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"A penny for your thoughts"

Thursday, March 13, 2008

Malaysian stocks take a beating in the aftermath of its 12th general election.

Updated 7:31 PM 13-Mar-08

Malaysian stocks recover but investors keeps a wary eyes.

Malaysia’s main stock index plunged 9.5 per cent onMonday as investors dumped stocks, wiping out some US$30 billion in market capitalisation, probably the biggest single-day loss in the market’s history.

The Kuala Lumpur Composite Index rose by 2.8 per cent Tuesday as investors picked up blue chips such as Sime Darby and Maybank on the cheap, but fund managers were still wary amid political risk.

“Malaysia will be dead money until there is some political clarity that emerges over the next six to 12 months,” Credit Suisse analyst Stephen Hagger announced.

Investors in opposition-held Penang, which houses tech giants such as Intel, sought more clarity on state government policies. “The Americans and other investorsare more concerned about whether the incoming state government is pro-business and whether infrastructure projects identified with the previous
state government will continue,” said Mr Wong Siew Hai, head of Malaysian American Electronics Industry, a grouping of US technology firms.

Foreign research firm Merrill Lynch said an expected slowdown in the decision-
making process with a strong opposition in parliament triggered the negative reaction on the stock market. But he described as this has shaken the status quo of the the ruling coalition party, BN, and the government may address some of its shortfalls which will eventually help the competitiveness of the country.


Prime Minister Abdullah Ahmad Badawi’s political future and his public spending programme uncertainty tumbled o the Kuala Lumpur Composite Index by 9.5 per cent, at
1173, its steepest percentage fall since September 1998, during the Asian financial crisis This was underscored by the opposition Democratic Action Party, which will form the government in Penang, when it said it would review plans for a US$8 billion (S$11 billion) real estate development project in the northern industrial hub.Similarly, Kedah’s new Parti Islam SeMalaysia Menteri Besar Azizan Abdul Razak said he would review the RM50 billion Zipy petroleum pipeline project in the state as well as the Northern Corridor Economic Region (NCER).

These two are the first major projects the opposition will be reviewing after winning five of the country’s 13 states.The Penang project’s major backer is a firm owned partly by businessman Patrick Lim, a friend of Mr Abdullah’s son. Abad Naluri, the unlisted firm behind the project, is 25 per cent owned by property developer Equine Capital Bhd, valued at just US$87 million. Mr Patrick Lim is Equine’s chairman Meanwhile, investors in Malaysia dumped shares of government-linked construction stocks, ending the day down 9.5 per cent on the 10thMarfch.Malaysian Resources Corporation and UEM World Berhad led the slide amid concern that the government’s RM200 billion spending plan may be held up.Traders predicted that the market would continue on a downward trend this week.

Investors felt the wind of change in the business establishment, wiping half the value off Equine Capital. The sell-off also targeted other stocks involved in major state projects, such as Gamuda Bhd and MMCCorp which are building a RM12 billion (S$5 billion) rail project through opposition- held states in the north.MMC Corp is controlled by tycoon Syed Mokhtar Al-Bukhary, who has long had strong ties to the government.

Stocks linked to the federal government or its favoured tycoons bore the brunt of the damage, with plantation-to-energy group Sime Darby Bhd, the market’s biggest blue
chip, plunging nearly 18 per cent at one point. Major infrastructure firm Malaysian Resources Corp tumbled 34 per cent while builder UEM World Bhd fell nearly 21 per cent.Premium political stability has been removed according to Mr Ng Jun Sheng, senior analyst with SBB Securities

The ringgit fell by more than 1 per cent to its weakest levels in nearly two weeks, touching 3.2075 per US dollar. Still, credit rating agencies Fitch and Moody’s maintained their sovereign debt ratings on Malaysia, saying the economy was on a sound footing even if the election results created some short-term uncertainties.

Earlier on 9th March, PrimeMinister Abdullah Ahmad Badawi took the oath of office for a new five-year term, defying calls for him to step down over his party’s historic
electoral losses. cracks have appeared in the ruling coalition, especially within Umno despite pledges of support for PM. Mr Mukhriz Mahathir, 43, the youngest son of former premier Mahathir Mohamad is taking a stance against Datuk Seri Abdullah Ahmad Badawi & his son-in-law, Mr Khairy Jamaluddin.

Tan Sri Sanusi Junid, a former Cabinet Minister and an Umno veteran agreed with Dr Mahathir that Datuk Seri Abdullah should bear the responsibility for Barisan
Nasional’s massive losses. There would be a lot of horse trading and in-fighting within Umno, he added. Already, a proxy war between the premier and his influential
predecessor is brewing. Tan Sri Sanusi fears that this would continue to weaken Umno but he’s even more worried about what he says is an “illusion” the premier seems to have on the support he has from the party. “It’s the same illusion that the BN had when it went intoSaturday’s General Election,” he said.

Political analyst Ooi Kee Beng of the Institute of South East Asian Studies viewed that other businessmen, alternative businessmen, will move in now. InPenang, there will be a rejection of Umno businessmen will be more obvious than elsewhere.

Related Post : Malaysia's ruling coalition BN, lost its 2/3 majority hold

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