Malaysian shares tumbled today in tandem with other regional bourses amid a growing realisaton the financial turmoil in the US and Europe was spreading closer and a contagion-like effect last seen a decade ago during Asia’s own crisis was inevitable.

kuala lumpur stock exchange klse At market close, the benchmark Kuala Lumpur Composite Index lost 2.71 percent to 970.19 points. It had hit an intraday low of 959.5, trawling three-year lows before paring losses.

This compares less severely against the Nikkei, which plunged 6.3 percent, the Hang Seng which dropped 5.55 percent, and the Singapore Straits Times Index which lost 4.81 percent.

In Indonesia, investors gave the stock market such a pounding that trading was halted after the Jakarta Composite Index plummeted more than10 percent.

Domestic uncertainty

Nevertheless, Malaysian shares - which have already lost some 30 percent in value since the start of this year - are in for a rough patch.

Apart from the harsh global conditions, local politics have bogged down investor sentiment.

abdullah ahmad badawi anwar najib 180708 A power tussle within Malaysia's most powerful party Umno and the prospect of a change in government - as Opposition Leader Anwar Ibrahim presses for a no-confidence vote against Prime Minister Abdullah Ahmad Badawi - has kept investors on the sidelines.

“Politics and economics are intertwined,” said Dr PHS Lim, president of Malaysian Investor Association. “We don’t expect any immediate rebound until the local situation is clearer. Even then, we will still have to contend with the international markets.”

As widely anticipated, Abdullah this evening announced plans not to contest the Umno presidency and also said he would step down by March next year. By convention, the Umno president becomes the premier of the country. Deputy Prime Minister and Finance Minister Najib Abdul Razak is favoured to win the Umno top post at party election slated for March 2009.

"It is too early to tell whether the new broom will sweep cleaner," said a head of research at a local brokerage. "The only certainty is there is still going to be more uncertainty. At this stage, can we really be sure if it will be Najib, Anwar or someone else?"

Public should be kept aware

najib and ringgit and us dollar A slew of reassurances from top government leaders including Najib and International Trade and Industry Minister Muhyiddin Yassin have also drawn fire.

“Transparency International Malaysia is greatly concerned and apprehensive that there has been a lack of transparency in the government's explanation of the current global financial crisis to the Malaysian public,” said Ramon Navaratnam, president of the watchdog body.

“Transparency International Malaysia also would like the public to be made aware of what plans the government has to counter any adverse impact of the crisis now in the US and Europe from spreading to Malaysia,” he added.

Stocks analysts expect the Malaysian index to drop further and maybe test the pyschological 900 points level before making any significant recovery.

Relief rallies after today's sharp losses was possible, but unlikely to be sustained, they cautioned.

Meanwhile, the United Kingdom has announced a 50 billion pound bailout, using taxpayers money to buy shares in 8 largest banks and building societies.

Ringgit also hit

The ringgit too traded lower. At 5 pm, it traded at 3.4945/4995 against the US dollar, compared with yesterday's closing range of 3.4890/4940.

ringgit money exchange rate 230507 exchange board Dealers expect buyers of the local currency to stay away until volatility eased up a bit in the global forex markets.

Fears that the greenback might rebound as policymakers around the world worked to stump up solutions for the banking crisis have sparked selling of the ringgit in recent weeks.

"Even if Bank Negara raised interest rates, unless it is by a very dramatic quantum, it won't be able to do much anymore," said the head of the forex desk at a large bank.

"As always here, it is a case of a little too little, a little too late."

The central bank was spotted intervening to support the ringgit at the 3.5000 level today. It has been criticised for not raising interest rates to curb inflation, which has taken a toll on the nation.

The ringgit was also mostly lower against other major currencies.

Against the Singapore dollar, it traded at 2.3756/3805 from 2.3782/3837 yesterday but weakened against the yen at 3.4921/4978 from 3.4273/4336 previously.

It fell against the British pound at 6.1276/1374 from 6.0628/0733 on Tuesday and also declined against the euro at 4.7921/4978 from 4.7300/7379 previously.