Political uncertainty trumps economic fundamentals as investors sell Malaysia stocks

KUALA LUMPUR – With RM7.32 billion (S$2.2 billion) market capitalisation of stocks wiped off Bursa Malaysia on Monday, analysts believe that the market is oversold as investors’ sentiment appears to be diverting from fundamentals following the general election that delivered the country’s first hung Parliament.

The sell-down of “sin” stocks, such as gaming, tobacco and beer manufacturer counters, saw a staggering RM2.75 billion erased, as Perikatan Nasional (PN), whose largest component is Islamist party Parti Islam SeMalaysia, could be part of the next government.

On Tuesday, the benchmark FTSE Bursa Malaysia KLCI (KLCI) saw extended selling in blue chips, and the index was down 0.46 per cent to 1,441.29 points at the close, as foreign investors continued to dump stocks due to political uncertainty coupled with weakening of external demand amid China’s renewed Covid-19 lockdown measures.

Mr Danny Wong, chief executive of Areca Capital, said investors have put Malaysia’s strong economic fundamentals in the back seat as they focus on the hung Parliament.

“The KLCI index’s current valuation is cheaper to 16.2 times price-to-earnings ratio, which is below the five-year average of 18.3 times, which shows that market is pricing in the short-term political uncertainty. Our gross domestic product growth is on track; Malaysia’s total trade continued to trend higher, with double-digit growth.”

The price-to-earnings ratio is used to find out whether companies are overvalued or undervalued.

Marking the 21st consecutive month of double-digit growth, Malaysia’s total trade grew by 21.1 per cent to RM245.18 billion in October.

Mr Wong explained that once the current political situation is settled, any small positive news will be the catalyst for a decent rebound.

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At the close on Tuesday, Carlsberg Brewery Malaysia dropped 22 sen to RM21.78, Heineken Malaysia fell 18 sen to RM23.02, Genting was flat at RM4.26, and number forecast operator Magnum lost one sen to RM1.35.

Conceding that investors have overreacted by selling stocks due to the hung Parliament scenario, a fund manager from a local brokerage firm said “the sell-down of sin stocks is not over”.

The Umno-led Barisan Nasional said on Tuesday it will remain in opposition, and will not join the larger coalitions, namely Pakatan Harapan or PN, to form the federal government.

Should the PN alliance form the government, former investment banker and private equity investor Ian Yoong anticipated a further sell-down of sin stocks as investors are wary about the authorities clamping down on operations of companies engaged in gambling and alcoholic beverages.

Investors like Fortress Capital Asset Management said for the market to rebound there has to be a coalition with a sufficient majority in Parliament and pro-growth economic policies.

Said Mr Thomas Yong, chief executive officer of Fortress Capital Asset Management: “In that case, there will be positive reactions by investors especially portfolio positions into the undervalued stocks with better earnings clarity.”


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