PETALING JAYA: In a climate of falling global markets, the local bourse suffered yet another downgrade, this time from Goldman Sachs & Co, which named Malaysian stocks least favoured in South-East Asia on concerns over political volatility.
“The premium market valuation that Malaysia enjoyed relative to most of its Asean peers had political stability as one of its pillars – this is now in question,” according to Goldman Sachs.
According to a Bloomberg report, the investment bank’s regional brokerage arm said Malaysia was “in unchartered territory”.
It also cut its recommendations for Malaysia, Thailand, Indonesia and the Philippines to “underweight” from “market weight” previously.
While Malaysia had to contend with the downgrade, investor sentiment was weighed down further by the weak major Asian markets, which registered losses of between 0.39% and 1.83%.
The bearish sentiment was aggravated by the overnight losses on Wall Street on renewed concerns that credit losses in the United States could slow global economic growth.
The KL Composite Index (KLCI) closed 4.92 points or 0.39% lower at 1,257.57, the lowest since mid-April.
Hong Kong’s Hang Seng Index was the worst affected, down 455.6 points or 1.83% to 24,375.76, Japan’s Nikkei 225 lost 1.6% to 14,209.17, South Korea’s KOSPI shed 1.52% to 1,819.39, Singapore’s Straits Times Index fell 1.07% to 3,153.94 and Shanghai’s Composite Index dipped 0.65% to 3,436.40.
In Australia, the benchmark S&P/ASX 200 Index skidded 1.56% to 5,574.20 after investment bank Macquarie Group Ltd fell on more writedown concerns.
S&P had cut its ratings on Morgan Stanley, Merrill Lynch & Co and Lehman Brothers Holdings Inc as it expected these companies to report more writedowns. Lehman Brothers is reported to be considering raising US$3bil to US$4bil of extra capital to strengthen its balance sheet.
On the currency front, the yen posted sharp gains as credit worries prompted investors to bail out of risky yen carry-trades, where the low-yielding yen is used to finance purchases of assets with higher returns elsewhere. The yen hit a high of 103.88 to the US dollar at 4.35pm local time against its Monday closing of 104.43.
In Malaysia, political concerns and weaker corporate results in the January–March quarter also weighed down investors’ sentiment.
Aseambankers Equity Research said winds of uncertainty were holding back sentiment.
It maintained its bearish market outlook as investors generally remained sidelined to assess the political development and inflationary trends. On the external front, there was the impact of runaway crude oil prices and inflation in emerging economies.
It said the KLCI’s underperformance could extend, due to political uncertainties and as inflation caught up.
“Pakatan Rakyat’s threat to wrest legislative power from Barisan Nasional, combined with Malaysia’s late action to bite the inflation bullet (due to extended subsidies), will hold back the KLCI’s relative regional performance,” it said.
Meanwhile, CIMB Equities Research said the May corporate results season was considered significantly weaker than the previous round in February.
Of the 81 companies it tracked, 23% fell short of expectations versus only 15% in the February results period. Only 14% outdid expectations, a drop from 26% in February, it said in a report on the first-quarter results.
On its equities strategy, it said it had dropped the building materials, construction and property sectors from its top overweight sectors after the general election as it expected negative news flow and delays in mega projects to have a negative impact on these sectors.
“Plantations and oil and gas remain our preferred sectors due to their commodity-based earnings prospects. We remain bullish about the crude palm oil price outlook and expect crude oil prices to remain firm, which augurs well for oil and gas service providers,” it said.
It added the rubber glove sector to its top sector list in light of its robust earnings growth and bombed-out share prices.
