KUALA LUMPUR (May 31): The cancellation of the third mass rapid transit line (MRT3) has caught investors by surprise and subsequently precipitated another broad market meltdown, which had fallen by the biggest single-day drop since 2008, according to UOB Kay Hian Securities (M) Sdn Bhd.

“A surprise was the scrapping of MRT3, given that the MRT project is seen as an essential public good, and there has been wide public approval of MRT1,” UOB Kay Hian analyst and head of research Vincent Khoo said in the latest strategy note today.

Yesterday, Prime Minister Tun Dr Mahathir Mohamad announced that the government has decided to scrap the MRT3 project, which was appraised by analyst to cost between RM35 billion and RM40 billion, as the Cabinet seek to tackle the country’s debt load of RM1.087 trillion.

Following the surprise announcement by the premier, UOB Kay Hian said the market is suffering from a painful reaction, as the general consensus of investors is expectating a project deferral.

“Fears continue to play on the government’s high indebtedness, with the government potentially invoking expropriation clause on tolled road concessionaires, and potential economic ramifications of sharp pullbacks from mega projects,” he added.

The FBM KLCI, the benchmark index that act as barometer and measured the health of the local equity market, plunged 3.3% yesterday, after falling 1.3% in the previous trading day.

As at 10:20am, the KLCI has reversed its losses and gained 0.6% or 11.55 points, and was trading at 1,730.39 points.

Pending further clarity and while waiting for the quarterly results season to end, UOB Kay Hian said it could be trimming down the year-end FBM KLCI target of 1,830 points.

“Foreign investors continue to flee the Malaysian bourse following the general election [on May 9]. Nevertheless, while investors are still held in suspense over the government’s decision on tolled expressways, the selldown is overdone, judging by our trough valuation analysis,” UOB Kay Hian added.

Going forward, UOB Kay Hian said investors, particularly the bond holders, will be waiting for the government’s high stake decision on tolled expressways.

“Investors continue to be held in suspense on the government’s impending decision on tolled expressways,” the research firm added.

UOB Kay Hian noted that maintaining sanctity of the toll concession contracts should trigger a relief rally in the local equity market.

“[W]e expect the government to undertake a more pragmatic solution which would be acceptable to the capital market, being fully aware that shortchanging the toll concessionaires would broaden investor concerns well beyond the construction sector,” it added.

To recap, the Pakatan Harapan government had in its election manifesto called for the highway toll to be abolished. Currently, the government’s five-person Council of Eminent Persons is examining the toll highway matter.

One of its members, former Bank Negara Malaysia governor Tan Sri Dr Zeti Akhtar Aziz had told reporters that the government was likely to make an announcement on toll charges as early as last week. — theedgemarkets.com

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