FBM KLCI sheds 39 points
Analysts say new tax proposals and external uncertainties spook investor sentiment
PETALING JAYA: The government’s plan to unveil new taxes and concerns over slowing global economic growth have spooked investor sentiment.
Against the backdrop of foreign funds selling out, the benchmark FBM KLCI fell the most in nearly five months and recorded the fourth-largest intra-day decline year-to-date.
Even as most Asian markets made gains yesterday, the 30-stock FBM KLCI declined for the sixth consecutive day, falling 38.97 points or 2.2% to 1,735.18 points.
The broad selloff in Bursa Malaysia turned the market breadth overwhelmingly negative, with 993 losers as compared with 116 gainers. A total of 286 counters remained unchanged.
While details on the new taxes will only be unveiled in Budget 2019 on Nov 2, several suggestions on the potential new taxes have been making the rounds in the media.
They included the inheritance tax, the “carbon tax”, a tax on the digital economy, as well as the capital gains tax, which will affect equity transactions.
Speaking to StarBiz, Areca Capital’s chief executive officer (CEO) Danny Wong described the ongoing decline in the FBM KLCI as a “short-term correction”.
He concurred that the market has become somewhat restless after Prime Minister Tun Dr Mahathir Mohamad, Finance Minister Lim Guan Eng and Bank Negara gover nor Datuk Nor Shamsiah Mohd Yunus spoke of the new forms of taxes to be introduced as part of the government’s effort to restructure the economy and pare down elevated debt levels.
“However, the bigger reason for the FBM KLCI’s decline is still the external uncertainties,” he said.
Wong said the rising bond yield and an aggressive benchmark rate hike in the United States continued to stoke uncertainties in the market.
“Traditionally, October is a weak month for the stock market, so we are not surprised. We are waiting to go into stocks again in the next two to three weeks for bottom-fishing,” he added.
It was a sea of red for all indices on Bursa yesterday.
The selling interest in heavyweights such as Telekom Malaysia Bhd, Axiata Group Bhd and Genting Bhd bogged down the local bourse.
Panasonic Manufacturing Malaysia Bhd, Cycle & Carriage Bintang Bhd and MISC Bhd were the top-three gainers yesterday.
Meanwhile, Fraser & Neave Holdings Bhd, Tenaga Nasional Bhd and Heineken Malaysia Bhd emerged as the top-three losers.
Regionally, Japan’s Nikkei 225 was up 0.16%, while Hong Kong’s Hang Seng Index edged up 0.08%. China’s Shanghai Composite Index rose 0.18% and Taiwan’s TAIEX was 0.1% higher.
The Thai Stock Exchange and Indonesia’s Jakarta Composite Index were higher by 1.25% and 0.41%, respectively. However, Singapore’s Straits Times Index shed 1.11%.
In response to the FBM KLCI’s performance, Fortress Capital CEO Thomas Yong said institutional funds seemed to be reducing their exposure to stocks that would be affected by lower government spending, going forward, resulting in the poorer performance of several counters.
He described the institutional funds’ selldown of stocks as “reactionary”.
“While the new government has stressed on enhancing the country’s long-term economic growth, expectations of lower government spending as a result of an austere budget coupled with potential introduction of new taxes point towards further contractions in the immediate economic growth outlook,” he said.
Yong also pointed out that the FBM KLCI would remain sensitive to policy changes typical in situations of a regime change.
Finance Minister Lim said recently that Budget 2019 would not be an austerity budget, but pointed out that sacrifices are required.
“While it is imperative for the government to be prudent with our expenditure, we are equally cognisant that we must not fall into the austerity trap.
“What we are trying to do is get a bigger bang for our buck,” he said.
In a note issued yesterday, CIMB Research cautioned investors that the stock market could be volatile in the months ahead due to short-term domestic policy uncertainty and external risk factors.
“We gathered that the ministries are working on potential reforms for the aviation, agriculture, power and property sectors. The potential changes could lead to short-term uncertainty for some listed companies in the near term, but could be positive for the market in the medium to long term if the reforms yield results through higher growth for the country.
“We maintain our FBM KLCI target of 1,684 points by end-2018 at a price-to-earnings ratio of 15.7 times,” said the research house.
Areca Capital’s Wong expected the FBM KLCI to end the year “not too far” from the 1,800-point mark.
He also pointed out that greater clarity on national policies and resilient corporate earnings going forward would be the key catalysts for Bursa’s performance.
“With the third quarter of 2018 expected to be a good period for corporate earnings, I anticipate earnings in the second-half of the year to be stronger than the first-half. Good corporate earnings would be a major driver for the FBM KLCI,” said Wong.