KLCI Suffers Sharp Drop After Polls

March 10, 2008

My stock portfolio declined by about 8%, due to my holdings of some government-linked companies. The KLCI was at its lowest since August 2007. I better keep my cash instead of buying in on the relatively ‘cheap’ stocks. How about you? Were you affected in the stock market as well? (news accurate as of 10/3/2008, 2.30pm)

Update 10/3/2008 3.15pm - Trading on KLSE suspended due to a massive 130 point drop, which is the 10% loss limit. TheStar reports that trading will resume at 3.58pm.

Investors sell Malaysia on political uncertainty

By Mark Bendeich

KUALA LUMPUR, March 10 (Reuters) - Malaysian stocks tumbled to a seven-month low and the local currency skidded on Monday, hurt by political uncertainty after the ruling coalition suffered its heaviest election setback in its 50-year reign. The benchmark Kuala Lumpur Composite Index .KLSE fell as much as 7.6 percent to hit its lowest level since August 2007 in reaction to Saturday’s stunning election upset, with stocks linked to the coalition and its favoured tycoons hit badly.

Islamists and leftist opposition parties won control of five of Malaysia’s 13 state assemblies and just over a third of federal parliament. The result has led to calls for Prime Minister Abdullah Ahmad Badawi to quit, but he has refused to go.

He was sworn in as leader on Monday morning, but uncertainty continued to surround his future after his predecessor, Mahathir Mohamad, urged him to resign.

The main ruling party called a special executive meeting for 0400 GMT on Monday, but the reason was not immediately clear.

“The political stability of the country becomes a question mark,” said Pankaj Kumar, chief investment officer at Kurnia Insurance, who helps manage about $500 million in assets.

Investors have voiced concerns for the future of the coalition’s long-term development agenda, which will hinge on the cooperation of the opposition states. The Barisan Nasional coalition has effectively ruled since independence in 1957.

Stocks linked to the federal government, or its favoured tycoons, took the brunt of the damage, with plantation-to-energy group Sime Darby Bhd (SIME.KL: Quote, Profile, Research), the market’s biggest blue chip, down 9.6 percent at 0258 GMT. Sime was caught by a double-punch of political uncertainty and sliding palm-oil prices.

Construction and engineering firms linked to state projects also suffered heavily: UEM World Bhd (UEMW.KL: Quote, Profile, Research) was down 14.5 percent, Gamuda Bhd (GAMU.KL: Quote, Profile, Research) 12.4 percent, Scomi Group (SCOI.KL: Quote, Profile, Research) 17.7 percent and Malaysian Resources (MYRS.KL: Quote, Profile, Research) down 26.9 percent.

DOWNGRADE

Malaysian investment bank CIMB cut its recommendation on Malaysian shares to neutral from overweight, citing the political uncertainty. It also cut its year-end target for the KLCI index to 1,380 points from 1,700 points perviously. The index was down 6.4 percent at 1,213.74 at 0304 GMT.

The ringgit fell by more than one percent to its weakest levels in nearly two weeks. It touched 3.2075 per U.S. dollar <MYR=> down from the previous day’s close of around 3.166, wiping out part of the 2.5 percent gains made in the past month.

Government bond prices ticked down at the open, with the yield on the 10-year benchmark up rising to 3.754 percent from 3.708 percent on Friday. Bond traders said the market was thin because many market participants were away for school holidays. (Reporting by Mark Bendeich; Editing by Bill Tarrant)

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