Malaysia's stock market is Asia's only loser of 2019

Kuala Lumpur

THE euphoria following Malaysia's historic election last May has faded, leaving its stock market as Asia's only one in the red this year.

The benchmark FTSE Bursa Malaysia KLCI has fallen more than 1 per cent so far in 2019, the only decliner in the region, while Singapore has surged 5 per cent and Indonesia gained 3 per cent. The trend is unlikely to change as investors wait for government initiatives to cut the budget deficit, clamp down on corruption and boost purchasing power.

"It keeps coming back to where the country is going to go, it's kind of on the government to lead the way," said Jalil Rasheed, a Singapore-based investment director at Invesco Asset Management. "Anybody who is taking a long-term view in Malaysia over the next five to 10 years needs to be quite patient for the next two to three years." Finance Minister Lim Guan Eng is calling on investors to buy Malaysian assets now, before they turn expensive once the fiscal situation gets back on track in three years. The new administration has been in clean-up mode - cancelling and reviewing billion-dollar projects while replacing dozens of CEOs at state-linked companies. That led growth to ease to 4.7 per cent last year, with the government targeting a pick-up to 4.9 per cent in 2019. Economists aren't so sure, predicting growth to reach just 4.5 per cent.

A string of weak financial results haven't helped, with companies including Axiata Group Bhd and Nestle Malaysia Bhd missing estimates. Malaysia's earnings lagged its neighbours' to fall 3.15 per cent last year, compared with 8.8 per cent rise for Singapore and 18 per cent gain for Indonesia. Earnings in Malaysia are expected to rise only 1 to 2 per cent this year, said Sean Gardiner, Morgan Stanley's South-east Asia strategist in Singapore.

"We would need to see jitters coming back to emerging markets so that investors appreciate Malaysia's defensive nature," he said.

To woo investors, the country has rolled out an updated five-year economic plan that promises transparency and institutional reform. It pledges to address productivity growth, streamline state spending to prevent corruption, and widen its fiscal space by raising tax compliance.

Still, "talk is cheap, and now it's a question of implementing", said Alexander Chia, head of regional equity research at RHB Bank Bhd. "Clearly, there is a lot of execution risk, implementation risk and obviously a lot of political risks." This isn't unique to Malaysia, he said, as changes in government in India and Indonesia also left markets struggling for about 18 months before showing signs of recovery. India's S&P BSE Sensex Index declined 5 per cent the year after its 2014 polls before gaining 2 per cent in 2016 and 28 per cent in 2017. Indonesia's Jakarta Composite Index slid 12 per cent in 2015, the year after its elections, before rebounding 15 per cent in 2016.

Malaysia's case may be complicated by an expected handover of power from Prime Minister Mahathir Mohamad to Anwar Ibrahim, who was promised the top seat before the election. Mr Anwar, who leads the largest party in the ruling coalition, said Dr Mahathir had made it "very clear" that the change would happen by May next year.

"It's difficult to have a positive outlook when there is political infighting as well as a weak outlook on growth from fiscal tightening," said Alan Richardson, a regional fund manager at Samsung Asset Management Co in Hong Kong.

If everything falls into place, Malaysia "could be a shining light of an emerging market", Invesco's Mr Rasheed said.

"It's all in the execution." BLOOMBERG