Buying Frenzy Sends the Kuala Lumpur Market Soaring 12% : Malaysia Leads an Asian Rally
International Herald Tribune
September 6, 1997
Thomas Fuller

Stock markets and currencies across Southeast Asia rallied Friday, a day after Prime Minister Mahathir bin Mohamad of Malaysia backed down on stock-trading curbs and put large-scale infrastructure projects on hold.

Weeks of recrimination over the handling of the Malaysian economy gave way to a buying frenzy Friday that saw the stock market soar 12.37 percent, stopping a slide that had dragged down the main index more than 40 percent since the beginning of the year.

Indonesian stocks ended the day 11.28 percent higher and both Singapore and Thailand registered rises of more than 3 percent.

The Malaysian ringgit and Indonesian rupiah rebounded strongly against the dollar, while the Thai baht and the Philippine peso stabilized.

Investors in Malaysia cheered the announcement by Mr. Mahathir late Thursday that certain projects — including the construction of a $6 billion hydroelectric dam on the island of Borneo — would be postponed. A rash of construction projects undertaken by Kuala Lumpur in the past few years, among them ports, highways and the world's tallest buildings, helped contribute to the country's ballooning import bill.

"This change of heart over the construction projects has been a watershed," said David Shairp, Asia strategist at Caspian Securities Ltd. in London. "For some of the foreign institutions there is clearly every danger of being too aggressively underweight in this market."

Other analysts and fund managers were more cautious in their assessments of the stock market surge and said if foreign funds returned to the market they would trickle, not rush, back into the country.

"Obviously what's happened today is a bit of an overreaction," said Patrick Tan, investment director at Rothschild Asset Management (Singapore) Private Ltd. "The buying was very euphoric."

It was, nonetheless, a day of reconciliation between Mr. Mahathir and foreign market players, whom the prime minister in recent weeks had blamed for the fall in the market.

Mr. Mahathir chose not to mention economic issues in an address to his political party Friday, and a source in the Finance Ministry said government economic advisers had been directed to meet with foreign fund managers "soon," presumably to hear the managers' concerns about the direction of the economy.

But Mr. Mahathir did express skepticism about a press report that funds run by the financier George Soros had bought ringgit during its recent slide.

"I will believe it when I see pigs fly," Mr. Mahathir said of the report.

The prime minister eliminated a major point of contention with fund managers Friday when he lifted restrictions on the short-selling of blue chip stocks. The rule had stranded many traders' positions because of its hasty implementation last week.

Also Friday, the government released trade figures for July showing a 900 million ringgit ($296.5 million) deficit. The release of the data had been delayed and followed the huge 2.8 billion ringgit deficit for June.

Analysts took comfort that the spate of bad trade news was being addressed by the government. Deputy Prime Minister Anwar Ibrahim said Thursday that the cabinet would announce measures to combat the deficit over the next few weeks.

But analysts said there were challenges ahead for Malaysia's economic planners. "A lot of things haven't quite changed," Mr. Tan said. "One, we're going to see a slowdown in economic growth. Two, we're going to see a further deterioration in corporate earnings. Three, corporate and personal leverage is still very high. Red lights are still flashing."

Among other projects postponed Thursday were the construction of an airport to service the north of peninsular Malaysia and a central highway.

But Mr. Mahathir said Friday that some projects now deferred could be put on a fast track if the economy recovered.

He also said that a 60 billion ringgit rescue plan he announced two days ago to support the stock market would be put on "standby" because the market was already recovering.

Copyright © 2006 the International Herald Tribune