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Asia Markets
Malaysia Stocks Slip on Oil Slide
From the Wall Street Journal of Thu, 04 Dec 2014 02:22:42 EST
Malaysia's Twin Towers behind the Petronas logo in Kuala Lumpur.
Malaysia's Twin Towers behind the Petronas logo in Kuala Lumpur. Agence France-Presse/Getty Images

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 5.8% 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 3.4460 against the U.S. dollar on Thursday, its weakest in nearly five years, while yields on 10-year government bonds have risen to 3.88%, 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 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%.

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 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.

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.



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