Malaysia's Najib Razak Announces $4.6B Plan To Boost Stock Market, Slowing Economy

In an attempt to boost its flagging economy and strengthen the stock market, Malaysian Prime Minister Najib Razak announced a 20 billion ringgit ($4.6 billion) stimulus program Monday.

As part of the plan, state equity investment firm ValueCap will invest in undervalued firms while manufacturing units would be exempt from import duties until the economy is back on track. So far this year, the ringgit has lost nearly 19 percent of its value against the dollar to fall to near 18-year lows, and the stock market has fallen 8.95 percent.

"The government will reactivate ValueCap with funds of 20 billion ringgit," the prime minister told a news conference, according to Reuters, adding: "ValueCap was established in 2002 as an entity to support undervalued stocks and the result was effective as it managed to stabilize the stock market."

The country’s economy has been deeply strained due to slowing demand from China, sinking commodity prices and a stronger U.S. dollar.

Najib's announcement helped lift Malaysia's benchmark stock index -- the Kuala Lumpur Composite Index -- up nearly 2.6 percent in Monday afternoon trading. The ringgit was largely unchanged.

Analysts, however, have been skeptical of the government’s latest move.

"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," Evan Lucas, a market strategist from trading firm IG, told BBC. "The Chinese markets are a clear example of what happens when 'stability funding' is used to try and shore up equity."

Meanwhile, the Southeast Asian nation is also dealing with the political fallout of a scandal arising from allegations against the prime minister.

Investigators are probing indebted state fund 1Malaysia Development Berhad (1MDB) for allegedly transferring $700 million into Najib's personal account. However, Najib, who is also the investment firm’s chairman, has claimed that the money was, in fact, a donation from the Middle East. Since then, the country has been grappling with several protests, with many demonstrators, including former premier Mahathir Mohamad, calling for Najib's resignation.

Najib, who has denied the accusations, said Monday that the ongoing rationalization plan to trim 1MDB’s $11 billion debt was on track, Reuters reported. He added that the government was on course to achieve its fiscal consolidation target for 2015.