Investors spooked by interest waiver, windfall tax plan

The risk off trades sees sustained selling on the local exchange with the FBM KLCI falling some 1.3% or 20.6 points


THE prospects of interest waivers and windall tax amid a sell-off on global markets has unhinged investors sentiment on Bursa Malaysia and put an end to the short-lived rally triggered by the more stable political environment in the country.

The risk off trades saw sustained selling on the local exchange with the FTSE Bursa Malaysia KLCI (FBM KLCI) falling some 1.3% or 20.6 points yesterday to 1,527.9 points as investor sold index component stocks like Hartalega Holdings Bhd, Top Glove Corp Bhd, Press Metal Aluminium Holdings

Bhd, Kuala Lumpur Kepong Bhd, Sime Darby Plantations Bhd, Petronas Gas Bhd and Petronas Dagangan Bhd as some of such counters were exposed to the proposal in the upcoming Budget 2022 due next month.

Analysts have described selling, led by local institutions, as a “kneejerk reaction”.

“The sentiment is not very good at the moment, and it is likely due to the interest waiver proposal and possibility of windfall tax, so the market is overreacting,” Rakuten Trade VP Thong Pak Leng told The Malaysian Reserve (TMR).

He said the overreaction happened despite the impact of a proposed interest waiver on banks is minimal, while chances of windfall tax is low because profits of glove companies are dropping.

“The fresh buying from foreign investors will eventually lift the market later,” he said.

Oanda Corp senior market analyst Jeffrey Halley said the local market benchmark was caught up in the sell-off in commodities in Asia yesterday, with oil falling by around 1.5% as worries growth is slowing in major economies.

“The sell-off is exacerbated by low liquidity with China, South Korea and Japan on holiday.

“Additionally, Evergrande Group financial issues dragged the entire Hang Seng Index down by 3.3%, with its woes spilling over into Hong Kong mainboard equities and the wider region as a whole,” he told TMR.

Reports suggest that investors were wary of the upcoming global central bank meetings which will also shed light on the economic recovery as well as the future direction of monetary policy.

The prospects of some form of interest waiver to help lighten household burdens and a windfall tax was mentioned last week in a second reading of the Windfall Profit Levy (Amendment) Bill 2020 in the Parliament Order Paper, sending the corporate world into frenzy. The bill’s first reading was done in December 2020.

At the edge of monetary policy changes, however, JP Morgan analysts Sin Beng Ong, Nur Raisah Rasid and Jisun Yang wrote that Malaysia is among the vanguard of the policy shift to living with endemic Covid-19, alongside Korea and Singapore.

The investment bank noted that rising vaccination rates lay a path toward economic normalisation but stated that policy shifts should be keenly watched as its potential success can provide a regional template to recovery.

“A resilient services recovery is key to the anticipated rise in core inflation and policy normalisation next year,” the JP Morgan report last week stated.

The bank’s analysts expect to see Singapore, Hong Kong, Malaysia and South Korea to reach endemic equilibrium by the year-end if not earlier.

“Once attained, we hope there could be some loosening in the hitherto conservative approach toward Covid-19 management as the reduced risk of severe outcomes mitigates the burden on the healthcare system.

“If so, we should see some catch-up in the non-goods-producing sectors, which account for the lion’s share of economic activity, and would provide a helpful impulse to growth even if final goods demand remains unchanged,” they wrote.

They added that the variegated recovery between the goods-and non-goods-producing sectors has been a core theme of the emerging markets Asia narrative this year, with the divergence between the two sectors a result of mobility restrictions amid rising Covid-19 cases.