RAM: Foreign funds to hold on to safe haven assets
KUALA LUMPUR: Market volatility arising from the United States-China trade dispute and domestic fiscal concerns will likely lead to foreign funds holding on to safe haven assets, especially in light of concerns over the Turkish lira crisis and its contagion effects on emerging markets.
RAM Ratings head of research Kristina Fong said global financial flows this year had been predominantly influenced by the titfor-tat trade war between the world’s two biggest economies, as well as tightening trajectory of the Federal Reserve and European Central Bank.
“These two trends are likely to continue into the foreseeable future. For Malaysia specifically, foreign investor flows have been characterised by both global and domestic uncertainties, which have mainly resulted in outward flow bias,” she said.
However, Fong said there could be a boost in interest in the local bond market against a backdrop of easing foreign exchange administration regulations on nonresident ringgit denominated interest rate derivative trading last month.
She said this could help enhance the onshore market liquidity conditions.
In the medium-term, she said, more forward guidance on the fiscal plan for next year and beyond could also reignite more foreign investor interest.
Echoing this sentiment, Sunway University Business School Economics professor Dr Yeah Kim Leng said investors were eagerly waiting for upcoming 2019 Budget announcement as this would provide clarity on the fiscal policies and the changes in the tax system.
“It is imperative for the government to strengthen the foundation of the political and democratic system, which would help enhance foreign investors’ confidence.
“They need to be more effective and prudent in the fiscal public finance management, as well as improve integrity and good governance,” he added.
Meanwhile, RHB Research expected the ringgit to remain weak in the coming weeks before settling at RM4.10 against the US dollar by end of the year.