Investors sceptical of Malaysia’s, other Southeast Asian nations’ growth plans

KUALA LUMPUR, Oct 5 — Investors are unconvinced over plans by Malaysia, Indonesia and Thailand to boost economic growth, as equity outflows from the Southeast Asian countries reportedly quickened at the fastest speed the last two months combined since January, the Wall Street Journal (WSJ) reported today.

The US-based paper said one problem was that the governments seemed to be recycling old measures that were previously ineffective, with Putrajaya announcing last month that it would infuse RM20 billion into state-managed investment fund ValueCap that would purchase some of Malaysia’s worst-hit stocks.

“Boosting stock markets does not mean you boost domestic consumption and wealth,” Jalil Rasheed, investment director for Southeast Asian markets at US-based investment management company Invesco Ltd, was quoted saying.

Prime Minister Datuk Seri Najib Razak also reportedly told quasi-independent state companies with overseas operations recently to cash in the investments and to reinvest locally.

WSJ noted that Najib in 2008, then deputy prime minister, had announced government investment in Malaysian stocks through ValueCap, with the paper noting that although the investments worth about US$1 billion had lifted the local exchange out of a seven-month slowdown, it had failed to create lasting recovery.

The US newspaper also noted that Malaysia’s economy grew 5 per cent year-on-year in the second quarter, the slowest pace since two years ago, and that the main stock index has dropped by around 7.5 per cent since the start of the year. The ringgit has fallen nearly 30 per cent against the US dollar in that time, said WSJ.

The World Bank maintained today its forecast of Malaysia’s economic growth at 4.7 per cent for this year, slower than the 6 per cent growth last year.

Investors told WSJ that stimulus programmes artificially boost asset prices and governments are placed on the hook for big spending, which only sets up the market for a bigger fall later on when support is pulled back because government coffers are smaller.

Andy Seaman, chief investment officer for UK-based Stratton Street Capital LLP, told WSJ that short-term losses are better than governments stretching their finances on projects that eventually lead to deeper economic slowdowns, as short-term shocks are often accompanied with faster reform and better investment opportunities.

“I’m not sure it’s sensible to try and revive markets,” he was quoted saying.