Shares rise 1.6%, but what's the backup plan

Malaysian shares sprang a second day on Tuesday, taking the cue from US shares which staged their biggest one-day gain since 1933, amid optimism that policymakers may be able to contain a depression although not a recession.

But while financial experts cheered the rise, they remained cautious about the shorter term prospects for the Malaysian market, which has been burdened by political bickering and scandal.

The government's reticence on how it could protect the economy from the global contagion and its failure to announce any solid measures or backup plans have also weighed on sentiment.

However, this evening after market-close, Deputy Prime Minister Najib Abdul Razak, told a hastily-convened press conference that he will announce additional measures and a stablilisation plan next Monday.

He also rejected the opposition's call to draft a new budget for 2009. In a surprise move, the government this evening also cut petrol and diesel prices by between 10 to 20 sen to track falls in the global markets and to keep a lid on rising inflation.

"It's good to adopt a pro-active stance but we really have to see what he has in mind before we can tell if the steps will be effective. Good measures are timely because the effects of the global meltdown will start to be felt in the first half of 2009," Lee Heng Guie, chief economist at CIMB Bank, told Malaysiakini.

“You can tell from the way, when other Asian bourses fall very steeply, we don’t go down that much. When other markets jump like crazy, we move up also, but not by as much. From that you can tell, something apart from the global trend is bothering the market,” said a head of research at a large brokerage.

The benchmark Kuala Lumpur Composite Index gained 1.6 percent to 966.06 points at the closing bell.

Elsewhere in Asia, the Nikkei-225 leapt 13.8 percent, while Hong Kong’s Hang Seng added to yesterday’s gains with a 4.4 percent rally. The Singapore Straits Times Index surged 6.4 percent.

Scandal

Najib, the newly - appointed Finance Minister who is widely tipped to take over the premiership next year - had disappointed the market yesterday by failing to shed new light on his plans to revive the flagging economy.

Together with other senior leaders, Najib had boycotted the parliamentary speech by Opposition Leader Anwar Ibrahim, in which the latter had demanded the government review its lavish RM208 billion 2009 Budget.

"Why the total silence from the frontbench? Not even a single ghost is here!" opposition stalwart Lim Kit Siang had complained.

Not only was Najib’s silence condemned by the opposition, it also set off speculation that the scandal-tainted DPM might be trying to escape a barrage of questions from the media.

There has been growing talk about a helicopter deal, allegedly sanctioned during his time in the defence ministry. Also, a weekend posting appearing in website Malaysia Today has renewed attention on his alleged affair with a controversially murdered Mongolian national - allegations that Najib has repeatedly denied.

“In Malaysia, the political uncertainty is adding up. There may not be so much of concerted selling but buyers may want to wait and see before coming back,” said David Cohen, director of Action Economics, told Malaysiakini.

Backup plans

Despite the stormy local political waters, dealers said it would be the financial turmoil taking root in the US, Europe and fast spreading to Asia, that will ultimately make or break Malaysia’s economic pace over the next couple of years.

Last night, the US Dow Jones index surged 11 percent for its biggest one-day gain since 1933, climbing back above the 9,000 points level to close at 9,387.61 points.

A slew of eye-popping, multi-billion dollar packages announced by US and European authorities, including extending interbank guarantees to encourage lending, has helped arrest last week’s slump in international markets, which saw many key bourses chalking their worst-ever losing week.

“It’s hard to say if it will do the trick and that the world has pulled away from the worst,” said Dr PHS Lim, president of the Malaysian Investors Association, told Malaysiakini.

“But definitely the sums that they are pouring in are so gigantic that together with European pledges to guarantee interbank lending, these will shore up confidence.”

Lim, however, expects further volatility and cautions that the local market will swing in line with the international bourses.

“I am actually very disappointed our government did not say anything that was helpful,” he said. “In these dark hours, you need to shore up public confidence. For example, is the public’s money safe in the banks, is the deposit insurance enough, should they lift the RM60,000 cap?”

His association - which recently proposed to the government to ban short selling of shares, a suggestion that has been rejected - also wants Najib to look into moves to safeguard the local currency and stock markets.

“These two markets are the frontline of our defence. Any attack will come first from these two, so we must be prepared. We must some sort of emergency blueprint that we can switch onto immediately. Otherwise, capital will keep flying away to safe havens like Singapore and even the US,” Lim said.

He also warned that it might be tough for the government to achieve its latest targeted growth rate of 5.7 percent for this year, pointing to the sharp fall in commodity and oil prices - both of which are key contributors to national revenue.

“One of our economic pillars, palm oil prices are now RM1,800 per metric tonne compared to RM4,500 in March. You can just imagine the loss in revenue to the country. What are we going to do about that and also in other sectors that have or will soon be hit? What sort of backup plan do we have? If we don’t, then don’t talk about avoiding recession,” he said.