Business

Malaysia pumps $4.6bn into stock market

Malaysian ringgit Image copyright AFP
Image caption The ringgit is one of the worst performing currencies in Asia this year, losing nearly 20% of its value against the dollar

The Malaysian government is spending 20bn ringgit ($4.6bn; £3bn) on boosting shares and is cutting taxes for manufacturers.

Malaysia has seen the ringgit lose 20% of its value against the dollar this year and a 9% fall in its stock market.

The announcement had a modest impact on share values with the Kuala Lumpur composite index up 0.6% to 1,612.52.

The country's economy has suffered because of falling prices for its commodity exports.

Its position worsened two months ago after its prime minister Najib Razak was involved in a political scandal.

The prime minister said state investment firm ValueCap will invest in undervalued companies and firms in the manufacturing sector would be exempt from import duties until the economy is back on track.

Slowing demand from China, falling commodity prices and a strengthening US dollar has pushed the ringgit to near 18-year lows.

The economy has also been affected by growing political tensions on reports that investigators are probing debt-laden state investment firm 1MDB for depositing close to $700m into an account owned by Mr Najib.

The prime minister is the chairman of the firm's board and has denied doing anything wrong.

Will it work?

But Evan Lucas, market strategist from trading firm IG said the problem with the government injecting money into the stock market is that the market soaks up the capital in a short period of time.

"Although there might be an initial bounce in equities, the funding is unlikely to address the underlying issue of the Malaysian economy and stocks will still be sold off on that fact," he told the BBC.

"The Chinese markets are a clear example of what happens when 'stability funding' is used to try and shore up equity."

The money would probably better be used in addressing direct issues with the economy, he added, saying support for consumer energy could be needed.

Related Topics

More on this story