BURSA SET TO STAY UNDER PRESSURE
Analysts warn of Omicron threat, Fed tapering programme, earnings risks
BURSA Malaysia is expected to see lacklustre trade till year end as investors assess the impact of the Covid-19 Omicron variant, potential bond tapering programme by the United States Federal Reserve and earnings risks to listed firms, said analysts.
They also expect the ringgit to remain weaker through next year.
The FTSE Bursa Malaysia KLCI (FBM KLCI) lost 18.29 points, or 1.22 per cent, to settle at 1,483.45 yesterday — a 13-month low — mainly over fears of Omicron’s impact on global economic recovery.
Last month, the benchmark index had fallen 3.1 per cent monthon-month to 1,514 points due to negative reaction to the proposed “Cukai Makmur” and removal of tax exemption for foreignsourced income, as announced in the 2022 Budget.
Hong Leong Investment Bank Bhd (HLIB Research) said the FBM KLCI might establish strong interim supports near 1,483 points (its 52-week low) and 1,452 (two-year low) before staging a more meaningful oversold rebound towards the key resistances at the 1,520, 1,540 and 1,560 levels, in anticipation of window-dressing activities later this month.
On the ringgit, Kenanga Research said the local currency might strengthen momentarily near the 4.22 level vis-a-vis the US dollar as the 10-year US Treasury yield dropped to below the 1.35 per cent level last Friday amid a disappointing jobs data for last month.
“However, the spread of the Omicron infections around the world will continue to unnerve investors and spark a sell-off in risk-on assets.
“On top of that, a potential rise in US inflation rate will continue to push the US dollar index closer to the 97.0 zone, weakening the ringgit to around the 4.234.25 range,” said the firm yesterday.
Fitch Solutions said the shortterm outlook for the ringgit remained weak due to bearish technical signals and uncertainty caused by the emergence of Omicron.
The local currency’s long-term outlook had worsened slightly given the hawkish tilts of major central banks around the world, although a significant downside would be contained by the ringgit’s undervaluation in real effective exchange rate terms and stronger economic activity next year.
Fitch Solutions retained its forecast for the ringgit to trade at 4.20 versus the US dollar next year.
Its said since its last update in September, the ringgit had weakened further in line with its view, slipping by 1.1 per cent against the dollar to trade at 4.22 versus the US dollar on Dec 2 from 4.18 on Sept 24.
This brings the year-to-date average to 4.14, which is just shy of Fitch Solutions’ average forecast of 4.15 against the greenback.
“While we expect the ringgit to continue losing ground to the US dollar in the first half of next year, we expect (US dollar) strength to wane in the second half and this should see the ringgit average around 4.20 next year, a forecast that we maintain,” it added.
From a technical perspective, the firm said the ringgit had breached the key level of support of 4.20 and traded above this level since Nov 24.
Fitch Solutions also expects Bank Negara Malaysia to hike its Overnight Policy Rate by a total of 50 basis points next year in order to maintain its interest rate differential against the Fed and to build up policy buffers for future shocks.