This article first appeared in The Edge Financial Daily, on January 27, 2016.

KUALA LUMPUR: The government should step up efforts to divest its equity stakes in government-linked companies (GLCs) as a move to help replenish the nation’s coffers, said Affin Hwang Investment Bank Bhd’s head of retail research Datuk Dr Nazri Khan.

He pointed out that GLCs employ only 5% of the Malaysian workforce, but accounts for almost 40% of the market capitalisation of the local stock market.

“Under its transformation programme, the government has to do some divestments. We would like to see more concrete progress in the divestment of GLCs, which would help the government’s coffer at this point in time,” he told the media on the sidelines of the “18th Malaysia Strategic Outlook Conference 2016 on Coping with Uncertainty — The Way Forward in Difficult Times yesterday”.

Commenting on the local stock market, he said, “The situation is unfavourable at this juncture, as the ringgit continues to fall, oil prices hovering near US$27 (RM116) per barrel, while we continue to see capital flight.

“We hope these trends can be arrested, after the revised budget. We are optimistic that the government will come up with something that could improve investor confidence, hoping for some market-friendly measures,” he added.

Asked on the possibility of the government raising the goods and services tax (GST) from the current 6% in the recalibration of Budget 2016, Nazri said this is unlikely as this could impact domestic consumption.

Overall, he reiterated Affin Hwang’s year-end target of 1,800 points for the FBM KLCI and 3.95 for the ringgit against the US dollar, provided crude oil prices rebound to between US$45 and US$50 per barrel by year end.

“We are optimistic about the second half of 2016, when we expect oil prices to recover to between US$45 and US$50 per barrel, with the ringgit to rebound in tandem with oil prices,” Nazri said, adding that a recovery in the second half of 2016 is vital in ensuring Malaysian gross domestic product growth of around 5% this year.