KUALA LUMPUR (Nov 11): Malaysia’s large-cap stocks fell as heavyweight banks extended their descent on Wednesday amid rising concerns over the impact of higher US interest rates.

The benchmark FBM KLCI dropped 8.88 points or 0.6% to 1,595.19. Public Bank Bhd (KL:PBBANK) fell 3% to RM4.53 as investors continued to shed shares of the third-largest Malaysian bank by assets in reaction to its guidance cut. Malayan Banking Bhd (KL:MAYBANK), the country’s top lender, was also lower.

A decline below 1,600 psychological mark could signal further downside risks from additional technical selling, stop-loss orders and a deterioration in investor confidence, said Mohd Sedek Jantan, the director of investment strategy at personal financial advisory firm IPPFA Sdn Bhd.

“However, I would distinguish between a temporary breach and a sustained breakdown,” he said, noting that investors on Bursa Malaysia are likely to remain cautious while watching external monetary developments despite the support from domestic economic fundamentals.

The odds that the Federal Reserve will raise interest rates jumped after data showing faster-than-expected US inflation. An increase in Fed rates could drain funds from emerging markets, including Malaysia, in search of higher returns in the US.

Malaysian banking stocks have been hammered by rising bond yields in recent months. Higher yields generally hurt banks as they take larger paper losses from lower prices of the bonds they hold, which eats into capital and forces them to book losses if they sell.

Near-term upside for Malaysia’s largest capitalised stocks are also limited temporarily, said Kenny Yee, head of research at Rakuten Trade. 

He also pointed to the upcoming FBM KLCI expansion, which will reduce the weightage of heavyweight banks, as a driver of the ongoing selling pressure.