US-China trade friction can halt foreign fund inflows, say analysts
KUALA LUMPUR: The recent inflow of foreign funds into the capital market could be interrupted in the coming weeks by renewed concerns over the trade friction between the US and China, an analyst said.
MIDF Amanah Investment Bank analyst Adam Mohamed Rahim said foreign funds were net buyers, as of Thursday, pumping in RM331.9 million against a net outflow of almost RM500 million recorded last week on the back of positive developments locally and overseas.
“Tuesday’s inflow of RM343.5 million was not only partly due to month-end window dressing but it also coincided with the visit of China’s Foreign Minister Wang Yi to Malaysia which paved the way for better bilateral ties between both countries,” he told Bernama.
Adam said the net inflow trend continued on Wednesday at RM151.3 million following news that trade talks between Washington and Beijing would restart and this coupled with Wall Street’s recovery, sparked buying interest,
However, he said US President Donald Trump’s threat to increase tariffs to 25 per cent on US$200 billion of Chinese imports, from the current 10 per cent, hampered sentiment on the Malaysian bourse which saw a net outflow of RM123.7 million on Thursday and dragged the FTSE Bursa Malaysia KLCI (FBM KLCI) 0.57 per cent lower.
“Trade frictions and equity flows will continue to dominate the minds of investors next week as Trump is bent on getting China to reform its trade policies,” he said, adding that foreign outflows would still mainly depend on external development.
Bank Islam Malaysia Bhd chief economist Dr Mohd Afzanizam Abdul Rashid said from a technical standpoint, the FBM KLCI has reached an overbought situation.
“Therefore, further upside is quite limited in the immediateterm,” he said, adding that foreign funds could shift their focus to developed countries after the Bank of England raised their policy rate by 25 basis points to 0.75 per cent and the European Central Bank indicated plans to stop the Asset Purchases Programme by end-2018, paving the way for the eventual rise in the policy rates.
“There could be a shift in foreign funds to developed countries intermittently which will have a significant impact on capital flows and on the ringgit,” he added.
Meanwhile, Putra Business School’s senior lecturer and manager of Business Development Dr Ahmed Razman Abdul Latiff said the cumulative year-to-date outflow recorded by the country was approaching the RM9 billion mark as Malaysia continued to experience some form of net foreign selling on Bursa Malaysia since May.
He added that sentiment was still volatile depending on the unravelling news related to the US-China tariff war and suspended tariff war between the US and European Union.
On the local currency, he said the ringgit-dollar exchange remained edgy due to the trade tension between the US and China which would inadvertently affect Malaysian companies which have direct exposure to China.
He expected the ringgit to stabilise against the US dollar at RM4.08 by the end of quarter and not exceed RM4.20 this year.
“We have yet to witness the actual impact but the Global Purchasing Managers’ Index (PMI) for manufacturers declined from 54.4 in January 2018 to 52.7 points in July this year,” he said.
To a large degree, businesses have become uneasy with these developments especially in the context of globalisation whereby every business and value chain is integrated across the globe.
“The prospects of higher interest rates in advanced countries coupled with tariffs would essentially give rise to business cost and affect profitability and efficiencies, “he said.
As for the resignation and appointment of new Khazanah directors, it would enable inputs and link the nation’s economic needs to sectors that Khazanah are exposed.
“This will also ensures proper governance of investments in the sovereign wealth fund,” he added.
Following the mass resignation of Khazanah Nasional Bhd directors on July 26, a new line-up was announced by the Prime Minister’s Office.
Prime Minister Tun Dr Mahathir Mohamad assumed the post of chairman while Minister of Economic Affairs Datuk Seri Mohamed Azmin Ali was also appointed as a director.
Other appointees were former Petronas president and chief executive officer Tan Sri Mohd Hassan Marican, former deputy governor of Bank Negara Malaysia Dr Sukhdave Singh and Shangri-La Hotels (Malaysia) Bhd director and former Securities Commission Malaysia executive director Goh Ching Yin.
On Friday, Khazanah also announced the appointment of Employees Provident Fund chief executive officer Datuk Shahril Ridza Ridzuan as managing director, effective August 20.
Meanwhile, Azmin, revealed in Parliament that Khazanah had sustained losses of RM80 million in a lingerie retailer investment.
His unveiling, however, was met with criticism from Rembau Member of Parliament and ex-Youth and Sports Minister Khairy Jamaluddin who replied saying the statement was made to undermine ex-Khazanah managing director Tan Sri Azman Mokhtar’s contribution to the sovereign wealth fund.
He said Azman had contributed significantly to Khazanah and more than tripled the net worth of the sovereign wealth fund to RM115.6 billion, as of December 2017, from RM33.3 billion in 2004.
Previously, Khazanah was also criticised by the government for a loss of over RM3 billion, resulting from investing in a non-strategic stake in Swiss Bank UBS.
Azman, in a farewell letter to ‘colleagues and friends’, cleared the air on the investment stating that the loss was actually RM1.7 billion as 53.5 per cent of the investment were recovered.
He admitted that while the losses were large, it was part and parcel of investment operations that were subjected to investment risk borne by sovereign wealth fund, globally.
An internal review by independent board members, with input from KPMG, found that the case was cleared of wrongdoings and investment processes and board approvals were complied with.
Azman listed some of his achievements during his helm which included the transformation programme of government-linked companies, the development of Iskandar Malaysia, the profitable expansion overseas especially into China, India, Turkey and the Middle East, as well as, the transformation of many key companies into regional champions such as CIMB, Axiata and IHH.
The Prime Minister’s office also announced the appointment of Datuk Ahmad Nizam Salleh as Petronas’ Chairman to replace Tan Sri Mohd Sidek Hassan who completed his three-year term on June 30.
The government, however, retained Tan Sri Wan Zulkiflee Wan Ariffin as the president and group chief executive officer of the national hydrocarbon custodian.