Services Liberalisation Positive For Market

Published: 2009/04/24
LIBERALISATION of the 27 services sub-sectors is positive to the market and foreign direct investors at large, according to Kenanga Research.

"While this move may not have significant impact given that under the current investment-friendly environment, exceptions to the Bumiputera shareholding quota rule is already practised," it said in a research note.

"More importantly, it signifies that change within the government on the Bumiputera quota issue which is a re-rating catalyst for Malaysia," it said.

The services sector represents 55 per cent of the gross domestic product (GDP) and 57 per cent of total employment in Malaysia.

"With manufacturing and export sector contribution coming off and workers getting laid off, the boost to the services sector should provide compensatory effect to shore up the economy and provide for the multiplier effect," Kenanga said.

The liberalisation move was also a signal that the government stance has changed, according to the research firm.

It said the move could be the tip of the iceberg to further liberalisation, especially doing away with the top up of Bumiputera shareholding of existing listed companies upon undertaking any corporate exercise.

CitiGroup Global Markets in a separate research note said the measure would allow Prime Minister Datuk Seri Najib Tun Razak to outflank the opposition, though internal opposition from Umno remained a challenge.

"The announcement probably strengthens Najib among electrorate as earlier promises of reform have now been followed with concrete actions," it said.

For the next step, there are expectations that further deregulation in the financial sector could see relaxation of the foreign shareholding limit for financial institutions as well as the possibility of issuance of more foreign bank and Islamic bank licences.

"Just public capital expenditure is not enough for the pump priming stimulus, especially when it is financed by increasingly higher ringgit government borrowings," Kenanga said.

"The need for new infusion of funds is critical to ensure non-inflationary environment," it said.

The government, it added, could borrow from overseas but the current tight liquidity conditions would mean higher interest rate, thereby reducing the economic contributory effect of the public capital expenditure. -- Bernama