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Malaysia in transition

Malaysia hits back at Nomura's equity market downgrade

Kuala Lumpur says the nation's economy is healthy and reforms are underway

The stock market gallery in Kuala Lumpur. The downgrade by Nomura on Jan. 9 was the second since Malaysia's new government was installed in May.    © Reuters

KUALA LUMPUR -- The Malaysian government sought to reassure investors on Thursday following critical reports on the country's economy, saying that ongoing reforms were adequate to deal with external uncertainties, in particular those brought about by the recent decline in crude oil prices.

The reassurance came after Japanese investment bank Nomura downgraded Malaysia in an equity strategy report on Wednesday to 'underweight,' from 'neutral,' citing "poor earnings growth prospects amid higher valuations and on lack of major expansionary reforms so far."

"Nomura's report that the 2018 fiscal deficit would deteriorate to 3.9% of the gross domestic product is simply untrue," Finance Minister Lim Guan Eng told reporters. Lim reiterated that the government's estimate of fiscal deficit at 3.7% of GDP, announced in November, remained unchanged.

"As long as the oil price hovers between $50 and $70 per barrel, we do not need to recalibrate the budget," added Lim. U.S. bank Goldman Sachs on Monday projected the Brent crude oil price benchmark to average $62.50 in 2019.

The downgrade, Nomura's second since Malaysia's new government was installed in May, created a slight stir in the local stock market with the benchmark FTSE Bursa Malaysia KLCI falling nearly 1% from a midday high on Wednesday.

It also gave cause for former Prime Minister Najib Razak, now an opposition lawmaker awaiting trial on corruption charges, to condemn the government. "Under the current Pakatan Harapan-led government, the country's deficit is far higher than the Barisan Nasional-led government," Najib wrote in a Facebook post on Wednesday.

In Nomura's report, Malaysia was the only economy downgraded out of five key Southeast Asian countries, due to the absence of a "significant reform" to support growth. It noted that the recent dip in crude oil prices could pose risks to the country, which is a net exporter of oil, as some 30% of its revenues come from oil.

Lim clarified that petroleum revenue would account for one fifth of government income this year, down from 41% a decade ago.

Nomura also raised the country's "risk premium" regarding the leadership transition and discontent over the defection of lawmakers from the opposition to join the ruling party.

But the minister said that "any change in leadership as agreed beforehand" would be carried out in an orderly fashion, without distracting the government from its work.

Moody's Investors Service warned on Tuesday of a downward rating if Malaysia's fiscal prospects weakened alongside growing political tensions. The rating agency is keeping Malaysia's sovereign rating at "A3 stable," the seventh level in its investment grade long-term rating.

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