Malaysian stocks tumbled the most since September 2011 on speculation the government will call for an early election that will result in a weaker grip on power.
The FTSE Bursa Malaysia KLCI Index sank 2.4 percent to 1,635.63 at the close in Kuala Lumpur, after earlier plunging as much as 2.7 percent. It was the worst performer among benchmark gauges in Asia today. The measure’s trading volumes were 89 percent above the 30-day average, according to data compiled by Bloomberg. Axiata Group Bhd., the country’s biggest mobile-phone operator, slid 5.1 percent, leading declines in the index.
Speculation that the government will call for national elections as early as March helped trigger the selloff, according to Samsung Asset Management Co.’s Alan Richardson. Prime Minister Najib Razak must dissolve the nation’s parliament by April 28. Najib’s approval rating fell to the lowest level in 16 months, the Merdeka Center for Opinion Research said in a statement on Jan. 10. Najib is overseas and couldn’t comment on the election timing, a government spokesperson said today.
“There is always the overhang of political risk before the election,” Richardson, a Singapore-based fund manager who helps oversee about $82 billion for Samsung Asset Management, said by phone. “There is uncertainty whether the ruling coalition would be able to at least maintain the existing majority they have.”
The prime minister said last month elections may come soon as his ruling Barisan Nasional, or National Front, coalition attempts to regain a two-thirds parliamentary majority it lost in 2008. The KLCI slumped 39 percent that year, the most since 1997, on concern a stronger opposition would stymie government investment plans. Barisan has ruled the country for 55 years.
The head of the opposition-led government in Selangor state said after winning power from the National Front in 2008 that he would review a contract awarded to Puncak Niaga Holdings Bhd., a water-treatment operator. The stock tumbled 6.4 percent on March 18 that year, after news on the contract review was reported by the Star newspaper.
The KLCI index trades at 14.6 times estimated earnings, a 2.1 percent premium versus the MSCI Asia Pacific Index, even after today’s plunge, according to data compiled by Bloomberg.
The KLCI is “in overbought and bearish divergent territory,” Lee Cheng Hooi, head of retail research for equity markets at Maybank Investment Bank Bhd., wrote in a report today. “As Malaysia prepares for the 13th general election over February to June 2013, political uncertainty could cause investors to adopt a risk-off approach.”
Axiata, which gained 28 percent last year, today had its biggest loss since March 2009. Trading volumes are more than three times the 20-day average, according to data compiled by Bloomberg. The stock traded at 17.6 times estimated earnings, a 21 percent premium over the KLCI’s multiple.
CIMB Group Holdings Bhd., the nation’s second-biggest lender by assets, plunged 4.5 percent, the most since Aug. 25, 2011. UEM Land Holdings Bhd. slumped 4.8 percent, while IHH Healthcare Bhd. sank 4.4 percent. Mobile-phone operator DiGi.Com Bhd. slipped 4.1 percent.
The KLCI is “fairly valued,” Richardson said. “It’s not appealing particularly at this point in time but it’s not expensive either. Given the earnings momentum in the market, it’s probably not strong enough to sustain this kind of valuation.”