Sharp sell-off has limited impact on local sentiment
KUALA LUMPUR: Malaysia continued to experience foreign net outflows for the week just ended as a sharp sell-off in most stock markets jolted investors, but it caused only a small impact on the local equity market, said InterPacific Research Sdn Bhd head of Research Pong Teng Siew.
He said that the bearish scenario which happened globally was far more significant than the internal factors, without discounting the fact that the reduction in development budget by the Prime Minister played a role in dampening foreign institutions’ risk appetite.
“For now, it is quite clear that I’m not expecting pre-budget rally as it is just a few days away from the 2019 Budget announcement.
“The mid-term review of the 11th Malaysian Plan (11MP) clearly indicated that the development budget would be trimmed, hence, I believe that the projects will not be lucrative projects in terms of size and profit, even if the government decided to maintain the number of projects,” he told Bernama.
On foreign fund flows, local market recorded net inflows amounted to RM34 million on Monday, but the trend changed the next day, with net outflows from Tuesday until Thursday amounted to RM258.1 million.
The previous week, foreign funds were net sellers from Monday until Thursday with foreign selling amounted to RM93.7 million.
“The trading patterns for the week just ended was inconsistent, with global stock being very volatile, while net sellers on Tuesday were the biggest so far at RM138.7 million for October 2018,” he said.
Bank Islam chief economist Dr Mohd Afzanizam Abdul Rashid said in the immediate term, market sentiment would remain edgy in view of instability in the external environment.
He said external factor has always been the main driver to the movement of equities fund flows in Malaysia, as well as emerging market.
Citing Amazon.com and Alphabet’s below expectation revenue for the third quarter, he said this extended the declines of Asian stocks on Friday and dragged the region’s equities deeper into a bear market.
“Prior to that, we have China’s third quarter Gross Domestic Product which moderated further to 6.5 per cent in addition to other issues such as trade war between the US and China, impending rate (review) by the US Federal Reserve and perhaps more importantly, the outcome of the US midterm presidential election on November 6 which could also weight on market sentiments,” said Afzanizam.
Domestically, he said the unveiling of Budget 2019 on November 2 will be closely monitored, he said.
“This is especially true as Moody’s has indicated its stand towards the recent revision to fiscal deficits target as mentioned in the mid-term review of the 11MP,” he said.
Nonetheless, the latest Consumer Price Index (CPI) growth of 0.3 per cent suggests that the Sales and Service Tax impact on prices generally is quite contained.
“At the moment, the KLCI support and resistance level stands at 1,657 and 1,714 points, respectively and the index currently remains at oversold position. As such, we expect a tight range trade next week,” he said.
As for the ringgit, the support and resistance level is at RM4.1516 and RM4.2438. Again it will be in a tight range as investors await Budget 2019 details.
Rakuten Trade Sdn Bhd head of Research Kenny Yee believes foreign fund flows to be negative, instigated by the recent sell-down on the Wall Street.
He reckons the risk appetite for equities has diminished, hence to witness Dow Jones staying highly volatile with some downward bias and as such, the impact on regional markets may be slightly negative.
As for the budget, he said there was no consensus on whether it would highly expansionary, hence, the catalyst should be rather limited.
The mid-term review of the 11MP clearly indicated that the development budget would be trimmed, hence, I believe that the projects will not be lucrative projects in terms of size and profit, even if the government decided to maintain the number of projects Pong Teng Siew, Inter-Pacific Research Sdn Bhd head of Research