KUALA LUMPUR, March 21 — Permodalan Nasional Berhad (PNB) predicted the local stock market will improve when the government provides a clear indication of its economic direction.

In a Bloomberg report today, PNB chief executive officer Datuk Abdul Rahman Ahmad said there was "significant upside” potential that will be realised when foreigner investors are lured back by the nation’s strong fundamentals.

"The market always like clarity,” Abdul Rahman told Bloomberg

"We are going through a period of transition. Fundamentally, we remain strong and the government will pursue policies that are positive for the market. Once the market understands that, flows will come back.”

The FTSE Bursa Malaysia KLCI Index tumbled about 6 per cent in 2018, its worst annual drop since the 2008 global financial crisis.

It is also the only exchange to lose ground among major Asian bourses this year.

According to the report, global funds pulled US$2.9 billion (RM11.7billion) from local markets in 2018, and have remained net sellers this year.

The local economy is projected to grow at 4.9 per cent this year from 4.7 per cent in 2018, while the ringgit has gained 1.4 per cent so far this year.

"The Malaysian government is now putting in the necessary ingredients or platform for us to be a more sustainable economy,” Abdul Rahman told Bloomberg.

"We believe in the long term and if all that the government has set out to do happens, and once the market has received better clarity, we think the flows will come back,” he said.

Malaysia is seeking to lower its budget deficit to 3.4 per cent of the GDP in 2019.