Double whammy

PETALING JAYA: The Malaysian stock market continues to reel from uncertainties over the future of the new government, and compounded by the worsening coronavirus (Covid-19) outbreak.

Nearly RM91bil had been wiped out of the local stock exchange, following the infamous “Sheraton Move” episode a week ago that led to the collapse of the Pakatan Harapan government.

The FBM Kuala Lumpur Composite Index (FBM KLCI) posted its largest weekly decline since June 2018 - down by 3.2% in the week of Feb 24-28.

Foreign investors also dumped RM1.26bil net of local equities last week, marking the largest weekly foreign net outflow in 88 weeks, according to MIDF Research.

“The foreign net outflow from Malaysia on a year-to-date basis stands at RM2.11bil, the third smallest amongst the seven Asian markets under our coverage, ” stated the research house.

The “Sheraton Move” refers to the meeting involving leaders from Bersatu, Barisan Nasional, PKR, PAS, and Gabungan Parti Sarawak (GPS) on Feb 23 night at Sheraton Hotel, which brokered a deal to form a new government.

The impact of the country’s political turbulence continued into this week despite the rise of a new government in the country led by the newly-appointed Prime Minister Tan Sri Muhyiddin Yassin.

Yesterday, about RM19.42bil was erased from the market capitalisation of the Main and Ace markets as broader market sentiment was overwhelmingly negative.

A total of 651 counters declined, trumping 341 gainers. Meanwhile, 346 counters remained unchanged.

However, stocks linked to newly-appointed Prime Minister Tan Sri Muhyiddin Yassin and the ruling coalition rose even as uncertainty remains rife on the future of the new government.

Eden Inc Bhd and Thriven Global Bhd, which are linked to Muhyiddin’s son Datuk Fakhri Yassin Mahiaddin, surged by 38.46% to 27 sen and 43.18% to 31.5 sen respectively.

KUB Malaysia Bhd, in which UMNO leader Datuk Seri Johari Abdul Ghani owns a 32% stake, rose by 8.06% to 33.5 sen.

Yesterday, the FBM KLCI dropped 1.06% or 15.7 points to 1,466.94 points - the lowest since December 2011.

The index was the third worst performer in Asia-Pacific yesterday, after Indonesia’s Jakarta Composite Index and Taiwan’s TAIEX, which declined by 1.68% and 1.08% respectively. On the other hand, most regional stock exchanges posted gains.

The top three stocks that dragged down the 30-stock FBM KLCI were CIMB Group Holdings Bhd, Sime Darby Plantation Bhd and Petronas Chemicals Group Bhd.

Across the overall market, breweries, namely Carlsberg Brewery Malaysia Bhd and Heineken Malaysian Bhd, emerged among the top decliners on Bursa Malaysia.

Carlsberg was down by RM2.96 to RM28.88, while Heineken fell by RM2.50 to RM23. This could be due to the existence of Islamist party PAS in the new government.

PAS leaders have reportedly in the past condemned sales of alcoholic beverages and gambling in the country.

Overall, investors remain spooked about the country’s political landscape as former Prime Minister Tun Dr Mahathir Mohamad and Pakatan Harapan have vowed to seek a vote of no confidence against Muhyiddin.

The global equities scene also remained somber due to the spread of Covid-19 that has affected over 50 countries. The three key indices of US stock exchanges, namely the Dow Jones Industrial Average, the S&P 500 and Nasdaq have all entered further into correction territory.

For instance, since its record-high of 29,551.42 points on Feb 12, Dow Jones has dropped by over 14% till Feb 28.

In a note issued yesterday, Affin Hwang Capital Research urged the new government in Malaysia “to act quickly and take bold measures” in order to boost public and investors confidence by ensuring the sustainability of economic growth, raising income of the people and reducing cost of living.

It also highlighted the urgent need for the new government to implement the RM20bil economic stimulus package.

“We believe policies which could boost Muhyiddin’s credibility would include areas of institutional reforms, corporate governance, fiscal transparency and consolidation, as well as structural reforms to improve on productivity and income of the people.

“Nevertheless, if the political uncertainty is prolonged and combined with the global economic uncertainties and Covid-19 outbreak, many investors, be it local and foreign (both long-term and portfolio investors), may hold back their investments pending further clarity on the political environment.

“Already reeling from a transitionary government post the 14th general election, the market is now faced with another unprecedented event. We are uncertain if there would be any unwinding or changes in policies but believe that with a change of guards, there would likely be delays in any implementation of measures and hence market observers likely to remain cautious, ” it said.

Affin Hwang Capital Research also expects investors to likely remain sideline for now, amid the unprecedented political turmoil and a period of market uncertainty.

“Maintain neutral (view) and FBM KLCI year end target of 1,540 points.

“Near term, with enhanced market volatility, we continue to advocate a defensive stance, favouring the Malaysian real estate investment trust and healthcare sectors. Our other sector “overweights” are rubber gloves, plantations and electronics manufacturing services, ” it added.

Meanwhile, UOBKayHian Malaysia Research said that the ringgit is also likely to soften further in reaction to foreign equity outflows.

The ringgit, it added, may also weaken due to the concerns of possible strain on the government’s budget, moving forward.

The new government might have to “reward GPS” via higher share of petroleum royalties for GPS’ support to the current ruling coalition to form a government

For perspective, the ringgit-US dollar exchange rate hit 4.2030 yesterday, as compared to 4.0547 on Jan 17. However, it should be noted that the ringgit has appreciated slightly against the greenback from 4.2338 on Feb 25.

“The Muhyiddin-led government is expected to take on the old UMNO-style management, which has on balance been better at economic management versus the Pakatan government.

“We maintain that anyone in power will swiftly reinforce sensible business policies and implement fiscal stimulus, as not to repeat Pakatan’s blunder in policy implementation inertia that has led to a massive public dissatisfaction and is blamed for undermining the country’s latest quarterly gross domestic product growth to a 10-year low, ” it said.

UOBKayHian Malaysia Research recommended investors to “seek shelter in exporters, defensive and selected dividend stocks”.

“There’s upside to exporters’ income and our top picks are Yinson and VSI. Clear winners of the new landscape are buy-rated Gabungan AQRS and Hume. MyEG should also substantially benefit.

“However, tactically underweight on sin stocks, ” it said.

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