KUALA LUMPUR, Nov 18 — Foreign investors are not returning to the Malaysian stock market despite falling prices that have made local equity among the most undervalued in the region, according to analysts.
Malaysian stocks have fallen to their lowest value in a decade, but financial experts said that price alone was not enough to tempt investors into overlooking the country’s heightened political risks, among others.
Michiel van Voorst, chief investment officer for Asian equities at UBP Asset Management Asia Ltd, told Bloomberg that “valuation without a catalyst is not enough. The profit cycle needs to improve on an incremental basis.”
Since Pakatan Harapan’s (PH) shock general election victory last year, foreign investors have pulled billions of dollars from the local market as a precaution, including US$2 billion in 2019 so far.
Malaysia’s capital flight is the worst among emerging Asian markets and magnitudes larger than the next biggest loser, Thailand, which saw US$446 million leaving the country.
Matters are exacerbated by glum earnings outlooks for local stocks, which Bloomberg said was caused at least in part by the government’s cancellation of key infrastructure projects from the previous administration.
Investors are also wary that the political upheaval from the general election was not over, as PH must still deal with a supposed power transition from Prime Minister Tun Dr Mahathir Mohamad to Datuk Seri Anwar Ibrahim.
A succession that was previously clear-cut has also been muddled by recent political intrigue within the ruling PH pact.
“The uncertainty on who will be the next prime minister and the little progress on government policy side doesn’t make Malaysia stand out among other countries,” Ang Kok Heng, chief investment officer at Phillip Capital Management, told Bloomberg.
Restoring investor confidence in Malaysia has become even more pressing for PH after it suffered a spectacular defeat in the Tanjung Piai by-election on Saturday.
