GeopoliticsBusiness ■ Opinion

By THE WEEK 18/9/2015
The Kuala Lumpur Stock Exchange is seeing much selling activity this days.

ore concerned with Malaysia’s domestic issues, investors ignored the country’s financial fundamentals last week as they sent stocks to two-year lows and the ringgit on a downward path, on the back of a devaluation of the Chinese yuan and oil price lows.

The Malaysian ringgit hit 4.1315 against the dollar Monday, its lowest in 17 years, after WTI crude for September delivery fell to $42.23 a barrel on Friday, the lowest since March 3, 2009.

Against the dollar, it has declined by at least 12% this year, Asia’s worst performing currency.

Bank Negara’s international reserves have fallen by 17% or US$19 billion this year, to around US$96.7 billion as of July 31.

The FBM KLCI index of Malaysia’ top 30 firms closed at its lowest in more than two years, at 1,572.54.

This chart shows the performance of the FBM:KLCI over the past year. Investors are selling stocks faster and the pace is picking up.Data from Bloomberg

Earlier at 11:52 am Malaysian time Monday — Bloomberg data showed it had sunk to 1545.98 points.

Calculations made by The Malaysian Reserve newspaper showed that eight of Malaysia’s top oil and gas companies had seen RM2 billion erased in market capitalisation in just one trading day.

Foreign investors have sold more than RM11.7 billion of Malaysian stocks this year in the fastest pace since 2008 — amidst rumors that traders have betted against the ringgit and locals are hedging other currencies as a safety measure.

There is also word that more Malaysians are buying into foreign funds, seeking to diversify their investment in areas where growth has outpaced the local market.

“Malaysia’s fundamentals have been disregarded, despite positive views on a commendable second quarter.

Investors are concerned about the erosion of confidence and weaker sentiment, because of unresolved uncertainties,” said Yeah Kim Leng, dean of Business at Malaysia University of Science and Technology.

“Funds are reversing flows and this has caused sharp impact on our markets, despite the resilience of our financial system,” Yeah told The Malaysian Reserve.

“Expectations are better for the second half for Malaysia, with hope that China will stabilise following the devaluation of the yuan.

“But if uncertainties are still unresolved, investors feel there is no closure,” Yeah said.

Last week Bank of America- Merill Lynch head of Emerging Asia Economics, Chua Hak Bin told The Malaysian Reserve that investors felt there was a risk that the ruling party, Barisan Nasional, would not survive the next election, and that there may be a change of leadership in Malaysia.

In the eyes of investors, Prime Minister Najib Tun Razak’s credibility and integrity had been undermined by recent developments in Malaysia’s political scene, Chua said.

Malaysia has another headache in slowing demand from China.

China’s economy is going down, very fast, and this is bad news for Malaysia’s export-driven economy, said Hoo Ke Ping, a prominent economic macro-analyst based in Kuala Lumpur.

Tan Sri Zeti Akhtar Aziz’s healthy appearance last week, and her announcement that she would go on to serve as Bank Negara Governor until April year was good news, but the announcement was eclipsed by actions taken by the China central bank.

With the devaluation of the yuan, meant to improve demand for China’s exports, Hoo said the ringgit is expected to register a corresponding drop.

The ringgit has fallen over the past year as well. Note the steep downward curve it has taken recently. Data from Bloomberg
“When the big ship sinks, small boats sink together,” Hoo said.

Hoo said highly leveraged firms with borrowings in foreign debt could suffer as the currency continues its slump.

Chief among concerns is national utility provider Tenaga Nasional Bhd, which has seen a nose dive since the currency began and it made intentions known to acquire 1Malaysia Development Bhd’s independent power producing assets.

Tenaga is also raising some US$2.7 billion debt this year, in the world’s biggest sukuk issuance.

Tenaga’s stock price has been crashing down ever since, and now attention has shifted to other firms on the bourse. Who will be the biggest loser of Malaysia’s biggest selldown of the last two years?

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