THE KL stock market closed yesterday with a near-1% or 6-point dip on mounting fears that war would erupt in the Middle East any time this week.
This followed a demand by the United States, Britain and Spain after their summit in the Azores that the United Nations Security Council break the impasse over whether Iraq should be disarmed by force.
The KLSE Composite Index, which opened yesterday at 628.37 points, closed at 622.61 points, just shy of its day's low of 622.32. Volume was razor thin at 107.89 million shares compared with 166.419 million last Friday.
Among the gainers were Resorts World Bhd, which rose 15 sen to RM9, and OYL Industries Bhd, which added 20 sen. On the losers' list, British American Tobacco (Malaysia) Bhd shed 25 sen to RM37.50 and Eden Enterprises (M) Bhd fell 20 sen to RM1.23.
Regional bourses also closed lower, reflecting the war jitters. The Nikkei-225 stock average continued to hover near 20-year lows while Seoul's Kospi Index tumbled 4.2% to its lowest level since Oct 15, 2001.
Taiwan's Weighted Index skidded 2.6%, while in Hong Kong, the Hang Seng Index fell 1.7%, its biggest decline since Jan 27.
“Generally, there are people out there waiting to buy but there are also those who prefer to wait and see what happens first. This is not like the Dow falling 200 points because of some bad economic figures. A war in the Gulf region is still war, so we can't view it casually,” said a dealer at a Kuala Lumpur-based stockbroking firm.
“On the assumption that war would break out, the issue on everyone's mind is how long it would last,” said another dealer.
According to OSK Investment Research, the equity markets have, to a certain extent, already priced in the effects of war. At worst, a war could lead to a further pullback depending on the duration of the conflict – whether it is immediate (between 2 and 4 weeks), short term (1 to 3 months) or longer term (more than 3 months).
“The immediate impact would be intense pressure on equity markets, with likely falls of between 5% and 15%,” said the research house's assistant general manager, Pankaj Kumar.
“As for the KLSE, we expect the CI to retrace by 5% to 7% before finding its footing, and this could be an eventful period to accumulate quality issues as some stocks may retrace by 10% to 15% while others, especially the defensive counters, may not fall by more than 5%.
“Thus, in the event of an Iraqi war, investors should take positions in the market and bargain hunt, as swift and fast action to disarm Iraq could mean that the market might be in for a big 'relief rally'.
“Once the US begins to disarm Iraq by force, we reckon that one of the biggest uncertainties clouding the investment community may finally be answered, and we can all talk about getting back to business as usual.”
OSK Investment Research said the impact of a prolonged war would be more difficult to predict as investor and consumer sentiment would remain fragile for a longer period and thus market valuations might not look as attractive as currently if earnings of companies were affected.
In a prolonged war scenario, OSK Investment Research expects the market to give up the gains chalked up during the “big relief rally” and succumb to selling pressure.
“This is where the real test will be for equities as a prolonged war, if it lasts more than a month, could mean (corporate) earnings for this year may be affected, perhaps by between 5% and 20%, depending on the sectors they are in,” Pankaj said.
On the alternative option of investment in bonds, a fund manager said buying long-tenure bonds during this period would not be viable just because an investor wanted to hedge in the short term.
“It is better to stay under-invested for a period of time and wait for bargain hunting in the equities market, as the returns should be better than just going into short-term bonds of less than two years,” he said.
“For a market to tumble on thin volume, when a rebound comes, even if it were to happen on thin trade, the earlier losses could easily be covered. The issue we are looking at is still the duration of the war.”
Some sites for updates on the Iraq crisis
The United NationsMore from the United Nations news site
Asia News Network:How Asian news sites cover the Iraq crisis