BURSA Malaysia suffered its biggest-ever losses after the 12th General Election

The strong wave of selling that swept across Bursa Malaysia wiped out RM86bil, or 8.7%, from the bourse’s total market capitalisation of RM984bil as at last Friday. The KL Composite Index (KLCI) tumbled 123 points, or 9.5%, to a 14-month low of 1,173.2 points in its biggest single-day loss so far. The intensive selling activated the circuit breaker at around 3pm. Trading was halted for an hour when the benchmark index plunged 130 points, or 10%, to 1,166. This was the first time the market-wide circuit breaker was activated on Bursa Malaysia.

“The magnitude of the fall was bigger than expected,” said Kenanga Asset Management Sdn Bhd chief investment officer Chen Fan Fai. Chen described the market as currently in “uncharted territory”. He said the direction of public policy and economic measures had become a big unknown after the ruling Barisan Nasional lost its two-third majority in parliament and the opposition parties took control of Kedah, Penang, Perak and Selangor.

The KLCI is down nearly 343 points, or 22.6%, from its record high of 1,516 on Jan 11. Such a drastic fall is a sure sign that the local bourse has turned bearish. The ringgit also fell 1.3% to 3.2074 versus the dollar. The drop was seen as evidence of the outflow of foreign investment. The regional markets also suffered from heavy selling. Tokyo’s Nikkei 225 Index shed 250.7 points, or nearly 2%, to 12,532 points, Singapore’s Straits Times Index dropped 29.6 points, or 1%, to 2,836.6 while the Jakarta Composite Index slid 128.6 points, or 4.8%, to 2,527.9.

Given the jittery sentiment, more stockbrokers have now slashed their fair value for the KLCI. AmResearch has cut its fair value to 1,300 from 1,590, while Aseambankers Malaysia Equity Research reduced its year-end target for the KLCI to 1,350 points. HwangDBS Vickers Research also trimmed the KLCI’s year-end target to 1,360. Despite the expected sell-down, Citi Equity Investment urged investors to pick up “fundamentally good” plantation and telecommunication stocks. It warned clients to avoid the cyclical property and construction stocks.

Credit Suisse said Malaysia would not be attractive until political clarity emerged over the next six or 12 months. One main concern is whether the roll out of infrastructure projects under the Ninth Malaysia Plan would be affected since these involved both federal and state governments. Also, there are worries over the possible delay in contracts that have already been awarded should the newly formed state governments review them. Analysts said scrapping certain public projects would certainly hurt companies’ earnings. However, they said it would be good for the economy in the long term if those projects were not justifiable in terms of social benefits, and the money could be channelled for better use.

Stocks perceived to be politically linked and heavyweights were among the worst hit. Kumpulan Perangsang Selangor Bhd, Equine Capital Bhd and Malaysian Resources Corp Bhd hit limit-down amid fears that these companies might not win certain public projects as expected. Tenaga Nasional Bhd’s share price dived RM1.30 to RM7.35 on concerns that the utility group’s efforts to lobby for a tariff hike would not bear fruit.