US fiscal deal fails to lift market

KUALA LUMPUR: The local stock market started the new year with a hangover yesterday, as the benchmark index fell the most in two months despite the welcoming news that US Congress backed a deal to avert the "fiscal cliff".

Brokers said the correction was mainly due to profit-taking activities after the final hour rally that saw the benchmark index ending the year 2012 at an all-time high.

The benchmark FTSE Bursa Malaysia Kuala Lumpur Composite Index (FBMKLCI) fell by 0.8 per cent to 1,674.72 points yesterday.

Top losers were Kuala Lumpur Kepong Bhd, AEON Co (M) Bhd, Batu Kawan Bhd, Petronas Gas Bhd and Panasonic Manufacturing Malaysia Bhd.

Regionally, almost all major stock markets registered gains. Major indices in Japan, Hong Kong, China, Taiwan, South Korea rose between 0.7 per cent and 2.9 per cent yesterday.

Closer to home, indices in Singapore, Indonesia, Thailand and the Philippines increased between 0.69 per cent and 1.15 per cent.

"It was mainly profit-taking. However, we expect the buying interest to return in the near term as investment sentiment has improved, thanks to a deal that averted the fiscal cliff temporarily," said a research head from a local brokerage.

Major markets in Europe also gained yesterday as US lawmakers averted the fiscal cliff. FTSE 100 Index, Euro Stoxx, CAC 40 and DAX rose more than 1.5 per cent during early trade.

The House of Representatives voted to pass a Bill that will help the US get a two-month extension to negotiate permanent ways to avert the fiscal cliff and raise the US debt ceiling limit.

"The averting of the fiscal cliff via a postponement was largely in line with our expectations although we had expected a longer postponement of between three to six months," said UOB economic-treasury research analyst Alvin Liew in his report.

The highlights of the last-minute Bill include raising tax rates for households earning more than US$450,000 (RM1.35 million). Income above that level will be taxed at 39.6 per cent (previously 35 per cent).

Estates will be taxed at the top rate of 40 per cent (up from 35 per cent in 2012), taxes on capital gains and dividend income exceeding US$400,000 for individuals and US$450,000 for families would increase to 20 per cent (previously 15 per cent).

The Bills will also extend unemployment insurance for the long-term unemployed for another year which will benefit up to two million people, and postpone for two months the US$109 billion worth of "sequester" or compulsory broad-based spending cuts.

"While we expected the fiscal cliff to be averted, as long as the US policymakers are unable to come to a concrete decision that can return the US economy to fiscal health, it will continue to hurt US business investment and consumer sentiments in 2013.

"And against the backdrop of a lacklustre global growth environment, we expect the US growth to be a weak 1.5 per cent in 2013 hampered by the spectre of the fiscal uncertainty. If we do unexpectedly get a concrete favourable resolution to the US fiscal issue, then we will definitely get a much stronger 2013 for the US economy. So far, that is too optimistic a view," said Liew.