By Jake Maxwell Watts
One of the biggest victims of oil's collapse is Malaysia, where
stocks are set for their biggest slide since the global financial
crisis and rank as Asia's worst performers this year.
The FTSE Bursa Malaysia KLCI has fallen more than 6.5% since
January, the only market in Southeast Asia to record a loss in the
period, as investors look to better-performing markets such as
India and Indonesia and dump holdings in oil-related stocks.
The ringgit has also suffered, plummeting to 3.4470 against the
U.S. dollar on Thursday, its weakest in nearly five years, while
yields on 10-year government bonds have risen to 3.89%, from a
12-month low of 3.78% in mid-October.
"Malaysia is one of the weakest markets within the region. In
the context of drops, it is not very large, but relative to the
traditional low beta of the market, it is a big move," said Gan Eng
Peng, head of equity at Affin Hwang Asset Management Bhd. in
Malaysia, referring to a measure of volatility.
The firm is selling out of oil-and-gas companies and moving into
stocks that may benefit from lower oil prices. It is also
increasing its holdings of cash to more than 20% in most of its
funds--a high level for almost any manager.
As Asia's biggest crude-oil exporter, Malaysia is first in the
firing line for investors looking to insulate themselves from a
slump in global oil prices. Brent crude oil futures, the global
benchmark, are at nearly a five-year low of $70 a barrel due to
falling demand and competition from other energy sources such as
shale gas.
The falling prices, a function of sustained weak demand in the
past few months, were hit further last week after the Organization
of the Petroleum Exporting Countries, or OPEC, decided not to cut
production.
Malaysia's central bank Thursday reminded local lenders to
ensure that all short-dated transactions involving the
ringgit--typically regarded as those that drive volatility--are
backed up by documentation. A spokesperson said the note was a
reminder of existing requirements.
Malaysia's main stock index has not clocked a full-year loss
since the financial crisis hit in 2008 and the index lost more than
39%. Since then, it has risen more than 10% every year with the
exception of 2011, when it rose 0.8%.
The losses in the past week have even the most bullish of fund
managers turning away. Eastspring Investments, which manages about
28 billion ringgit (US$8.1 billion) in Malaysian equities and
earlier this year managed one of the top-performing small
capitalization funds, says it has been selling stocks and turning
to cash in a bid to book in profit.
"Our view on the small caps has turned quite cautious," said
Yvonne Tan, chief investment officer. "Quite a number of corporates
are missing their forecasts so we are actually quite selective."
Eastspring is holding more cash in its funds and waiting for the
market to bottom out before it starts looking to buy once again,
Ms. Tan said.
Malaysia's largest listed oil-and-gas services provider,
SapuraKencana Petroleum Bhd., has been among the biggest losers,
down nearly 20% in the two days after the OPEC decision and now
trading at its lowest level in more than four years. Other
oil-related stocks, such as state-controlled Petronas Dagangan
Bhd., has fallen more than 6% since the Nov. 27 OPEC meeting.
Petronas Dagangan's parent company, state-owned Petroliam
Nasional Bhd., is already discussing cutting spending targets by as
much as 20%, according to its chief executive, who told media last
week that it may also trim its dividend payments to the government.
Petronas, as the company is also known, contributes about $10
billion each year to the national budget and is Malaysia's sole
Fortune 500 company.
Analysts warn that in the longer term the impact on Malaysian
stocks will be felt in non-oil industries too. Credit Suisse says
that if oil prices remain at US$70 a barrel, Malaysia's economic
growth could slow to 4.4% next year, well below the 5%-6% expected
by the central bank for this year.
Saudi Arabia, OPEC's largest producer of crude oil, expects oil
prices to stabilize about $60 a barrel, The Wall Street Journal
reported Wednesday.
If inflation stays low in Malaysia, as Credit Suisse says is
likely, it would reduce the chances of an interest-rate hike by the
central bank, which analysts say wouldn't want to risk further
jeopardizing a slower rate of economic growth. That would make the
ringgit a less attractive prospect than many other Asian
currencies, while other central banks in the region contemplate
raising rates.
Some fund managers are sticking to the original script, however.
Raymond Lim, head of Asian bonds at Amundi in Singapore, said he is
optimistic that the inflation consequences of the Malaysian
government's decision this year to cut fuel subsidies will be
offset by falling oil prices. Amundi is cautious on Malaysian
government bonds, but still likes the ringgit. It expects the
central bank to raise interest rates in the first quarter next
year.
But it isn't just oil prices that are contributing to the
malaise in Malaysia. Maybank Investment Bank research, which covers
74% of the Malaysian bourse by market capitalization, calculates
that core net profit for the companies it tracks contracted an
average of 5.5% year-over-year in the third quarter.
Affin Hwang's Mr. Gan says the only good news could be that
non-oil related stocks may be suffering more than is justified.
However, with share-prices down, oil-prices lower and capital
expenditure being cut, he expects more business and financial
disruptions to come. "A credit crunch within the oil-and-gas space
is a possibility," he said.
Jason Ng contributed to this article.
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