acute economic difficulties.
Greater pressure
Malaysia has been under greater pressure than most of its neighbours given its high levels of household debt and the impact of falling international energy prices on government revenues.
Euben Paracuelles, an analyst at Nomura, noted that other Southeast Asian countries, including Indonesia and Thailand, were seeking to stimulate their economies with more conventional methods such as tax cuts.
“I think the goal (in Malaysia) is to shore up confidence in the currency, given that the stock market has had significant outflows," Paracuelles said.
Kevin Kwek, a senior analyst at Bernstein Research, said that while Malaysia’s pumping of government money into the stock market was “not the best option”, it was not “100 percent bad”.
“It depends on how deep the pocket is, and whether negative sentiments outlast resources,” he said.
Najib on Monday had said that ValueCap would be given RM20 billion to shore up the country’s stock market.
ValueCap will invest in undervalued Malaysian companies.
The ringgit’s fall reflects a deterioration in Malaysia’s trade position because of falling prices for its liquefied natural gas and commodity exports.
But capital outflows accelerated in July as Najib became enmeshed in a political scandal raging around indebted state fund 1MDB.
