PETALING JAYA: The local stock market suffered in line with negative global sentiments and headwinds from the external front, as well as impact from the reforms of the new government.
The FBM KLCI index was the worst-performing index in the region yesterday, probably in part due to the cost-cutting measures taken by the Government.
The weakness in the local market was in line with the overall regional markets, which took its cue from a sell-off in the US and European markets a day earlier.
Retirement Fund Inc (KWAP) CEO Datuk Wan Kamaruzaman Wan Ahmad has pointed out that the recent weakness in the local stock market was not only in Malaysia, but that emerging markets overall are experiencing an outflow of funds.
“The market is experiencing short-term uncertainties arising from the adjustments of the new government’s policies.
“But the smooth changes in the new government and new policies would be positive for the middle-to-long-term outlook of the country,” said Wan Kamaruzaman.
Despite the uncertainties, Wan Kamaruzaman reckoned that investors should be looking at the long-term horizon as the sharp decline in the stock market would turn out to be a buying opportunity.
“It is likely that the FBM KLCI Index will test the psychological 1,700 level, which if broken will provide a better buying opportunity for stocks with strong fundamentals that are difficult to accumulate due to low liquidity,” he said.
Yesterday, losses in the markets were a result of political concerns in Italy as well as fresh worries about the China-US trade war.
There were also some short term uncertainties arising from changes in the domestic government and the international front.
The local stock market’s FBM KLCI index plunged 56.56 points, or more than 3%. This was the biggest one day loss since October 2008.
Losers thumped gainers by a huge margin, with over 995 counters down while 148 counters finished the day higher. Construction counters suffered the most with several counters hitting limit down, namely Gamuda Bhd , George Kent (Malaysia) Bhd and HSS Engineering Bhd, following the announcement by the Government to cancel the third Klang Valley Mass Rapid Transit (MRT3) line project and the Kuala Lumpur-Singapore High-Speed Rail (HSR).
Gan Eng Peng, the head of equity at Affin Hwang AM, said that his original view was that the market would fear regulatory uncertainty and there could be a sell-down immediately post general election.
“This did not happen as there were domestic fund and retail support as foreigners sold in the first week. Now we have regulatory certainty, but the reality is worse than expected for some segments of the market.
“The budget deficit will worsen with almost immediate zero-rating of GST, delayed SST implementation and higher expenditure (toll reduction, fuel subsidy).
“What concerns us is that there are no alternative growth policies to replace the over RM100bil of construction project cancellations. Smaller construction companies will probably go under on cashflow problems,” said Gan. He pointed out that while the new government needs to kitchen sink, the context of this is that Malaysia is in a global emerging market correction, which makes foreign funds highly sensitive to such issues as they are in a selling mode.
“However, unlike some of our emerging market neighbours which suffer from twin deficits, Malaysia is fortunate to have a decent size current account surplus,” he says.
“The Malaysian market has lost over RM130bil to RM150bil in value since the general election as foreigners have exited the market. We still think longer term, the reform policies will be good for the country and generate a return of monetary and human capital. But we need to get past the short term pain first,” he says.
Foreign funds have been net sellers every week since the beginning of this month, alongside with other emerging markets such as Thailand and the Philippines.
Yesterday, foreign funds sold RM609.2mil net of local stocks, after dumping more than RM892.5mil net last week.
Rakuten Trade Sdn Bhd head of research Kenny Yee expects the stock market to recover after the dust settles on the ongoing structural reform agenda. He said at the moment the market has been oversold and investors should keep an eye for bargains.
“We expect the market to be volatile and under pressure as investors continue to digest the announcements, but present investors buying opportunity who has a longer-term view,” he said. On the external front, all key Asian markets were in the red with China’s Shanghai Composite Index down 2.53%, Hong Kong’s Hang Seng Index lost 1.4% and the CSU 300 2.12% lower. Singapore’s STI lost 2.12%.