MALAYSIAN shares today were downgraded to “underweight” from “neutral’ by Japanese bank Nomura, which warned that a possible credit ratings drop cause further fiscal slippage, CNBC reports.
“Our economists believe there is a high risk of fiscal slippage and the possibility of a sovereign ratings downgrade that could trigger more capital outflows,” the bank said in a report.
It said Malaysia’s fiscal deficit is expected to widen to 3.9% of gross domestic product in 2018 and 3.7% in 2019,— higher than the government’s estimates of 3.7% and 3.4&% for this year and last year, respectively.
“On (the) reforms front, we were hoping that the government would deliver more progress in areas to improve government efficiency, reduce corruption and crony capitalism and potentially roll back or ease the government’s presence in some areas to promote and create a level playing field with the private sector.”
Also, the bank said the earnings of listed companies have been disappointing and worse than that of their regional peers.
Nomura’s action today follows Singapore bank DBS’ downgrade of Malaysian shares on Monday, where it cited similar concerns over potential weakening of the country’s fiscal position.
Revelations of Barisan Nasional’s alleged fiscal mismanagement and corruption following an unexpected change of government on May 9 last year have had an adverse impact on investor confidence and capital outflows.
The new Pakatan Harapan government, while uncovering its predecessor’s alleged financial misconduct that it said had led to a RM1 trillion national debt, have at the same time worked to allay fears that the economy is headed for a meltdown.
Ratings agency Moody’s said yesterday it would downgrade Malaysia’s sovereign rating if its financial prospects weaken or if its debt burden increases, but would do the reverse if there is an increase in scope to reduce country’s deficit.
For now, Moody’s outlook for Malaysia’s A3 rating is “stable,” which means a change in the near term is unlikely. The other two major ratings agencies, Fitch and Standard and Poor’s, also hold a stable outlook on Malaysia’s credit rating.
THE MALAYSIAN INSIGHT