SINGAPORE (Nikkei Markets) -- Malaysian stocks suffered the worst fall in three months on Thursday as termination of a $1.7 billion infrastructure deal between a state fund and a consortium backed by a Chinese partner raised concerns the move could affect foreign equity inflows into the country.
Singapore shares declined as increased odds of an interest rate increase by the U.S. Federal Reserve next month hurt real estate stocks.
The FTSE Bursa Malaysia KLCI dropped 0.8% to 1,758.67, a two-week low. TRX City, a wholly-owned unit of the finance ministry, said Wednesday the Bandar Malaysia development agreement with Iskandar Waterfront Holdings (IWH) and China Railway Engineering Corp. (CREC) had been terminated as the consortium "failed to meet payment obligations."
In December 2015, IWH and CREC agreed to invest $1.7 billion for a 60% stake in the Bandar Malaysia project that envisaged developing residential and commercial facilities as well as a terminus for a proposed high-speed rail road linking Singapore.
"The potential U-turn in sentiment could halt or reverse the strong year-to-date foreign equity inflow into Malaysia, and hence, the ringgit's recent uptrend," UOB Kay Hian Securities said in a note. "Hence, we foresee a period of risk-off, marked by profit-taking on the many concept stocks which have gone ballistic year-to-date."
Foreign investors bought 2.6 billion ringgit ($604 million) worth of Malaysia shares last month. The ringgit rallied 1.9% in April.
On Thursday, Iskandar Waterfront City said its shares will be suspended for trading until 5 p.m. on Friday, pursuant to the receipt of a letter from its major shareholder IWH of its intention to undertake a restructuring exercise. Both the companies are planning for a merger, according to a statement on Mar. 17.
Ekovest declined 18%. The construction company is controlled by Malaysian tycoon Lim Kang Hoo, who is also a stakeholder in IWH.
"The broader sentiment has been affected by the calling off of the Bandar Malaysia project," said Lee Chung Cheng, head of research at JF Apex Securities. "Banks are leading the fall as the decline in sentiment prompts investors to book profits."
Malayan Banking slipped 4.1% following an 8% rally last month. AMMB Holdings, up 17% in April, shed 3.6%. RHB Bank lost 1.6% and heavyweight Public Bank dropped 0.8%.
Singapore's FTSE Straits Times index slipped 0.3% to 3,228.62 after the Fed left interest rates unchanged as expected on Wednesday. Investors bet that the authority is on course for an interest rate increase next month as policymakers said they were not too concerned about the slowdown in economic growth in the first quarter. Odds for a rate hike next month climbed to over 70%, according to the CME FedWatch Tool.
Shares of interest rate sensitive property developers in the city fell following the Fed decision. CapitaLand slipped 0.6% and UOL Group lost 0.7%. CapitaLand Commercial Trust and Capitaland Mall Trust dropped at least 0.5% each.
Singapore's biggest bank DBS Group Holdings, up 7.5% in the last two sessions after posting better-than-expected quarterly earnings, lost 1.8%.
Sembcorp Industries jumped 5% after reporting an 11.3% increase in net profit and said that it will be undertaking a complete review of the group's businesses and strategic direction. Its unit Sembcorp Marine jumped 9%.
"Whatever the results of the review, we believe that it should be taken in the interests of the group's shareholders and stakeholders. There may also be value to be unlocked from the exercise," OCBC Investment Research said in a note.
StarHub was unchanged at S$2.78 after reporting a 21.3% fall in first-quarter net profit.
--Nimesh Vora and Kevin Lim
--Nikkei Markets is a real-time financial news service for South East Asia's markets published by Nikkei NewsRise Asia Pte Ltd, a Nikkei and NewsRise joint venture company. Nikkei Markets provides wide companies coverage in the region, including the Nikkei's Asia300 companies.