20000228

Consumer, business spending on rise in Malaysia

KUALA LUMPUR: Stocks are soaring, car and house sales are rebounding, company earnings are stronger. The feel-good factor is back in Malaysia.

Thanks to a quick turnaround in the economy, consumer and business spending are on the rise again after the 1998 recession triggered by the regional financial meltdown.

"Both international and external factors are positive," said Francis Tan, head of research at brokerage TA Securities.

"We are also going to benefit from the wealth effect of the stockmarket rally which would lead to stronger domestic consumption," he said.

The stock market has risen by a sizzling 23 percent this year, pushing the key index to its highest level in 30 months.

"Conditions are currently nearly perfect for equities -- a sound economic recovery, lower political risk, earnings momentum, compelling valuations, MSCI re-inclusion, and most importantly, rampant liquidity," U.S. broker Salomon Smith-Barney said.

"We expect the strong rally since December to resume in the months leading to the re-instatement into MSCI on May 31," it said in a latest report on Malaysia.

Malaysia was dropped from the benchmark Morgan Stanley Capital International investment indices after it imposed foreign exchange controls.

But Salomon said there were risks of tighter money in 2001 and medium-term structural weakness but that is a long time away. "Enjoy this while it lasts; we believe a 25-30 percent upside (in the stock market) this year," it said.

The U.S. broker has forecast that the key Composite Index would rise to 1,200 points by June and 1,300 by December. It closed at 1,002.62 points on Friday.

The central bank said on Saturday there was an impressive net fund inflow of 6.96 billion ringgit ($1.83 billion), mainly into stocks, since January 5.

Analysts said Friday's surprise breakthrough on the CLOB impasse, a factor overhanging in the market for the past 18 months, could further fuel the rally.

After bitter words between Malaysia and Singapore, the dispute over frozen shares worth more than US$4 billion appeared to be over on Friday as Singapore and Kuala Lumpur stock exchanges said they have reached a "comprehensive solution".

The shares, formerly traded on Singapore;s Central Limit Order Book (CLOB) market, were frozen after Malaysia imposed capital controls in September 1998.

"Things appear to be falling into place in Malaysia," said one financial analyst. "The CLOB settlement and good economic reports could help the market this week."

Car sales rose by a strong 76 percent in 1999 while demand for new houses is so great that potential buyers have to queue up for hours to get houses of their choice at new launches.

Malaysia, increasingly upbeat, on Friday lifted its economic growth estimates for 1999 and 2000.

Finance Minister Daim Zainuddin told parliament the gross domestic product (GDP) rose by 5.4 percent in 1999 year-on-year, a strong rebound from the 7.5 percent contraction in 1998.

Private economists said the 1999 numbers were somewhat stronger that market forecasts.

The 5.4 percent growth was up from a 4.3 percent projection made in October. Daim revised the forecast 2000 growth from at least five percent to 5.8 percent, which Prime Minister Mahathir Mohamad said was a conservative estimate.

Analysts said Malaysia would help to rein in liquidity to prevent inflation.

"There is ample slack in capacity in the economy, so inflation is not a problem," said Chris Nailer, regional economist at the Economist Intelligence Unit in Singapore.

"But if asset prices continue to rise, there could be higher wage expectations," he said.-Reuters