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Market Daily Report: Bursa Malaysia Ends Higher In Line With Most Regional Markets

KUALA LUMPUR, Sept 20 (Bernama) -- Bursa Malaysia ended higher on Friday in line with most Asian markets, mirroring gains from Wall Street, where investors welcomed the US Federal Reserve's substantial interest rate cut. The FTSE Bursa Malaysia KLCI (FBM KLCI) rose by 3.17 points, or 0.19 per cent, to 1,668.82 at the close from Thursday's close of 1,665.65. It opened 5.03 points higher at 1,670.68, trading between 1,668.48 and 1,674.04 throughout the session. In the broader market, gainers outpaced decliners 732 to 468, while 465 counters were unchanged, 850 untraded and 32 suspended. Turnover swelled to 4.19 billion units worth RM5.97 billion, from Thursday's 3.99 billion units worth RM4.08 billion. UOB Kay Hian Wealth Advisors head of investment research, Mohd Sedek Jantan, noted the FBM KLCI's gains were led by utilities, logistics, and banking stocks, reflecting improved market sentiment. Additiona
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First AAA Bond Loss Since 2008 Financial Crisis Linked to Failed Sale and Appraisal Delays

The financial markets were shaken by the first loss on a AAA-rated bond since the 2008 financial crisis, with investors suffering a 26% loss on a $157.5 million investment in commercial mortgage-backed securities (CMBS) tied to a New York City office tower at 1740 Broadway. The loss, which blindsided investors, highlights the significant risks in the commercial real estate market, especially when compounded by delays in ratings downgrades and property appraisals.

Key Takeaways:

  1. Delayed Ratings Downgrade and Investor Impact: The ratings downgrade of the 1740 Broadway bonds from AAA to junk status by S&P and DBRS Morningstar was significantly delayed, occurring more than a year after the building's anchor tenant, L Brands, vacated in March 2022. This delay, coupled with a failed sale of the property, left investors in the dark about the true risk of their investment, leading to a substantial financial loss.

  2. Appraisal Delays and Overvaluation: The delayed property appraisal was a critical factor in the overvaluation of the building and the subsequent loss for investors. Initially, an appraisal was not ordered as a potential buyer was expected to purchase the building at full value. However, when the deal fell through due to rising interest rates and declining property values, the delayed appraisal in July 2023 revealed the building was worth only $175 million, far below the expected value, leading to a dramatic drop in bond value.

  3. Systemic Risks and Comparisons to 2008: The failure to downgrade the bond in a timely manner and the reliance on outdated valuation models have raised concerns reminiscent of the 2008 financial crisis. Critics argue that the delayed downgrade and subsequent losses on a AAA-rated bond call to mind the destructive impact of poorly assessed risks in the past, underscoring the need for more rigorous and timely evaluations in the financial markets.

In summary, the loss on the 1740 Broadway bonds has exposed vulnerabilities in the commercial mortgage-backed securities market, particularly regarding the timeliness and accuracy of credit ratings and property appraisals. The incident serves as a stark reminder of the systemic risks that can emerge when key financial safeguards are delayed or overlooked.

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