Malaysia’s stockmarket sliding down a slippery slope

Malaysia’s stockmarket is “sliding down a slippery slope, seemingly unable to break its fall”, says a note from PublicInvest Research. An explosion of Covid-19 cases, strict lockdowns and political gridlock have made this a difficult year. On Monday Prime Minister Muhyiddin Yassin resigned, ending a contentious 17-month spell in power. Muhyiddin “was aligned with a scandal-tainted governing coalition”, says Daniel Victor in The New York Times. “Calls for his resignation gathered force as the country issued multiple lockdown orders… and endured widespread hunger.”

Malaysia’s monarch has been consulting political parties on who to appoint in his place. Malaysia has been living under strict lockdown rules since June. The contagious Delta variant has spread regardless, with daily cases close to record highs.

Export-dependent growth

GDP is highly dependent on export-oriented manufacturing and inward investment from abroad, says Shankaran Nambiar in Nikkei Asia. Exports of goods and services account for 61.5% of GDP (the UK figure is 27.4%).

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Lockdowns have left local factories struggling to function. Foreign trade associations have complained bitterly about the rules. Global manufacturers cannot tolerate disruption for long: problems in one place can bring entire multinational supply chains to a grinding halt. If they leave then it will hit “at the heart of the Malaysian development model”. For all their talk of moving out of “production and packaging” and into higher-value activities, Malaysia’s politicians have failed to make the investments in education that would actually make that possible.

Lockdowns aren’t forever, say Chua Han Teng and Philip Wee of DBS Bank. The country has done a decent job at getting vaccine jabs into arms. Malaysia looks the second-most likely country in the region to “exceed 80% full vaccination rate” by October, behind only Singapore. That should enable a domestic reopening later in the year and a big boom from pent-up demand. In the meantime, strong global goods demand is keeping exports buoyant.

The vaccination campaign should have calmed traders’ Covid-19 worries, says Amy Chew in The South China Morning Post. The fact that stocks are still retreating suggests politics is the key problem. Unable to predict future government policies, investors are pulling out. Foreign investors sold a net 5.3 billion ringgit (US$1.25bn) of stocks in the first seven months 2021, according to data from PublicInvest. UOB Global Economics & Markets Research reports that 20.2% of Malaysian equities are owned by foreign investors, “an all-time low”. Strategists see better opportunities elsewhere in the region in countries such as Vietnam and Indonesia.