The government’s RM60 billion stimulus package unveiled on Tuesday to stave off a prolonged recession failed to ignite investors’ interest in local equities yesterday on concerns of more downside for the stock market.
Despite the initial surge in the morning session, interest faltered in the afternoon as investors were quick to lock in marginal gains.
As investors digested the details and effectiveness of the measures in the mini-budget, concerns amid a heightened aversion to risks include an economy teetering on recession, a ballooning budget deficit, continuing lack of corporate earnings visibility and political uncertainties.
Bank stocks, which are the proxy to the economy, closed lower. The three largest banks — Public Bank Bhd, Bumiputra-Commerce Holdings Bhd (BCHB) and Malayan Banking Bhd (Maybank) — were among the major decliners.
The Kuala Lumpur Composite Index fell 4.88 points to 850.37, off the day’s low of 847.94. This was a stark contrast to the key regional markets which rallied following the overnight rebound on Wall Street.
Key Asian markets closed higher, with Japan’s Nikkei 225 surging 4.55% or 321 points to 7,376.12 and Hong Kong’s Hang Seng Index adding 2.02% to 11,930.66, while Singapore’s Straits Times Index was up 1.33% to 1,505.51.
Even Bursa Malaysia chief executive officer Datuk Yusli Mohamed Yusoff acknowledged yesterday that the outlook for the local stock market remained challenging despite the RM60 billion stimulus package.
Public Bank fell 20 sen to RM7.30, the lowest since January 2007, BCHB lost 15 sen to RM6.05, Maybank gave up 10 sen to RM4.32 while Bursa Malaysia Bhd declined 22 sen to RM4.56 due to the weak trading market conditions.
Plantation stocks, especially the more efficient producers like Kuala Lumpur Kepong Bhd (KLK), United Plantations Bhd and IOI Corp Bhd, were affected by the poor market sentiment even though they would gain from the higher threshold for levy payments.
KLK and United Plantations fell 20 sen each to RM10 and RM10.60, respectively while IOI Corp shed two sen to RM2.76. Sime Darby Bhd was unchanged at RM5.55.
Property counters, which should benefit from incentives under the mini-budget, were mixed. SP Setia Bhd fell 12 sen to RM3.16 but Mah Sing Group Bhd added three sen to RM1.57 and IOI Properties Bhd rose two sen to RM2.50.
Proton Holdings Bhd and UMW Holdings Bhd each rose five sen to RM1.62 and RM5.30 respectively as they could benefit from the new policy where motorists could receive a RM5,000 discount to trade in their 10-year-old cars for a new Proton or Perodua.
Analysts said Public Bank had come under selling pressure recently, exacerbated by CLSA Asia-Pacific Markets’ forecast that the bank’s earnings would be affected by the weaker economic outlook while dividends could be constrained. CLSA lowered the target price to RM6.20 from RM9.20.
Fund managers expected Public Bank, with a large exposure to the economy, to be affected by the economic slowdown. The government projected the economy to grow at best 1% this year while the downside was a 1% contraction.
According to Bloomberg data, Public Bank had the highest valuation, with the price-to-book value (P/BV) at 3.98 times, which was the highest among the 11 bank stocks where the average P/BV was 1.55 times. BCHB was at 2.08 times and Maybank 1.78 times.
AmResearch Sdn Bhd retained the fair value for the KLCI at 800 points this year due to the muted reaction in the equity market.
“The mini-budget is not likely to trigger a re-pricing of growth expectations anytime soon given elevated aversion to risk. In addition, recent fiscal stimulus in other Asian countries has not stemmed the decline in regional equity markets with the exception of China,” the research house said in a report.
However, it said the mini-budget would mitigate some concerns over the deepening of an impending recession further out. Given near-term macro headwinds, it advised stock picking based on balance sheet strength and good corporate governance.
The widening fiscal deficit resulting from the second stimulus plan was a cause for concern, said Fitch Ratings, as the deficit would swell the 2009 Budget deficit to 7.6% of gross domestic product (GDP).
CLSA was downbeat on the plan, saying that it was too late to save the economy from the biggest contraction since the Asian financial crisis a decade ago.
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