KUALA LUMPUR: The Malaysian market will rebound in the coming months due to greater transparency, good governance and clarity on the economic direction of the country.
AmBank Research in a note today believe the domestic emerging-market growth remains resilient.
"Hence, we expect Malaysian market to bounce-back in risk appetite in the coming months from greater transparency, governance and clarity on the direction of the economy.
On lowering the public debt, debt servicing, and government consumption to improve growth, the research firm said the focus areas should be improving the monitoring of the expenditure in each area of the economic activities, especially at the micro level; greater transparency on government-guaranteed loans under public-private partnerships that may not be fiscally responsible.
"Other measures should also include improving and effectively managing government consumption; targeting high-impact and productive businesses to drive growth; boosting investors’ and household confidence by addressing leakages; and an attractive ringgit to support overall business competitiveness,” it highlighted in the report.
To recap, the country’s RM1.09 trillion or 80.3 per cent of the gross domestic product (GDP) in public debt has raised concerns over whether the borrowings would be able to improve growth or weigh in on the economy as well as future generations.
AmBank also opined that it is important to take note that one of the salient reasons for foreign funds flocking into the emerging markets is the attractive growth rates and low inflation compared to the previous decades which are adequate tool to keep interest rates low.
In its research report titled 'Malaysia-Debt and Market Volatility', Ambank Research has outlined several concerns, such as the rising government guaranteed loans and PPP lease repayments that lacks transparency, suggesting an easy way to shift the debt figures while holding public debt below the 55 per cent level.
“The inability to reduce operating expenditure could lead to the need of raising revenue collection and driving GDP to help improve the debt to GDP ratio and fiscal balance position.
“A high public debt results in more spending on servicing the interest for the borrowings, thus straining the resources, reflected in the low ratio of operating and development expenditure to debt at 0.20 times and 0.04 times respectively in 2017 from a high of 0.50 times and 0.14 times respectively in 2008, lowest reading since 1988,” said the firm.
AmBank also expects the near term market volatility to be driven by the combination of local and global noises.
“We reiterate our view that the global equity market may have reached the peak and is due for correction. With bond yields on the upside in fear of inflation, we expect the markets to correct.
“Our key concern remains on the emerging market with the growing debt and seems to have ignored the lessons of 1980s Latin American debt crisis, the 1997/98 Asian financial crisis and the 2000s Argentine default.
“Though the current scenario shows some signs of similarities to the 1997/98 Asian Financial Crisis, we are not concluding this time around is somewhat similar to the AFC,” it added.