contents

 

Economics & Strategy

Watch for leads in the currency market

Corporate Development

The dilution factor in RHB Bank/Sime Bank deal

Technical View

Indicators show the market is still lethargic

 


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ECONOMICS & STRATEGY
(for the week of 29-30 April 1998)


Watch for leads in the currency market

The week in review: The KL Composite Index closed last Friday up 1% (or 6.33 pts) week-on-week at 635.11 pts boosted by news of the successful marriage of the RHB Bank/Sime Bank deal. Sentiment was also helped when Standard & Poor (S&P) stated that Malaysia was a relative pillar of strength among the East Asian countries and that its moderate external debt would enable it to take a flexible approach in stabilising its economy. All of the KLCI's gains were made on Friday, after thin trading in the previous four days. Fears of further corporate failures put pressure on the local bourse over most of last week. The ringgit closed steadier at RM3.77/US$ on Friday, recovering from the week low of RM3.83 on Monday after S&P down-graded Malaysia's local and foreign currency ratings. The ringgit's slide was checked at RM3.85 on fears of intervention by Bank Negara.

Market outlook: We expect trading to be listless as investors are likely to remain sidelined due to the short trading week. Expectations of further corporate failures are likely to escalate than abate in the face of high interest rates and a slowing economy. This will weigh on sentiment in the short and medium term. We expect the currency market to play a more prominent role in setting market direction during these lull periods. The RM/US$ rate is expected to trade in tandem with the US/Yen cross rates this week due to the lack of local corporate factors. With the dollar expected to gain against the yen from Friday's close of 131.15 due to fears of a recession in Japan, the ringgit should weaken slightly this week. Friday's announcement of Japan's largest ever stimulus package is generally seen as having only a temporary effect on the economy. Valued at 16.7 trillion yen, including 4 trillion yen in temporary income-tax cuts and 7.7 trillion yen in public-works spending, Japanese officials expected it to boost GDP by 2-3 percentage points. However, many private sector economists believe that the cure for Japan's ills is permanent tax cuts and overhaul of the financial industry.

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