Bloomberg News

Overseas Investors Sell Malaysian Stocks for Second Month

October 05, 2011

(Updates with investor comment in third paragraph.)

Oct. 5 (Bloomberg) -- Overseas investors sold Malaysian stocks for a second straight month in September, as the benchmark index capped its biggest quarterly slump in almost three years.

Foreign funds unloaded 300 million ringgit ($94 million) of Malaysian shares last month, according to data on the Kuala Lumpur stock exchange’s website. Some 3.8 billion ringgit flowed out of equities in August, the most since at least October 2009, after four consecutive months of inflows.

The benchmark FTSE Bursa Malaysia KLCI Index slumped 12 percent last quarter, the most since the three months ended December 2008, as concerns Europe’s debt crisis will hurt economic growth eroded demand for emerging-market assets. The ringgit completed its biggest quarterly loss since 1998.

“With the unresolved debt crisis in Europe, risk aversion is here and everyone is locking in profits,” said Lye Thim Loong, who helps manage about $770 million at Libra Invest Bhd. in Kuala Lumpur. “If things get uglier, there may be more selling.”

Moody’s Investors Service cut Italy’s debt rating yesterday for the first time in almost two decades and said other European countries rated below the top Aaa level may face reductions in their rankings. European Union finance ministers are discussing ways of coordinating recapitalizations of the region’s banks, the Financial Times reported.

Market Downgrade

The KLCI index rose 0.6 percent to 1,369.45 as of 11:36 a.m. in Kuala Lumpur today, snapping a three-day decline. The stock gauge has fallen 14 percent from a record on July 8. It traded at 12.8 times estimated profit on Sept. 26, the lowest level since April 2009.

Malaysian stocks were cut on Sept. 28 to “equal weight” from “overweight” at Morgan Stanley, which cited earnings revisions and weaker industrial output. Government data on Sept. 9 showed industrial production contracted 0.6 percent from a year earlier, compared with the 2.4 percent growth economists in a Bloomberg survey had forecast.

Before the sell-off, overseas investors piled into Malaysia’s stock market, betting on the nation’s efforts to bolster economic growth. About 6.7 billion ringgit of foreign funds flowed into Malaysian stocks from April to July, according to stock exchange data.

Prime Minister Najib’s government unveiled an economic transformation program in September 2010 that was aimed at attracting investment. The plan includes $444 billion of programs this decade ranging from mass rail to nuclear power, led by private and government-linked companies. On July 8, Najib broke ground on a 48 billion-ringgit mass rail network aimed at easing traffic congestion in Kuala Lumpur.

--Editors: Darren Boey, Barry Porter

To contact the reporters on this story: Chan Tien Hin in Kuala Lumpur at thchan@bloomberg.net

To contact the editor responsible for this story: Darren Boey at dboey@bloomberg.net


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