Indicators in Malaysia have stopped heading south

Shares can’t fall much further as the market is overwhelmingly underweight while the ringgit has stopped depreciating every week.

KUALA LUMPUR: It’s a toxic brew in Malaysia following declines in crude oil and palm oil prices even as financial scandals and political troubles entered to complete the picture of gloom and doom culminating in calls for Prime Minister Najib Abdul Razak to step down.

However, analysts quoted by CNBC think that the market in Malaysia may have bottomed out in the wake of the country being in the news for all the wrong seasons. The political uncertainty and the risks of investing in Malaysia have increased, noted analysts at Deutsche Bank in a note on Monday. “However, going forward, we do not expect the uncertainty and risks to increase further.”

The Deutsche Bank note appeared before news from Australia that Avestra Asset Management, linked to 1MDB, was being wound down by regulators.

On the horizon are 1MDB-related investigations in Singapore, the UK, Switzerland, Hong Kong and the US.

“Our baseline assumption is status quo i.e. the Prime Minister remains until the next General Election in 2018,” said Deutsche Bank. “Investigations on the trouble-stricken 1MDB at home have either halted completely or are dogged by accusations that they were completely biased towards the government.”

In short, its business as usual in corporate Malaysia but at the same time facing dampened consumer sentiment and a weaker currency amidst concerns on investor confidence. “It’s a good time to move positions closer to neutral,” said Deutsche Bank. “Shares can’t fall much further as the market is overwhelmingly underweight. The ringgit has stopped depreciating every week.”

Bank of America’s Merrill Lynch’s October survey of fund managers showed that more than 10 per cent of fund managers, down from 25 per cent in September, were underweight.

Data from MayBank, cited by analyst Kim Eng, shows that foreign investors sold RM17.6 billion worth of shares so far this year. “The KLSE is down 4.4 per cent year-to-date, after trading down as much as 13 per cent at its mid-August lows.”

The currency, heading south like the KLSE, has nose-dived by as much as 28 per cent against the US dollar by September end before recovering by 4.5 per cent.