Foreign funds turn net sellers outflows exceed inflows
KUALA LUMPUR: Foreign institutions turned net sellers on the FBM KLCI between Monday and Thursday, with outflows amounting to RM146.53 million against inflows of RM90.18 million during the same period the previous week.
Bank Islam Malaysia Bhd chief economist Dr Mohd Afzanizam Abdul Rashid said global economic uncertainties, coupled with a moderate domestic economic outlook triggered concerns among investors to opt for more stale markets.
“Externally, the inversion of yield curve in the US Treasury bonds has triggered concerns on a possible recession in the US.
“The spread between the 10-year yield and three-month yield has been negative since last Friday and the prevailing spread currently stands at minus one basis point.
“This means the long-term rate is lower than the short-term rate, a situation known as yield inversion and typically results in an economic recession within 12 months to 27 months,” he told Bernama.
Mohd Afzanizam said the UK exit from the European Union ( Brexit) is in a limbo as Prime Minister Theresa May is no longer in control of the Brexit deal and similarly, the ongoing US- China trade discussion seems to be very fluid and fragile.
Meanwhile, back home, he said Bank Negara Malaysia’s ( BNM) 2019 gross domestic product outlook of between 4.3 per cent and 4.8 per cent suggested that downside risks to growth are rising, while the range forecast for inflation of 0.7 per cent to 1.7 per cent indicates the central bank has policy space available to reduce the overnight policy rate this year.
“All in all, risk aversion sentiments have gone up and naturally, investors will shy away from risky assets like equities and seek protection in the fixedincome markets.
“Going forward, the equity market will remain volatile and we believe the market will closely monitor the various purchasing managers’ index in order to see business sentiments across the globe. There will be US job market reports such as the nonfarm payroll and unemployment rate. So, we think the market will be very cautious next week,” he added.
During the week, Bursa Malaysia traded mostly lower, in line with its regional peers, due to uncertainties in global and domestic economic environment, including a series of weak economic data from the US.
On the local currency’s performance, FXTM research analyst Lukman Otunuga said the ringgit did not have the best trading week due to the greenback’s recovery.
However, he said the ringgit was not alone, as many other emerging market currencies were pressured by the strength of the US dollar, global growth fears and developments in Turkey.
“While the improving sentiment towards the Malaysian economy is likely to support the ringgit, upside gains remain threatened by external drivers.
“In regards to the technical picture, the ringgit remains in a position of power against the US dollar on the daily charts. The US dollar-ringgit rate has the potential to resume its downtrend if prices can trade back below 4.060,” he said.
On Friday, the ringgit ended at 4.0800/0850 against the US dollar compared with 4.0600/0650 last Friday, while the benchmark FTSE Bursa Malaysia KLCI closed at 1,643.63 points compared with 1,666.66 last week.
Among major events hogging the highlights during the week was BNM’s 2018 annual report briefing. During the briefing, BNM governor Datuk Nor Shamsiah Mohd Yunus allayed growing concerns that Malaysia was facing deflation which resulted from a drop in the consumer price index (CPI) over the last two consecutive months.
She said the drop in the CPI was solely due to lower domestic fuel prices.
The central bank also announced further liberalisation in the foreign exchange administration (FEA) framework which is aimed at providing greater hedging flexibility for residents to better manage their foreign exchange risks. Effective immediately, BNM said the framework would allow residents to hedge their foreign currency obligations for a longer tenure – extended to 12 months – to facilitate efficient financial planning by businesses. — Bernama