Market moved in a positive direction where we could see 5% gain in KLCI in the 3-4 weeks after the election. But then came tapering of quantitative easing announcement which has halted the rally. We could see spike in bond yields by 80-100 bps and also weakness in emerging market currencies, including Ringgit, where it has lost 10% of its value from end May to end August.
Well, a little input on sovereign ratings; it consist risk assessments assigned by the credit rating agencies to the obligations of central government. In other words it is the assessment of the likelihood that a borrower will default on its obligations. The ratings directly affecting fund raising activities, as it determines how expensive the cost of fundings will be. Lower rating assigned would indicate that it is more difficult for companies to raise foreign currency funds and it would be expensive for the country to borrow money from abroad. Plus, lower rating would dampen investment flow into our equity and bond market.
Anyway…the implementation of GST (as announced in 2014 budget in October) and the lowering of subsidies are not enough of measures to address fiscal deficit. The nation needs real structural reforms, say by way of tackling corruption and reducing leakages. Even after announcing the implementation of GST, Fitch still maintain its negative outlook, probably until they’re seeing our track record of budget management.