HONG KONG: Investors looking for rebound candidates heading into 2020 should keep Malaysia off their lists, according to Jefferies Financial Group Inc.
The MSCI Malaysia Index has lost 15% since the surprise election victory of Tun Dr Mahathir Mohamad in May 2018, lagging behind the wider MSCI Asia Pacific ex-Japan Index. And it’s still too soon to buy the shares. Jefferies is maintaining its underweight position after first downgrading the nation following last year’s vote.
At the time, the reason for the downgrade was "concern that the return of Mahathir would lead to a policy-driven disruption of the positive trend which had been driving the Malaysian economy: That was mainland Chinese investment, ” Christopher Wood, Jefferies’s global head of equity strategy, wrote in a Nov. 28 note. "This is essentially what has since happened.”
Foreign direct investment inflows to Malaysia from China plummeted to RM19mil (US$4.6mil) in the first half of 2019, from more than 700 million ringgit in 2018, according to data from the country’s central bank.
Meanwhile, several additional metrics spell caution. First, Malaysia has seen seven straight quarters of profit downgrades, with the 2019 earnings-per-share consensus at MSCI Malaysia Index companies down 21% since April 2018, Wood said. Second, housing starts have fallen and home prices have weakened, coinciding with the slowdown in Chinese investment, he wrote.
And finally, don’t ignore politics in "Asia’s most politicised stock market.” Mahathir’s ruling alliance lost a by-election to the main opposition coalition earlier this month in what could be seen as a rebuke to the prime minister, Wood said. On the bright side, a general election doesn’t need to be held until 2023.
- MSCI Asia Pacific Index down 0.7%
- Japan’s Topix index down 0.2%; Nikkei 225 down 0.2%
- Hong Kong’s Hang Seng Index down 2%; Hang Seng China Enterprises down 2.4%; Shanghai Composite down 0.6%; CSI 300 down 1%
- Taiwan’s Taiex index down 1%
- South Korea’s Kospi index down 1.3%; Kospi 200 down 1.4%
- Australia’s S&P/ASX 200 little changed; New Zealand’s S&P/NZX 50 up 1%
- India’s S&P BSE Sensex Index down 0.5%; NSE Nifty 50 down 0.4%
- Singapore’s Straits Times Index down 0.4%; Malaysia’s KLCI down 0.8%; Philippine Stock Exchange Index down 0.7%; Jakarta Composite up 0.8%; Thailand’s SET down 0.6%; Vietnam’s VN Index up 0.2%
- S&P 500 e-mini futures down 0.3% after index closed up 0.4% in last session - Bloomberg
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