Investors shy away due to political factor

PETALING JAYA: The recent drop in oil price will not spur investors to enter the local equity markets because the political horizon is still cloudy.

However, it has brought some respite to the Kuala Lumpur Composite Index, which saw a gain of 18.56 points, or 1.66%, to 1,139.81 yesterday.

Stock markets in the region also closed higher with Hong Kong’s Hang Seng Index gaining 585 points to 21,805.81, Japan’s Nikkei 225 increasing 19.03 points to 13,052.13 and Singapore’s Straits Times Index adding 31 points to 2,917.62.

Markets worldwide had been battered recently due to the surging price of oil, with some reports speculating it might go to US$200 per barrel.

Oil had fallen more than US$9 in the past two trading sessions on the Nymex due to the strengthening US dollar and worries over a global economic slowdown amidst inflation. It settled at US$136.04 on Tuesday after hitting a record of US$145.85 last Thursday.

It had regained some ground at mid-afternoon yesterday on electronic trading in Singapore after Iran test-fired a conventional warhead and the greenback fell. At 5.31pm, the price of a barrel of light sweet crude for August delivery was US$137.76.

According to an analyst with a local investment bank, the drop in the price of oil had given some “relief” to the markets but would not be a factor in influencing how investors viewed the local equity markets.

He said fund managers would have factored in the price of oil and were looking for direction from the political front before investing.

“Unlike politics, the oil price is not a local issue as it is felt globally,” he pointed out, adding that for the foreseeable future, fund managers and other investors would be sitting at the sidelines to see how local politics progressed before putting any money forward.

A local fund manager said the current political scenario, while not the best, might still yield some opportunities. “There’re opportunities to pick up stocks that have already been battered down by a combination of inflation fears and political uncertainty.”

He said there would be companies that were able to pass on the cost from the oil price increase.

Meanwhile, Citigroup analyst Choong Wai Kee said in a research note last Friday that positive fundamentals, such as the country’s May trade surplus, which hit a record RM15.6bil on high commodity prices, had been ignored.

He said the local bourse, which saw a 6% decline last week, “was besieged by a confluence of bad news” from concerns such as rising inflation, slower growth, soaring oil prices and political uncertainty.

By FINTAN NG

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