Malaysia Stocks Slump to Six-Week Low on Election Concerns

Malaysian stocks sank to a six-week low as election concerns made equities more volatile than the benchmark emerging-market index for the first time in almost five years. The ringgit weakened.

The FTSE Bursa Malaysia KLCI Index slid 0.4 percent to 1,628.66 in Kuala Lumpur to its lowest close since Dec. 7, amid speculation impending polls will weaken the ruling coalition’s grip on power. It sank 2.4 percent yesterday, the most since September 2011. The gauge’s 30-day volatility rose to 10.4 yesterday, the highest level since January 2012, data compiled by Bloomberg show. It was the first time the reading surpassed the MSCI Emerging Markets Index since May 2008. The ringgit fell 0.3 percent to 3.0426 per dollar.

Prime Minister Najib Razak must dissolve the nation’s parliament by April 28 as his approval rating slid to the lowest level in 16 months, the Merdeka Center for Opinion Research said in a Jan. 10 statement. Yesterday’s slump in the KLCI Index, which had been the least volatile among 21 emerging markets, dragged its valuation to a seven-month low of 14.6 times estimated profit.

“People are just taking the cash and running,” Bharat Joshi, who helps oversee the equivalent of $1.7 billion at Aberdeen Asset Management Sdn. in Kuala Lumpur, said in a phone interview yesterday. “Given some of these stocks that were actually battered down, valuations are compelling. It’s definitely a stock-pickers’ market right now.”

Final Lap

Najib is overseas and couldn’t comment on the election timing, a government spokesperson said today. Chua Soi Lek, president of the Malaysian Chinese Association, said it has ramped up its election machinery and is in the final lap of preparations for the polls, the Star newspaper reported today. The MCA is the nation’s second-biggest political party and part of the governing coalition.

UMW Holdings Bhd. led declines in the Malaysian gauge with a 3.4 percent drop. The index’s trading volumes were about 62% above the 30-day average, data compiled by Bloomberg show. UMW assembles vehicles for Toyota Motor Corp. in Malaysia.

The ringgit was the worst performer among Asia’s 11 most-traded today and touched 3.0493, the weakest since Jan. 8.

“There is always the overhang of political risk before the election,” Alan Richardson, a Singapore-based fund manager who helps oversee about $82 billion for Samsung Asset Management Co., said by phone yesterday. “There is uncertainty whether the ruling coalition would be able to at least maintain the existing majority they have.”

Contract Review

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.

As recently as Jan. 15, the KLCI had the lowest volatility reading among benchmark indexes in 21 emerging markets, data compiled by Bloomberg show. After the market slump yesterday, it was the ninth-lowest after rising above markets including India, Thailand and South Africa.

Trend Reversal

“This could mark the start of a trend reversal as pre-election jitters pick up in the run-up to the 13th general elections,” HwangDBS Vickers Research Sdn. said in a report today. The KLCI is “expected to remain under selling pressures” and could fall toward 1,600, it said.

Public Bank Bhd., the nation’s third-largest lender by assets, slipped 1.3 percent, the biggest drag on the benchmark gauge. Hong Leong Financial Group Bhd. slumped 2.7 percent, while Petronas Chemicals Group Bhd. sank 2.3 percent.

The declines yesterday made stocks including CIMB Group Holdings Bhd. and Axiata Group Bhd. “compelling” to invest in, Aberdeen’s Joshi said. Axiata was valued at a six-month low of 17.6 times estimated profit after tumbling 5.1 percent yesterday, while CIMB traded at a multiple of 11.3, the least since March 2009, data compiled by Bloomberg show. Axiata gained 1 percent today, while CIMB dropped 0.3 percent.

“They look a lot more compelling than they did three months ago,” he said. “These are still good names and reasonably priced. They don’t deserve to be beaten down so bad. The balance sheet hasn’t changed since yesterday.”

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