In an article by Bloomberg, a less than sanguine picture was painted after the FTSE Bursa Malaysia KLCI Index is down 13.5 percent from its high of 1,887 in April 2018. Despite global equities rising amid a potential end to the trade war, fund managers do not expect the gloom to end anytime soon.
A fund manager from Samsung Asset Hong Kong believes that Malaysia will continue to disappoint as the government has been lowering public debt since it came to power in May 2018. He expects the melee to end only in May 2020.
The initial euphoria about the Malaysian equities market has subsided now that Mahathir’s government has struggled to clean up government inefficiencies and corruption while campaign promises remain unfulfilled as its popularity continues to drop.
Meanwhile, the KLCI is languishing at levels not seen since December 2016 despite higher oil prices. It is noted that high oil price will hurt Malaysia more as it is a net-importer of crude oil despite its domestic oil production.
In 2019, foreign investors have dumped more than US$500 million worth of Malaysian shares, according to Bloomberg-compiled data. Malaysia’s central bank in March pledged to keep monetary policy accommodative as global risks weigh on the trade-reliant economy.
However, Bharat Joshi, a Jakarta-based fund manager at Aberdeen Standard Investments, is “neutral” on Malaysia stocks and sees green shoots in infrastructure and oil-related stocks. Construction shares and oil and gas stocks will outperform the market following the resumption of talks on projects including the East Coast Rail Link and a rebound in commodity prices, he said.
It is also possible that other major infrastructure projects, if approved, will also have a positive impact on the sector. Joshi and Richardson both shared a view that the weak performance of the new government and companies have weighed on sentiment so far.
Richardson said he is bearish on Malaysia stocks not because there is a downside risk, but “just that there is nothing to be positive about over the next 12 months.”