Analysts fine with Fitch upgrade for Malaysia

Fitch’s rating upgrade sends positive signals to investors, with the Bursa and the ringgit strengthening on the news. — Picture by Afiq Johari
Fitch’s rating upgrade sends positive signals to investors, with the Bursa and the ringgit strengthening on the news. — Picture by Afiq Johari

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KUALA LUMPUR, July 2 — Bursa Malaysia and the ringgit reacted positively to Fitch Ratings’ upgrade of Malaysia’s rating from negative to stable, with strong signals being sent to investors.

After a lull in performance in June, the FBMKLCI jumped 21.32 points and closed at 1,727.960 when trading ended, while the battered ringgit strengthened at RM3.7485 against the US dollar, both vital parameters measuring the nation’s economic health.

Fitch maintained Malaysia’s long-term foreign currency issuer default rating at A- and local currency at A, with outlook revised to stable from negative.

“The reaffirmation with a stable outlook reflects a fair and balanced view of the government’s commitment to sound macroeconomic policies and significant fiscal reforms,” Treasury Secretary General Tan Sri Dr Mohd Irwan Serigar Abdullah said in statement yesterday.

“Fitch Ratings has acknowledged the structural reforms the government has undertaken, such as subsidy rationalisation and revenue diversification, particularly the implementation of the Goods and Services Tax.

“The government remains resolute in strengthening public finances and will stay the course of fiscal consolidation towards achieving a balanced budget by 2020.”

After an edgy wait, the positive news came after the global rating agency cautioned a downgrade for Malaysia in July 2013, an announcement which spooked investors, jolted the equity market and saw rapid capital outflow while the once sought after ringgit wilted.

“With the rating exceeding predictions, we should see the country performing well domestically as our economic fundamentals remain strong for now. We see this from the performance of Bursa Malaysia which rose by 30 points (before lunch yesterday),” BIMB Securities Sdn Bhd economist Imran Nurginias told Malay Mail.

“It is possible for the ringgit to touch RM3.50 by end of the year, as we expect investors’ confidence to improve with the recent rating.”

Malaysia felt the heat following the announcement, forcing Putrajaya to take stern macro-economic measures to re-jig its fiscal policies and prudently manage public expenses .

Prime Minister Datuk Seri Najib Razak had to introduce unpopular moves, such as cutting fuel and sugar subsidies in 2013, despite public outcry.

Analysts and market watchers who piped gloomy sentiments for months are now beginning to sing a positive tune after Fitch’s valuation — which some describe as a “surprise” result.

“The move to upgrade our outlook is a bonus factor. This is positive for the ringgit which we highlighted earlier as the only supporting factor in the near-term although we have not been anticipating any downgrade from the rating agency,” said MIDF Research in its latest report.

Analysts opined Malaysia’s economic fundamentals remained robust despite looming external challenges, with Greece grappling to settle its debt predicament while China is staring at an economic glitch.

“We believe Malaysia still remains stable although we recognise the country is vulnerable to weaknesses on the external front and impact from oil prices,” Franklin Templeton Investments executive head for Malaysia Fixed Income and Sukuk Hanifah Hashim said.

“However, we expect Malaysia to remain resilient in macroeconomic terms, moderating but still positive gross domestic product growth, low inflation and a sustained positive current account balance, despite a challenging external environment.”

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