An investor monitors an electronic stock board at Jupiter Securities in Kuala Lumpur, Malaysia. (Photographer: Goh Seng Chong/Bloomberg News)

Stock Market That Was Asia's Highlight Now Set for Two-Year Low

(Bloomberg) -- Just months ago, Malaysian stocks were among Asia’s highlights. Now they’re heading for some of the biggest monthly losses in the region.

The nation filing criminal charges against Goldman Sachs Group Inc. for its role in the 1MDB scandal was the latest to hit the market, whose benchmark equity gauge is heading for a two-year low and its longest monthly losing streak in a decade. Adding to investor concerns are the slide in oil prices, government spending cuts and the ongoing trade tension between the U.S. and China.

“Fiscal issues after the elections are of great concern,” said Stephen Innes, the head of trading for Asia Pacific at Oanda Corp. in Singapore. “To a great extent, a lot of the investigation into misappropriation of funds via 1MDB has caused the government to pull back spending, which has been a big driver of the underlying economy. I am not that positive for equities due to issues around economic growth.”

He’d turn bullish on the shares only if there were “a written-in-stone agreement that the trade war is over.” He’ll also be watching how the 1MDB investigation plays out, he added.

Stock Market That Was Asia's Highlight Now Set for Two-Year Low

The FTSE Bursa Malaysia KLCI Index has lost 11 percent since its high at the end of August as foreign investors have fled the nation’s equity funds. They’re heading for a seventh month of withdrawals out of eight, with more than $2.7 billion already pulled this year.

For Areca Capital Sdn.’s Danny Wong, the decline in share prices presents an opportunity to buy as he expects foreign selling to abate and earnings to recover next year.

“The new government has now got its own people in the right positions, so now they would focus on getting the results,” Wong, the chief executive officer at Areca, said by phone from Kuala Lumpur. “There are opportunities for those who want to get in.”

Still, the FTSE Bursa Malaysia KLCI Index’s valuation of 15.6 times estimated earnings for the next year is just around its five-year average, data compiled by Bloomberg show. And with stocks slumping worldwide, many have little hopes that the rout in Malaysian shares will ease any time soon.

©2018 Bloomberg L.P.