The Big LOSERS today!
How the sectors fared!
The drastic plunge in the index that triggered the curcuit breaker!
Free Falling - Tom Petty!
Some closing market notes:
- KUALA LUMPUR (Dow Jones)--Malaysian stocks plunged Monday after the weekend's election upset, on concerns that a weakening of the ruling coalition's grip on power will create policy uncertainty and could lead to a delay in infrastructure projects.
The benchmark Kuala Lumpur Composite Index saw trade halted mid-afternoon for an hour after the index went limit-down 10%, the first time the limit-down rules have been triggered since their introduction in the wake of the Asian financial crisis more than a decade ago. The index ended the day 9.5% lower at 1173.22, while the Malaysian ringgit also slid against the dollar.
Already weak sentiment was further hurt by a country downgrade from CIMB Research, with so-called government-linked construction and property firms bearing the brunt of the selling.
Talk that state-owned funds, such as the Employees Provident Fund and Valuecap Sdn Bhd, had been instructed by the government not to support the market also weighed on sentiment, although a person familiar with the funds later said that the rumor was unfounded.
Some dealers said the market's marginal recovery from its intraday lows was due to technical delays in matching trades given the sheer weight of sell orders, rather than an uptick in sentiment.
In a shock result Saturday, the ruling Barisan Nasional or National Front failed to hold an expected two-thirds parliamentary majority, ceding five of the country's 13 states and 82 of its 222 parliamentary seats to opposition parties. The opposition had controlled just one state and 20 seats going into the election. The vote means that the coalition has lost the majority needed to pass legislation for the first time since 1969.
CIMB Research said Monday it has downgraded Malaysia to Neutral from Overweight, and cut its end-2008 KLCI target from 1700 points to 1380 points, noting that much now is up in the air with regard to the government's economic policies.
"Stock markets don't like uncertainty, especially in a country like this where one party has been controlling the political scene for so long," said Marshall Gittler, chief Asian strategist at Deutsche Bank Private Wealth Management in Singapore.
"Malaysia has been seen as a defensive market that tends to do well when others do badly. Exposure to subprime is zero and reliance on foreign trade is less than in many other countries in the region. But now that there is political risk, the defensive aspect tends to melt away," he said.
Joseph Tan, a strategist at Fortis Bank in Singapore agreed: "People are selling because they are concerned about policy uncertainty, project stagnation," he said.
"With the opposition being so much stronger this round, there is also concern that there may be a lot of government indecision and horse-trading with the opposition," Tan said.
Saturday's showing from Barisan Nasional, a 14-party coalition led by the United Malay National Organization, was a far cry from the 90% majority it garnered at the last election in 2004. More than this, the four states that it lost - Penang, Kedah, Selangor and Perak - were considered traditional strongholds.
The KLCI had rallied some 9% between December and a peak Jan 14 of 1524.79, in part on government infrastructure promises contained in the government's Ninth Malaysia Plan, and the launch of five economic development corridors.
"Now these projects...are being questioned," particularly in richer states such as Perak and Selangor now controlled by the opposition, said one head of research at a local bank.
"The government may also hold back fuel price hikes for fear of losing votes in the next elections and that will a have negative impact on government finances," he said. "With so much uncertainty, we are asking investors to sell."
Still, others are taking a longer view.
Malaysia-based fund manager Gerald Ambrose of Aberdeen Asset Management, which has $2.2 billion invested in Malaysian stocks, said greater political pluralism and improved checks and balances on government can only be beneficial to the country and by extension its investment case.
"People who don't know much about Malaysia might see this as a time to get out with the ringgit weakening...I don't see a reason for this as the country needs a decent number of minorities to provide the check and balances," he said. "I don't see the news as being negative...in fact we are looking to buy from the bottom-up," he said.
Deutsche Bank's Gittler said he reckons plantation and banking stocks, which make up about 40% of the Malaysian market, won't see a direct impact from the political uncertainty. "If these stocks decline, it might be a good buying opportunity," he said.
CIMB Research said construction and property stocks are particularly vulnerable in the new political landscape.
Those companies said to have government links and which are recipients of government contracts include construction and property firm Malaysian Resources Corp. Bhd. (1651.KU), which closed Monday down 34%; property developer Equine Capital Bhd. (1147.KU), which was down 51%; and Selangor infrastructure and utility firm Kumpulan Perangsang Selangor (5843.KU), also down 51%.
Rating agencies Standard & Poor's, Moody's and Fitch said they are keeping Malaysia's sovereign credit ratings and outlook unchanged despite the stunning election result.
"Going forward, there could be some policy uncertainties or political uncertainties and therefore we are keeping a close eye on them, but we do not see any change in the fundamental trend of the economy," said Franklin Poon, lead analyst for Malaysia at Fitch.
Both Standard & Poor's and Fitch have A- ratings with a positive outlook on Malaysia, while Moody's rates its sovereign debt A3 with a stable outlook.
The ringgit, meanwhile, had weakened to $3.2020 by Monday's close, against Friday's close of $3.1670. Malaysia government bonds were also lower and yields up as much as 12 basis points, as some foreign investors liquidated positions.
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