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Nikkei Markets

Malaysia stock market erases 2018 gains as debt woes mount

Singapore shares rebounded led by blue chips, banks in focus

KUALA LUMPUR (Nikkei Markets) -- Malaysia shares slumped the most in Asia Thursday to wipe out this year's entire gain amid mounting concerns over federal government's debt level. Singapore shares rebounded.

The FBM KLCI, in its fourth straight session of losses, finished 1.6% lower at 1775.66 with 19 out of 30 index stocks ending in the red, while the Straits Times Index rose 0.9% to 3,528.92. Both Singaporean dollar and Malaysian ringgit remained relatively steady against the U.S. dollar.

"Investors are worried about Malaysia's fiscal health," said Yap Pin Keat, head of portfolio management at Fortress Capital Asset Management. "As long as there's no clear policy to address this concern, investor sentiment will be weak."

Malaysia's federal government's debt and liabilities totalled 1.087 trillion ringgit ($273.22 million), or 80.3% of gross domestic product, as of end 2017, Finance Minister Lim Guan Eng said Thursday.

Stock exchange data show foreign investors have pulled out almost 3 billion ringgit ($753.67 million) from Malaysian equities since May 9's shock election outcome that saw the opposition coalition sweeping to power on the back of several populist pre-poll pledges.

Meanwhile, minutes of the latest U.S. Federal Reserve's meeting stated that policymakers are likely to raise the key interest rate "soon" which markets interpret to mean mid-June. The Fed last raised the benchmark federal funds rate in March to a range of 1.5%-1.75%.

The minutes also showed the Fed will maintain a gradual rate hike trajectory even if inflation is slightly above the 2% target as long as the overhang remained "temporary."

Investors are also concerned about geopolitical and trade tensions, especially after the U.S. Commerce Department launched a national security probe into automobile imports that could allow the U.S. to impose tariffs on imported vehicles and auto-parts.

Meanwhile in Singapore, trading was lackluster, likely due to "slower action ahead of the Memorial Day long weekend in the U.S., as well as the tentative global geopolitical situation," said KGI Securities trading strategist Nicholas Teo.

"Furthermore, the rumblings in emerging markets, including the fall in emerging market currencies like Turkish lira and Argentine peso, remind us all about the vulnerabilities of the normalization process that is taking place in global capital markets," he said.

Malayan Banking, Malaysia's largest bank by assets, fell 3.9%, while smaller rivals Public Bank and CIMB Group Holdings fell 3% and 2.7% respectively.

Sarawak Oil Palms lost 4.6% after net profit for the first quarter slumped 61% on-year, dragged by lower palm oil prices and decline in fresh-fruit bunch production.

Hengyuan Refining Company dropped 0.3%. Chairman Wang YouDe told reporters he did not expect refining margins in 2018 to hit last year's levels, while output will be hurt due to temporary shutdowns.

In Singapore, most blue chips rebounded led by Oversea-Chinese Banking Corp, which closed 1.6% higher, and United Overseas Bank added 0.9%.

Singapore Airlines gained 1.6%. Last week the national carrier reported it swung to a net profit of S$181.8 million ($135.5 million) for the fourth quarter helped by an 8.2% rise in revenue.

The Ministry of Trade and Industry reported Thursday that the Singapore's economy grew 4.4% in the first quarter, a touch faster than the 4.3% the market expected. For the full year, gross domestic product growth is now expected at 2.5% to 3.5%, against a previous growth forecast of 1.5% to 3.5%.

--Alexander Winifred and Joannah Perez

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