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Malaysian market unmoved by slew of deals with China

Tuesday, November 8, 2016 - 05:50

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Mr Najib has said it is "absurd and absolutely false" that Malaysia is being sold off. Opposition lawmakers and netizens have questioned some of the deals Putrajaya has signed with China.

Kuala Lumpur

THE inking of some 30 deals worth RM144 billion (S$47 billion) between Malaysia and China last week may have been an unprecedented triumph for bilateral relations, but analysts say the lack of details about these agreements is contributing to stock market indifference.

The benchmark FBMKLCI had ended last week 1.3 per cent lower; on Monday, it moved a negligible 0.14 per cent up, with 366 gainers and 388 losers.

Some 1.5 billion shares worth RM1.7 billion were traded.

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One analyst said of investors' focus on the US presidential election: "Our clients are more interested in external developments to see how they can position themselves to capitalise on changes."

American voters are set to choose between the Democratic candidate Hillary Clinton and Republican candidate Donald Trump on Tuesday.

Phillip Capital Management Sdn Bhd chief investment officer Ang Kok Heng noted that foreigners have been selling Malaysian equities because of the weak ringgit, which slid further on Monday against most major currencies: It fell to 4.2095 to the US dollar, 3.0317 to the Singapore dollar and 5.2438 to the British pound.

He added: "The China deals should be good, but sentiments are not so good, so people are ignoring it."

MIDF Research said foreigners disposed of nearly RM950 million in Malaysian equities last week, bringing the year-to-date net foreign purchase of local equities to about RM1 billion, compared to RM6.4 billion at its peak in April; concerns over the lack of transparency and governance stemming from 1MDB's financial scandal have also put investors off.

Hong Leong Investment Bank research head Sia Ket Ee said the China deals are not perceived to be market moving because they are likely to take off only in the longer term; and about half are only at the MOU (memorandum of understanding) stage.

He added that while the aggregate figure is enormous, it is difficult to ascertain how much of it would be executed. Their true economic potential is also uncertain, given the lack of specifics.

Former finance ministry deputy secretary-general Ramon Navaratnam said as much. He told national news agency Bernama that the multi-billion deals were "no mean achievement by any standards", but stressed that transparency was needed to ensure public support for the projects.

"Spell out the details of how these massive infrastructure contracts would be priced. If the contracts are to be negotiated, then the concern is that we may pay much more than international market prices.

"Of course, open tendering is always the best practice, as it reduces the likelihood of price fixing, corruption and overpricing."

One project which has already come under intense scrutiny is the East Coast Rail Link, primarily because of its hefty RM55 billion price tag and how quickly the contract was awarded to China Communications Construction Company.

Rail executives say the 600 km track can be built for as little as RM32 billion, although some peg the cost at closer to RM40 billion.

Opposition lawmakers have also questioned the wisdom of the government using Malaysia Rail Link Sdn Bhd - a RM2 paid-up capital company - as the vehicle for the deal.

On Friday, stung by the early criticism, Prime Minister Najib Razak hit back at the "scare mongering that Malaysia is being sold off".

"This is absurd and absolutely false," he said in a statement issued from Beijing.

He has previously stressed that the deals would benefit Malaysians. They include buying up to 10 littoral-mission ships from China and Beijing's agreement to buy more palm oil from Malaysia, along with other deals in education, technology, ports, property and tourism.

Even so, social media comments reflect the disquiet that ordinary Malaysians feel towards Putrajaya's "China pivot".

An individual going by the online name Mafeeach asked: "So it will be Chinese money that will pump up the economy in months and years to come?"

Another netizen, Rupert16, questioned the haste in signing this many projects at one go and asked whether some of the mega projects were really needed; more importantly, he said he wanted to know: "At what cost to the country and the rakyat?" (Rakyat means "people" in Malay.)

A number of others noted the tendency of China companies to import materials and labour from home, which means there will be scant trickle-down effects for Malaysian businesses.

Hong Leong Investment Bank's Mr Sia observed that large infrastructure projects have, of late, been increasingly sub-contracted to Tier-2 and Tier-3 (that is, smaller) private companies rather to listed entities as a ploy to escape scrutiny. The 1,730 km Pan Borneo Highway to be built at a cost of RM27 billion, is one such example.

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