Private investments set to improve

Publication: NST

Date of publication: May 7, 2013

Section heading: Business Times

Page number: 001

Byline / Author: By Rupa Damodaran

KUALA LUMPUR: The coalition government's win in the 13th General Election will improve Malaysia's investment climate, attracting both foreign and domestic direct investments, economists say.

Private investments are likely to rebound in the second half of the year as businesses resume their capital expenditure (capex) spending, which had been placed on the back burner due to their cautious outlook in the run-up to the general election.

Affin Investment Bank economist Alan Tan said Sunday's election results meant that the investment realisation rate from the Economic Transformation Programme (ETP) as well as the Strategic Reform Initiatives will continue to pick up.

Barisan Nasional's (BN) success will help improve the investment climate and promote both domestic direct and foreign direct investments, Tan said.

Since the launch of the ETP, private investment has become the engine of economic growth for Malaysia, rising sharply to 15.5 per cent of the country's gross domestic product (GDP) last year from 12.5 per cent in 2010.

Going forward, we believe that the BN government wil implement strategies to sustain Malaysia's competitiveness and private investment growth, he added.

JPMorgan Malaysia senior country officer Steve Clayton was relieved that the much-awaited event was over, saying that the long run-up had slowed significant investment activities in Malaysia.

There were numerous corporate deals in the pipeline that we could not bring to the market due to the high political risk premiumbefore the general election.

However, aside from the investor fatigue from the almost two-year wait for the polls to take place, it had not deterred the foreign investors, he added.

Foreign investors were the net buyers of equities and fixed income and are still buying (post-general election), he said, adding that the momentum will likely continue in the short term.

Bank of America Merrill Lynch Asean economist Dr Chua Hak Bin said the government will likely pay greater attention to fiscal consolidation after a string of populist handouts in the run-up to the elections over the past year.

We expect the government to resume cutting fuel subsidies in the second half of the year and introduce a consumption tax or GST (goods and services tax) in 2014.

Chua added that such fiscal commitments will likely be positive for the ringgit.

Santitarn Sathirathai of Credit Suisse Singapore, however, thinks that the government will continue on an expansionary fiscal stance in the first half, leaving consolidation to later.

Having been in a tight electoral race means the government is unlikely to carry out budgetary reforms, including the long- awaited introduction of the GST and hikes in subsidised fuel prices.

The fiscal deficit is likely to be above the targeted four per cent, pushing the public debt close to the 55 per cent limit.

He said GDP growth in the first half will moderate due to a perfect storm of three negative forces, namely weak global growth, unfavourable commodity prices and uncertainties around the general election.

He is, however, optimistic about Malaysia's domestic demand growth later in the year, saying that investments will lead expansion as businesses resume capex spending activities, infrastructure investments and a people-friendlier fiscal policy.

Fitch Ratings said it now looks towards greater clarity on the government's fiscal and economic policy programmes.

Andrew Colquhoun, head of Asia-Pacific Sovereigns, said the rating agency has highlighted that rising public debt ratios may eventually exert negative pressure on the ratings.