Malaysia Poll Concern May Have Fueled Volatility, Exchange Says

Malaysian election speculation and investors booking profits may have contributed to volatility in the share market, the chief executive officer of the country’s stock exchange said.

The benchmark FTSE Bursa Malaysia KLCI Index slumped 2.3 percent last week, the most since May, amid concern general elections as early as March may result in the ruling coalition losing parliamentary seats. The KLCI’s 30-day historical volatility climbed to 10.4 on Jan. 21, surpassing the MSCI Emerging Markets Index for the first time since May 2008, data compiled by Bloomberg show. Volatility was at 10 today.

“Based on what we found out, maybe there was some profit taking, maybe there is a little bit of adjustment of portfolios,” Bursa Malaysia Bhd. CEO Tajuddin Atan told reporters in Kuala Lumpur today. “Given the scenario, everybody looked at maybe economic issues, maybe performance issues, maybe election issues. Those are trading matters.”

A six-week rally drove the KLCI index to a record on Jan. 7, lifting its valuation to a more than nine-month high of 15.5 times reported profit, data compiled by Bloomberg show. A 3.6 percent slump this month, the most among Asian benchmark gauge tracked by Bloomberg, dragging the index’s price-earnings ratio to 14.4, the lowest level since Dec. 4.

There was speculation elections would be held during school holidays at the end of March, Fiona Leong, a Kuala Lumpur-based analyst at Citigroup Inc., wrote in a Jan. 23 note. Equities are likely to remain volatile until polling day, she wrote.

Approval Rating

Prime Minister Najib Razak’s Barisan Nasional or National Front coalition, which has ruled the nation for 55 years, is aiming to restore a two-thirds parliamentary majority it lost in 2008. The KLCI slumped 39 percent that year, the most since 1997, amid concern a stronger opposition would stymie government investment plans and the global financial crisis deepened.

Najib’s approval rating slid to the lowest level in 16 months, the Merdeka Center for Opinion Research said in a Jan. 10 statement. He must dissolve the nation’s parliament by April 28. At stake are programs he unveiled to boost economic growth, such as a $444 billion program of private sector-led projects announced in 2010. This includes a 48 billion-ringgit ($16 billion) mass rail network in the capital.

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