JUNE 21 — The reduction in stamp duty on share sales on Bursa Malaysia from 0.15 per cent to 0.10 per cent of contract value is a welcomed initiative to reduce the cost of securities transactions. It will definitely make the stock market more competitive.
PMX said the move is to increase in market liquidity will attract more domestic and foreign funds and encouraging small and medium enterprises (SMEs) to pursue initial public offerings (IPOs) and public listed companies in raising funds to expand their businesses and create more job opportunities.
However, stock market performance is generally influenced by sentiment.
Bursa is the worst performer in 2023. The KLCI decreased 7.14 per cent since the beginning of 2023. Going back further to April 6, 2018, KLCI showed a 25 per cent drop.
According to MIDF Research, sellers dominate 18 out of 24 weeks this year (net foreign outflow — RM3.66 billion) with local institutional investors remained as net buyer (net inflow of RM3.20 billion). Retail investors make up a small portion only.
The reduction is good but stock market is a playground for the rich. We may attract foreign money as share prices are low now but once it goes up, there will be profit-taking and outflow starts again affecting the ringgit. Foreign investors tend to gain more. Again, stock market is influenced by sentiment.
The focus now should not be on the rich!
For the ringgit, it is expected to come under pressure against the US dollar in the near term due to less favourable external developments and pegging can be ruled out.
At time of writing, the Malaysian Ringgit is at RM4.649 to US$1. Since April 6, 2018, it has dropped about 20 per cent. Year-to-date, the ringgit has been among the worst performing currencies.
What is needed now are good and implementable structural economic reforms and implemented without delay. Six months have passed for the new government.
The deputy finance minister said, the government remains committed and focused on implementing structural policies that are able to increase economic growth and the country’s competitiveness in order to attract inflows of funds and foreign investment that will support the ringgit.
Decision to invest by foreign investors starts by determining country risks (economic, political, business and sovereign-default risks). They use information that should be readily available and up-to-date. They need transparency and look at the effectiveness and efficiency of the system especially governmental systems. Wasteful practices like corruption is also high on the list.
Word of caution here is, when offering generous FDI incentives, bear in mind future investors will demand a similar degree of generosity.
Additionally, we have had 26 consecutive years of budget deficit on a narrow revenue base relative to high commitment of operating expenditure. The budgeting process needs a revamp to avoid wasteful expenditures and high emolument expenses. The Public Expenditure Review in collaboration with the World Bank if not completed has to be finalised.
The government needs to pursue initiatives aimed at enhancing efficiency and effectiveness, growth potential, fiscal resilience and creating a future-ready workforce.
The enactment of the Fiscal Responsibility Act (FRA) should be the immediate priority as it has been delayed since last year. FRA will set the tone on reducing fiscal gap and debt burden, as well as improving the transparency and governance of fiscal policy.
End of the day, it’s about the credibility of the reform plan, its implementation and how it can benefit the rakyat.
Malaysia had experienced various episodes of sizeable capital reversals, which impacted foreign reserves and the ringgit. Therefore, the present government has a head start already.
Granted, the complexity of the issues and the trade-offs between competing objectives, so great caution is called for.
What is needed are expert advice, transparency and no flip-flops.
“And do not be like she who untwisted her spun thread after it was strong [by] taking your oaths as [means of] deceit between you because one community is more plentiful [in number or wealth] than another community. Allah only tries you thereby. And He will surely make clear to you on the Day of Resurrection that over which you used to differ” (Quran — Surah An-Naḥl: 92).
What say you?
* This is the personal opinion of the writer or publication and does not necessarily represent the views of Malay Mail.
