Investor sentiment remains fragile amid political uncertainty in Malaysia
KUALA LUMPUR – Amid global headwinds, investor sentiment is likely to stay fragile as Malaysia heads into a snap election with an unapproved budget. And experts predict the worst is yet to come for the stock market if the polls do not produce a strong mandate.
The benchmark FTSE Bursa Malaysia KLCI has plunged almost 12 per cent year to date, as the market priced in global and domestic downside risks.
With Parliament dissolved three days after the budget was tabled, leaving it hanging, fund managers foresee the local bourse being battered amid the twin challenges of continued global uncertainty and political risks moving forward.
The FBM KLCI fell by almost 1.5 per cent on Monday, after Malaysian Prime Minister Ismail Sabri Yaakob announced the dissolution of Parliament.
In tandem with the sharp rebound in US markets, Malaysia’s key index was up 14.53 points to 1,387.89 at close on Friday.
Former investment banker and private equity investor Ian Yoong said the FBM KLCI has still not bottomed yet, predicting that it will sink another 20 per cent as early as in the first half of 2023.
This is largely due to the increasing risk of a global recession and uncertainty surrounding the outcome of the upcoming election.
“The stock market will gradually sink, like being stuck in quicksand, until it reaches the bottom. It is not the worst yet,” said Mr Yoong.
“The polling dates that are yet to be known and the hawkish stance of the US Federal Reserve on rate hikes could cause the stock market to deteriorate further.
“On the local front, investors want political stability, good governance and a government that upholds the rule of law.”
Mr Yoong said the sell-off in the local bourse after the dissolution of Parliament indicated some souring of investors’ sentiment with the fate of the budget undecided. “But there is little impact on investors’ sentiment, which is already in the doldrums with recession jitters and domestic political instability. The budget can be retabled with the new ruling government,” he said.
Mr Scott Lim, founding partner of Omni Capital Partners, foresees a possibility of the FBM KLCI tumbling to a low of 1,000 points in 2023, a level last seen during the global financial crisis in 2008. Selling pressure will come from global headwinds and Malaysia’s internal challenges related to political instability and its finances, he said.
“For now, there is no way I can anticipate a good equity market. Malaysia is not in a good position to handle the global headwinds as we have more internal political challenges. That said, if I have to choose between markets, why would I as a global investor pick Malaysia to park my money with all the domestic uncertainty?” he asked.
According to UOB Kay Hian Research, Malaysia saw a reversal in foreign portfolio flows in September, logging a net flow of RM2 billion (S$605 million), down from the RM7.6 billion in August.
