This article first appeared in The Edge Financial Daily on October 11, 2018

KUALA LUMPUR: Sell first while awaiting for the dust to settle.

Selling pressure on the local market gained strength following a slew of announcements by the government, from greater competition in the telecommunications sector to the termination of MMC Gamuda KVMRT (T) Sdn Bhd’s contract for the mass rapid transit Line 2 (MRT2) and introduction of new taxes.

Analysts said the domestic factors and the already weak market sentiment, as a result of the recent outflow of foreign funds from emerging markets, was dampened further.

“The speculation of possible capital gain tax does not help at all,” said an analyst.

The FBM KLCI shed nearly 39 points, or 2.2%, to close at 1,735.18 points — the biggest drop since May 30 when the benchmark index plunged 56.56 points, or 3.18%.

Khazanah Nasional Bhd-owned telecommunication companies (telcos) Telekom Malaysia Bhd (TM) and Axiata Group Bhd also succumbed to heavy selling.’

TM was the top decliner by percentage, its share price slipping 15.8% to close at a seven-and-a-half-year low of RM2.55, followed by Axiata which tumbled 11.7% to a four-month low of RM3.85.

Its Time dotCom Bhd fell 2.02% to RM7.78. Maxis Bhd and Digi.Com Bhd declined 1% to close at RM5.57 and RM4.57 respectively.

Gaming counters also lost some ground which could be due to concerns over a possible hike in the gaming tax as the government is mulling new taxes to replenish the nation’s coffers. Genting Bhd dropped 5.93% to a 22-month low of RM7.30, and its subsidiary Genting Malaysia Bhd shed 5.5% to a six-month low of RM4.66. Berjaya Sports Toto Bhd fell 3.5% to RM2.18.

Other heavyweights Tenaga Nasional Bhd skidded 4.55% to RM14.68 while Fraser & Neave Holdings Bhd shed 4.6% to RM35.76.

Areca Capital chief executive officer Danny Wong noted that the encouraging economic data from the US signals the probability of an increase in interest rates in the future.

“Locally, there were many announcements on the policy side. They are also cutting down the costs of [the] MRT2 and retendering the uncompleted underground portion, which will affect the companies involved.

“There is also the policy on broadband, which has affected the telcos,” he said.

Among other measures, Communications and Multimedia Minister Gobind Singh Deo indicated the liberalisation of the network facility provider and network service provider licences and also had encouraged foreign participation in order to accelerate the roll-out of high-speed broadband services.

He said that the changes in policy could affect corporate earnings in the short term, and hence possibly more downside risk, at least in the near term.

Meanwhile, Inter-Pacific Securities research head Pong Teng Siew highlighted that the government’s remark on “the government should not be in the business of doing business” could be intepreted as the government-linked companies are going to see more competition. “And they may not be protected anymore, and these are major index component stocks,” he said.

Pong also pointed out that investors have been jittery as the index has not really seen a proper correction as it continued to climb up to the end of August, despite the weak quarterly corporate earnings.

“The climb in August was not very convincing and the results season turned out to be quite a disaster but the stocks did not really fall despite the weak earnings. It seemed like the underlying strength just wasn’t there.

“The local equities might not have the momentum to approach previous highs. Share prices are expected to start dropping in a more concerted manner,” he added.

The KLCI peaked at 1,895.18 in April before dropping to a one-and-a-half-year low of 1,663.86 points in July.

However, Pong said the decline yesterday was likely a knee-jerk reaction. While the index could head further south in the next couple of days, he opined that there should be some recovery as the selling dries up.