Selling pressure to continue in equity, bond market
KUCHING: The selling pressure in Malaysia’s equity and bond market is expected to continue in the coming months due to prevailing uncertainties in both the domestic and global market, analysts observed.
In May, foreign reserves declined for the first time in 17 months, primarily due to large outflow of foreign capital following the surprising defeat of the ruling Barisan National party in the 14th General Election ( GE14) while foreign equity outflow surged to RM5.83 billion after a 19- day selling streak.
According to the research arm of Kenanga Investment Bank Bhd ( Kenanga Research), this was the longest foreign selling streak since the 21- day selldown in mid-2015. I
It pointed out that investors grew wary of the unprecedented change in the government since independence in 1957.
“With the prevailing uncertainty in the domestic and global market, we expect the selling pressure to continue in the both equity and bond market in the coming months,” the research team opined.
Kenanga Research also noted that as strong jobs and US growth data suggests further normalisation and the possibility of a fourth-rate hike, it believed that there is limited capital flows for the next two to three months.
“We expect the new government’s effort to clean up the mess of the previous government as well as its pro- growth policies to gradually lift up sentiments and help stabilise foreign capital flows or at least ease fund outflows before end of the year.
“Nonetheless, with the domestic economy expected to slow going forward and a relatively subdued inflationary trend, we expect Bank Negara Malaysia to leave the overnight policy rate unchanged through 2018 and 2019,” the research team commented.
Meanwhile, it highlighted that Malaysia’s ringgit value of reserves fell by 3.3 per cent to RM418.9 billion as the foreign outflow from the capital market during the month led to the ringgit depreciation for the second month by 1.9 per cent against the dollar to RM3.9644 compared with a 1.5 per cent decline in April.
Kenanga Research also explained that May reserves level declined by US$1 billion or 0.9 per cent to US$108.5 billion, marking the first contraction since December 2016 as foreign investors pulled out of the local bourse following the surprise outcome of the GE14 and rising US bond yield, suggesting that the US Fed may turn more hawkish.
Nonetheless, it said, the month’s reserve position remains sufficient to finance 7.6 months of retained imports and is 1.1 times the external debt.