PETALING JAYA: Stocks on Bursa Malaysia, which have been the worst-performing in Asia this year, were dealt another blow as the probability of an interest rate cut hit banking stocks across the board.
Financial stocks, which account for the largest weightage on the FBM KLCI, were hit on the prospect of lower interest rates affecting their profitability.
These stocks, along with the slumping broader market, dragged the FBM KLCI down 20.6 points or 1.2% to 1,663.66.
This marks the most points wiped out since the first trading day of the year, which saw the index losing 22.47 points or 1.33% to 1,668.11 points then.
The FBM KLCI was also the worst-performing index in Asia Pacific yesterday.
Banking stocks were already under pressure following comments by Finance Minister Lim Guan Eng during Invest Malaysia 2019, which was held this week, where he floated the idea of a windfall tax on banks to get the institutions to start lending more aggressively.
Banks in Malaysia are generally posting record profits of late on growing demand for financing and also checks to keep their costs down.
Lim, however, clarified his statement yesterday and said that the government had no intention of imposing any windfall taxes on Malaysian banks. He, nonetheless, hoped that banks could be more flexible in their lending arrangements, in light of their good earnings run.
An analyst said banks with more variable rate loans would be more affected in the short term.
“Given that several banks have raised their base rate recently, the overall impact of a rate cut would be softer than expected,” the analyst said.
It was the indication from the US that there would not be any interest rate hikes this year that sent the local market down. The knee-jerk reaction was acutely felt among the banking stocks, where heavyweights like Public Bank Bhd, which fell 60 sen to RM23.86, and Hong Leong Bank Bhd, which dipped 46 sen to RM20.34, were the main contributors to the decline in the benchmark FBM KLCI yesterday.
All the other banking stocks on Bursa Malaysia had a down day. Malayan Banking Bhd slid seven sen to RM9.40 and AMMB Holdings Bhd dropped 14 sen to RM4.47. Affin Bank Bhd, CIMB Group Holdings Bhd, RHB Bank Bhd and Alliance Bank Malaysia Bhd all closed lower too.
On Wednesday, the US Federal Reserve announced that it would keep interest rate hikes on hold and between the range of 2.25% and 2.5% for the year. The market was expecting the US Fed to raise interest rates twice this year before guidance was provided by the Fed.
Meanwhile, Affin Hwang Capital is of the view that the signal of patience on rate hikes and the dovish tone of the Fed on monetary policy is warranted, as US economic growth is projected to slow this year, following its robust growth of 2.9% year-on-year in 2018.
This is possibly due to the fading fiscal stimulus and potentially higher trade tariffs if the US and China do not arrive at a deal soon.
Additionally, manufacturing output in the US has declined for the second consecutive month in February by 0.4% month-on-month.
Rakuten Trade, in its daily market report, said that the pause in interest rate hikes would provide further impetus to sustain economic growth and equity markets, though global growth remains a concern.
“Malaysia will stand to benefit from this dovish stance on benchmark rates, as it provides room for Bank Negara to look into the possibility of a rate cut to support our economic growth.
“This may in turn see a boost in our stock market, from easing monetary policies,” said Rakuten Trade.
Did you find this article insightful?