PETALING JAYA - The stock market reacted negatively on the back of heightened political risk and the weakening ringgit, falling by nearly 1 per cent.
The FTSE Bursa Malaysia KL Composite Index (FBM KLCI) closed 17.19 points lower at 1,717.05 points while the ringgit was sold down further, hitting a 16-year low of RM3.81 (S$1.35) to the US dollar.
This follows damaging allegations made by the Wall Street Journal (WSJ) against Prime Minister Datuk Seri Najib Tun Razak.
"Malaysia is first and foremost a political market, so not surprisingly, politics are always the biggest risk for Malaysia. Markets do not like uncertainties. This is why the market is reacting this way. However, once the issue is resolved, the market will go up again," said one fund manager who wasn't particularly perturbed by yesterday's plunge.
He said investors simply had to be prepared for more volatility ahead.
It appears that the upgrade in Fitch's rating outlook last week only managed to prop the market up for a day. Foreign selling persisted on Bursa Malaysia and foreign investors have been net sellers for 10 consecutive weeks now."Last week, investors classified as "foreign" sold equity on Bursa amounting to RM314.9mil on a net basis. However, that was a significant drop from the RM824.7mil sold the week before," said MIDF Research.
During the morning session, the FBM KLCI fell 27.64 points to a low of 1,706.6, but later recovered. A total of 1.54 billion shares valued at RM1.4bil were done for the day.
"The market is acting within expectation. Yes, the political risk remains. But we still maintain our call of buying on weakness, especially with the market drifting closer to the 1,700 level. We are still positive about the fourth quarter," said Etiqa Insurance and Takaful head of research Chris Eng.
Asian bourses, save for the Shanghai Composite Index, were mostly down on Greece's uncertainties. The Shanghai Composite Index was up 2.44 per cent to 3,776 points. It has plunged 30 per cent over the last three weeks.
Last week, the Chinese government rolled out emergency measures to halt the fall.
This include freezing initial public offerings, creating a market stabilisation fund and telling investors not to panic.
Malaysia's predicament was not helped by external developments. Globally, the biggest problem lies with Greece, On Sunday, the Greeks rejected bailout terms by the country's creditors, with 61 per cent of voters saying "no" to more austerity measures.
This is a historic moment as it now leaves Greece in uncharted territory - could it be default, financial collapse or expulsion from the eurozone?