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As Asian Stocks Sizzle, Malaysia's Fizzle

The Wall Street Journal logo The Wall Street Journal 23/10/2017 Yantoultra Ngui

October has been a great month for many global stock markets. Malaysia isn’t among them.

The Southeast Asian country’s stock benchmark has fallen nearly 3% since mid-September, putting the FTSE Bursa Malaysia KLCI at six-month lows while peers have been logging multidecade and record highs. The index is also the worst performer in the region this year.

In the past five weeks, foreigners have steadily sold local stocks as they move “out from Malaysia to other markets with more momentum, such as Hong Kong and China,” said Gan Eng Peng, head of equity strategies and advisory at Kuala Lumpur-based Affin Hwang Asset Management Bhd. But he added that last week’s 0.8% decline was “driven largely by a selloff from domestic institutional and pension funds, who were locking in profits [and] raising cash for dividend payouts next year.”

Net outflows have totaled 1.65 billion ringgit ($391 million) over the past five weeks, according to data from Malaysia’s stock-exchange operator, Bursa Malaysia Bhd.

a large clock tower towering over a city at night© Provided by The Wall Street Journal.

Sentiment, however, could be about to improve. The government’s 2018 budget is due to be presented Friday.

TA Securities said the spending plan is expected to be expansionary ahead of a general election, which is due to be called in June next year. The tendency is for government outlays to increase ahead of elections while consumer and business sentiment improves, according to analysts.

Some of that hope helped push the KLCI up 6% in the first quarter, with investors anticipating an early election. But as a poll has yet to be called, the gain slowed to 1.4% in the second quarter before last quarter’s 0.5% decline. During that period, a number of big so-called block sales—deals in which an investor sells a sizable stake in a company all at once—have occurred amid some profit-taking.

Khazanah Nasional Bhd., Malaysia’s sovereign-wealth fund, separately sold 1% stakes in the country’s second-biggest lender, CIMB Group Holdings Bhd., in July and October as part of a move seen as realizing investment gains. CIMB, one of the main components in the KLCI, has climbed 37% in 2017 through Monday even while falling 12% from late August’s three-year high.

The KLCI has risen only about 6% this year, even with foreigners buying a net 9.4 billion ringgit of Malaysian stocks despite the recent tumble and even with second-quarter economic growth hitting a two-year high of 5.8%. By comparison, the MSCI Asia-Pacific ex-Japan Index has jumped 30%. That foreign net inflow so far this year is equal to some 30% of the total foreign net outflow over the past three years.

Danny Wong Teck Meng, chief executive of fund manager Areca Capital Sdn Bhd., noted, “Malaysia typically is a defensive market where it will underperform” when investors are moving into risk assets overall. That has been the case this year, and in particular the past month-plus, regarding global equities.

“Investors are waiting for new catalysts,” he added, pointing to the coming budget.

Malaysian Prime Minister Najib Razak has said the budget will address cost-of-living and housing issues, according to state news agency Bernama.

Despite the country’s stocks underperforming recently, “there’s no change in the fundamentals in Malaysia,” said Wong Chew Hann, head of research Malaysia for Maybank Investment Bank Research.

Write to Yantoultra Ngui at yantoultra.ngui@wsj.com

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