Najib claims credit for stock market rise but analysts unconvinced

Prime Minister Najib Razak moved to claim credit for the historic gains ratcheted in the stock market in the first week of trading in 2011, but analysts were unconvinced saying the bullish sentiment part of a region-wide climb due to ‘hot’ U.S. funds seeking short-term refuge in the world's equity markets.
“Malaysia’s economy is recovering in tandem with other neighbours but what is basically pushing markets up from Tokyo to Hong Kong to Singapore are foreign funds looking for the good deals of 2011. Portfolio managers seldom stay long, but when they come, they can create a lot of bubbles if the authorities are not careful,” Singapore-based economist David Cohen told Malaysia Chronicle.
Indeed, many pundits including former premier Mahathir Mohamad have warned of inflationary pressures as the local asset markets sky-rocketed.
“Some people believe that the rise of the KLCI is an indicator of the healthy state of the Malaysian economy. This may be true but let me throw some cold water in the belief that the index indicates that the economy is doing very well,” Mahathir had said in his blog late last year.
“What is happening is that a lot of foreign money is coming in to buy Malaysian stocks. In itself it is not bad. It is also a kind of foreign direct investment. But this kind of FDI is not about setting up industries to produce goods for export. The latter will not be easily liquidated to take the invested capital out. The plants which are set up cannot be easily sold. The investors will have to manage them through good and bad times to get a return on their investments.
"I would not be surprised when the KLCI peaks the foreign investors will dump their shares and collect capital gains. The share prices will fall rapidly and Malaysians who had chased the shares on their way up will be asked to meet margin calls. If they fail they will lose a lot of money.”
Even opposition politician, Charles Santiago, a trained economist, advised that Malaysia took precautions and considered imposing capital controls. “Hot money has the tendency to create asset bubbles in the currency, stock and property markets,” Santiago, who is also the Klang MP, had warned.
Fruit of his policies, ETP now in "overdrive"
Nonetheless, Najib was confident the stock market rally on the local bourse was due to his policies bearing ‘fruit’.
"The confidence of the business sector and investors in the Malaysian economy is rising higher. This we can see from the performance of Bursa Malaysia which had touched the highest closing level on Jan 7 which was 1,572.21 points," he said at media briefing on Tuesday.
The PM added that the latest Grant Thornton International Business Report showed 50 per cent of medium to large enterprises were positive about Malaysia's economic prospects this year. "It shows confidence towards Malaysia is at its highest since our participation in the report," said Najib, who also holds the Finance portfolio.
The Malaysian premier had earlier unveiled 19 more entry-point projects for his controversial RM1.4 trillion Economic Transformation Programme. According to him, the 19 projects could generate RM67bil in investments, RM36bil in gross national income and create 35,000 new jobs.
"As you can see, the ETP has started the year very strongly by going into overdrive and is surging ahead with more EPPs and developments. As the saying goes, the proof of the pudding is in the eating. By kick-starting these projects as well as the earlier announced projects, the economic effects will soon be tangible," Najib said.
Debate challenge as debt soars to historical high
However, he omitted to mention that the Auditor General had warned in a Report released on October 25, 2010 that the national debt to Gross Domestic Product ratio had breached the 50 per cent mark for the first time in Malaysia’s history.
“Malaysia government’s debt for 2009 rose to RM362.39 billion or 53.7% of GDP. The level of national debt in fact worsens under the stewardship of the current Prime Minister. The government undertook 19 bond programmes with a combined value of RM58.1 billion in 2010,” Opposition Leader Anwar Ibrahim revealed at a separate press conference on Tuesday.
Anwar also challenged Najib to a national debate on the economy and the governance styles of their respective Pakatan Rakyat and BN coalitions. However, Najib is unlikely to accept the dare given Anwar’s famed oratorical skills.