Equities markets still marred by external uncertainties

KUALA LUMPUR: The extent of the trade war and how it may evolve further will certainly be the main focal point that will plague regional equity markets including Malaysia as fund managers remain on the sidelines and adopt a wait-and-see approach.

Generally speaking, the Malaysian equities markets is still marred by the external uncertainties, says Bank Islam chief economist Dr Mohd Afzanizam Abdul Rashid.

He told Bernama that the US’ economy continued to exhibit a healthy trend with the recent second quarter of 2018 Gross Domestic Product growth revised upwards to 4.2 per cent from the earlier estimate of 4.1 per cent.

Mohd Afzanizam said at this rate, the US economy was cruising at a fast pace with inflationary pressures rising, premised on the fact that inflation was hovering at 2.9 per cent in the past two consecutive months.

“Obviously, the prevailing inflation rate is above the two per cent target of the US Federal Reserve (Fed) which implies that the US central bank is on track to raise its federal fund rate at the upcoming meeting in September.

“On one hand, we have a situation where we have a higher interest rate environment in advanced countries and on the other, anxiety over policy direction domestically.

“Perhaps, this could explain why the net foreign fund flow trend was uneven although intermittently we saw net inflows,” he said.

Overall, Monday to Wednesday of the week just-ended saw total foreign net attrition of RM63.6 million which offset the foreign net inflow of RM46.5 million recorded for the week ended August 24, said Malaysian Industrial Development Finance Bhd (MIDF) Research analyst Adam Mohamed Rahim.

“However, investors fled Malaysian stocks with a large net outflow of RM121.6 million as investors took the opportunity to cash in gains ahead of the long weekend.

“This was also in conformity with other markets namely Thailand and Indonesia. We note that there was no fresh catalysts as investors were still waiting for direction from latest trade negotiations between the US and Mexico,” he said.

Meanwhile, on a year-to-date basis as of Wednesday (August 29), the total foreign net outflow from Malaysia stood at approximately RM8.6 billion or US$2.2 billion, the second lowest outflow (behind the Philippines ) amongst the four Asean markets tracked, Adam added.

At Thursday’s closing, Bursa Malaysia’s key index ended broadly lower at 1,819.66 from Wednesday’s close of 1,820.64, with losers trouncing gainers 685 to 299.

Bursa Malaysia and its subsidiaries were closed on Friday for the National Day holiday.

“On a cumulative year-to-date basis until Wednesday (August 29), it was no surprise that the KL Consumer Index was the largest gainer with 13.9 per cent increase amidst the tax holiday, giving some support to the overall market while the KL Construction Index was the worst performer so far this year with a 31.6 per cent decline.

“With policies coming into place such as the Sales and Services Tax, we believe confidence among foreign investors is improving. Nonetheless, this may also be affected by external developments such as the ongoing trade dispute between Beijing and Washington and trends of monetary policy tightening in other major economies around the world,” he said.

Asked whether Malaysians were ready for the SST, amid the current high cost of living, MIDF Amanah Investment Bank Bhd chief economist Dr Kamaruddin Mohd Nor said the SST covered less items (5,445 items exempted) and involved less compliance cost at the businesses end, unlike the Goods and Services Tax (GST).

“Thus, it will be less costly for businesses to operate and hopefully this will translate into savings for consumers,” he said.

Concurring with this views, Malaysian Institute of Economic Research executive director Emeritus Professor Dr Zakariah Abdul Rashid opined that SST implementation, which on September 1, would benefit consumers.

He said the impact on the price of goods and services after September 1, may be minimal on consumers.

“Consumers will be less burdened with the re-enforcement of this SST because only those involved will have to pay the tax, If we look at the zero-rated GST last June and the ‘tax holiday period’, consumers actually enjoyed lower prices for goods in June,” he said.