FBM KLCI near 3-month low on new tax fears

The news of new taxes possibly in the upcoming budget sent jitters across an already volatile market


The threat of new taxes, including a capital gains tax, and the government’s intention to lower stock holding in large listed companies hit investor sentiment and sent the Malaysian benchmark stock gauge to its lowest in nearly three months yesterday.

Prime Minister Tun Dr Mahathir Mohamad’s announcement of new taxes possibly in the upcoming Budget 2019 to repay government debt sent jitters across an already volatile market.

The FTSE Bursa Malaysia KLCI (FBM KLCI) fell 2.2%, or 38.97 points, to close at 1,735.18 yesterday, its lowest since mid-July.

Budget 2019 is also expected to be leaner than previous years as the administration seeks to cut expenditure amid expectations of new socio-economic policies to be revealed on Oct 18 at the mid-term review of the 11th Malaysia Plan.

Finance Minister Lim Guan Eng on Tuesday said the national budget, due for tabling on Nov 2, will be one of the “sacrifices” and will include some additional tax measures.

“The concern is that the government may re-implement the Capital Gains Tax, which can be done very quickly and will be very damaging. So, investors are selling now in the hopes they won’t be taxed on old profits,” Areca Capital Sdn Bhd CEO and ED Danny Wong Teck Meng told The Malaysian Reserve.

Speculations of other taxes have also affected investor sentiment, Wong said, noting the sustained sell-down in fundamental strong stocks like Genting Bhd indicates the market is bracing for revised or new sin taxes.

On the external front, rising US bond yields are also triggering worries of further contagion-sparked weakness in currencies, particularly for emerging-markets units.

The benchmark 10-year US Treasury note hit a seven-year high on Tuesday before paring its gains.

“The Indonesian rupiah and Indian rupee have fallen, now the market is worried there could be a second-round effect carrying over from countries with twin account deficits to countries with one deficit and one surplus, like Malaysia,” Wong said.

CIMB Investment Bank Bhd analyst Ivy Ng Lee Fang said in a note yesterday Putrajaya’s reforms for the aviation, agriculture, power and property sectors could lead to short-term uncertainty for some listed companies in the near-term, but could be positive in the medium-to long-term if the reforms result in improved economic growth.

“We maintain our view that the stock market could be volatile in the months ahead due to short-term domestic policy uncertainty and external risk factors. We maintain our FBM KLCI target of 1,684 points (based on price-to-earnings ratio of 15.57 times),” she said.

Telekom Malaysia Bhd (TM) was the biggest decliner yesterday, plunging 15.84%, or 48 sen, to settle at RM2.55, while other state-linked companies also suffered.

Axiata Group Bhd fell 12.7% or 56 sen to RM3.85. Tenaga Nasional Bhd slipped 4.55% or 70 sen to RM14.68, while CIMB Group Holdings Bhd lost 3.31% or 20 sen to settle at RM5.84.

Malayan Banking Bhd slid 1.45% or 14 sen to RM9.51 and Petronas Gas Bhd fell 2.84% or 52 sen to RM17.78.

Genting Bhd dived 5.93% or 46 sen to RM7.30 with 16.66 million shares traded, while Genting Malaysia Bhd was 5.48% or 27 sen lower at RM4.66 with 17.69 million units changing hands.