Market not spared from geopolitical storm
KUCHING: Malaysia has not been spared from the geopolitical storm revolving around global economic powerhouses, with its ringgit taking beating against the dollar while its stock market continues to see an exodus of foreign funds.
However, analysts pointed out that this is also affecting other emerging markets (EM) and the current capital outflows on the KLCI could be limited.
According to MIDF Amanah Investment Bank Bhd’s research arm (MIDF Research), the brewing trade tensions between the US and not only China but also Europe has weighed on risk-on mood, being a drag on major developed equity markets.
It pointed out that selling pressure spread across Asia amidst the ongoing global trade dispute with most major developed and emerging markets swimming in the red except Taiwam as the nation’s bourse remains resilient with a 1.3 per cent year-to-date in comparison with other Asian peers due to sound economic fundamentals; 14 per cent y-o-y exports growth in May 2018 bolstered by demand for emerging technology application.
It noted that the global trade dispute presents as a major overarching factor affecting investor sentiment and market volatility amongst Asian markets as of now.
As for the FBM KLCI, it high- lighted that there was an overall uptrend in the first four months of the year where it almost hit 1,900 points on April 19, before trending down sometime in June.
Nonetheless, year- to- date total overall market volume was slightly higher by 17 per cent on a year-on-year basis.
“In our view, any sharp capital outflows on the KLCI could be limited, and will once again demonstrate the defensiveness of the KLCI during meltdowns, which has normally been aided by Malaysia’s ample domestic liquidity,” said the research arm of Affin Hwang Investment Bank Bhd (Affin Hwang).
“Based on our estimates, private and quasi government funds combined account for more than RM1.6 trillion, and accounts for 52 per cent of the Malaysian capital market,” it added.
There are also other considerations that could limit a sharp foreign sell-down such as Malaysia’s higher policy rates (vis-à-vis US rates) which make outflows less compelling, it said.