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By Stuart Grudgings
KUALA LUMPUR Jan 21 Malaysian stocks suffered
their biggest drop in 16 months on Monday as investors woke up
to the risks of what is expected to be the Southeast Asian
country's closest national election.
Speculation that Prime Minister Najib Razak would call the
election has been swirling as far back as 2011, but his window
for going to the polls is narrowing fast ahead of an April 28
deadline for dissolving parliament.
Investors have been luke-warm on Malaysian stocks for the
past few months compared to most of its regional peers. On
Monday, they rushed for the exits after rumours circulated
online over the weekend that Najib was poised to hold the
election as early as March.
"People are worried about the elections. That's the
trigger," said an analyst at a local investment bank who
declined to be identified.
The benchmark FBI KLCI stock index fell 2.43 percent
to 1,635.63, its worst single-day drop since September 2011 as
election nerves sparked selling across the board. Most other
regional stock markets were steady on Monday.
The ringgit currency also fell, losing 0.5 percent
against the dollar on stop-loss selling related to the slide in
Among the biggest stock losers were government-linked firms
whose close political connections would be at risk in the
unlikely - but far from impossible - event of an opposition
victory ending the Barisan Nasional coalition's 56-year rule.
Autos-to-property conglomerate DRB-HICOM,
controlled by tycoon Syed Mokhtar Al-Bukhary, fell 3.36 percent,
while government-controlled Malaysian Airline slid
Telecoms firm Axiata Group Bhd, majority owned by
the government, plunged 5.12 percent, while government-linked
bank CIMB Group Bhd lost 4.49 percent.
HUNG PARLIAMENT FEARED
Malaysia's financial markets were caught napping in 2008
when shock gains by the opposition redrew the country's
political map and sparked a 10 percent one-day plunge in the
The scope for a surprise is very much alive five years later
due to a lack of reliable opinion polls and signs that the
three-party opposition led by former deputy prime minister Anwar
Ibrahim is mounting a well-organised campaign.
Najib is widely expected to win, but a failure to secure the
two-thirds parliamentary majority the coalition lost in 2008
could trigger ruling party infighting and a leadership battle
within months. A thin victory for the ruling coalition could
lead to intense horsetrading as Anwar tries to form his own
"The biggest worry is a hung parliament. That would be
terrible," said Kaladher Govindan, head of research at TA
Securities, a local brokerage.
"If it's a clear majority there can be a decisive growth
He said the hefty losses by government-linked and telecoms
firms on Monday could be a sign that investors were starting to
shun defensive stocks and preparing to buy cyclical plays that
should gain once election uncertainties ease.
So far this year, the Kuala Lumpur index has fallen 3.2
percent percent, underperforming its Southeast Asian peers. Its
14-day relative strength index is at 31.87, the lowest in the
region. A level of 30 or lower indicates a market is oversold.
Retail investors led the selling on Monday with a net 21.9
million ringgit ($7.2 million).
One Kuala Lumpur-based equities trader said that foreigners
were trimming positions ahead of the polls, adding that the
election was likely to overshadow the market for the first half
of this year.
"Telecoms were among best performers last year, so they are
selling targets," she added.
Foreigners withdrew a net $42 million from Malaysian
offshore equity funds in the last six months of 2012, while
adding a net $129 million and $230 million to Philippine and
Thai funds respectively.
(Additional reporting by Siva Sithraputhran and Anuradha Raghu
in Kuala Lumpur, Viparat Jantraprap in Bangkok; editing by Simon