Economics & Strategy

Mildly positive industry developments
but these won't lift market sentiment

Technical View

A possible short term rebound,
but major trend is still down


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(for the week of 4-8 May 1998)

Mildly positive industry developments but these won't lift market sentiment

Several policy changes took place last week, all of which appears to be mildly positive to the industry. But the stockmarket is still void of reasons for a decisive trend in the short term. On that score we continue to focus on local economic and political developments and external concerns.

Lifting of foreign ownership ceiling on telcos: The government last week raised the foreign ownership limit of telecommunication companies from 49% to 61% on case-by-case basis, on several caveats: funds must be sourced from outside Malaysia, and the company must reduce its foreign equity to 49% within five years. One can interpret this event - coming so soon after the Cabinet lifted the ceiling from 30% to 49% in February - in two ways: either this is a policy fine-tuning to policy reforms to attract foreign investors or a specific tool to aid cash-strapped telcos. For some time, some telcos, notably Time Telekom, had been eager to rope in a foreign partner with cash and technology. The issue of control could have been a hindrance. Nevertheless, we view this as a generous concession by the government if equally and fairly applied to all telcos.

A further boost to affordable housing: Last Monday, Bank Negara proposed an additional RM1b in low-interest loans to developers to build houses costing RM150,000 and below. This would be administered by the National Housing Company which already has RM1b in such revolving credit facilities. This move would address some concerns among developers that credit facilities - even for such productive purpose - have all dried up suddenly under the tight monetary practice in the financial system.

Increasing flexibility to liquidity management: Bank Negara has set changes to the permissible daily variance to the average balances required to meet the statutory reserves requirement (SRR) last week. The variance is now widened from ±0.5% to ± 2%, given that SRR had been recently adjusted from 13.5% to 10% in mid-February. This effectively gives banking institutions 4% point margin (8% to 12%) to achieve their daily balances for computation of SRR, vs 1 percent previously (9.5% to 10.5%). That move reflects a tight liquidity condition in the system. The 3-month Klibor has held up stubbornly at 11.05% for some weeks and unlikely to ease soon despite.

Political developments: Locally, the Sabah's chief ministership rotates to next-in-line Kadazandusun candidate at the end of this month (May 28). But there is no confirmation that deputy CM Joseph Kurup of PBRS is an automatic choice. Complicating the issue is Umno secretary Mohamed Rahmat's statement that the new CM need not come from the pre-dominantly Christian community. We expect the Barisan Nasional government to keep its promises. Reneging on this issue would invite troubles when opposition parties have been vigorously building bases and support. Externally, we would pay attention to the anti-Suharto student-led street protests. Suharto's message that political reforms would have to wait until his term expires in 2003 appears to be unacceptable by activists long disenchanted by economic hardship of recent years.

For this week, we recommend investors to remain sidelined in an indecisive market. A technical rebound is not ruled out this week, upon which a sell into strength is appropriate.

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