More caution returns to the market
As the third quarter of the year kicked off, rising turmoil in emerging markets amid the backdrop of an increasingly difficult global trade trade environment led to a sustained selldown in equities.
The pace of currency slides in the emerging markets picked up; apart from ailing currencies in Argentina and Turkey to South Africa and India, in South-East Asia selloffs in Indonesia’s rupiah and the Philippine peso were coming to a head.
Over the course of the year, the rupiah had lost about 10% against the US dollar while the peso had shaved off 7.6% of its value against the benchmark.
The ringgit was also on the slide, although it fared considerably better than the abovementioned peers. The local currency ended the week at 4.14, with analysts suggesting that it would see 4.20 by the end of the year.
Coupled with the Sept 5 deadline for public commentary on the US$200bil tariffs on Chinese imports, confidence in regional equity was badly shaken, leading to a losing streak in Asia.
Bursa Malaysia was on a steady retreat in the first half of the trading week, falling through the 1,800-point mark but finding support at the nearby level of 1,796, which suggested that the index was not ready to return to a downtrend.
At the week’s open, the regional pullback was precipitated by yet another trade conflict, as the US and Canada failed to agree to terms on a new North American Free Trade Agreement (Nafta).
In Malaysia, some weaknesses in the telecommunication sector amid news of increasing competition and negative impact to revenue served to pull back stocks, with Axiata taking the lead. The FBM KLCI lost 6.08 points to 1,813.58 for a third consecutive session of losses.
Argentina announced austerity measures on Monday in an effort to stabilise its economy. While US markets were closed for a labour day holiday, Asian markets focused on the growing crisis in emerging markets on Tuesday morning and slid back.
However, China snapped a five-day losing streak amid bargain-hunting although these gains were pared by the overall negative sentiment of the global trade environment. The Shanghai Composite Index rose 1.1% while the CSI 300 rose 1.27%.
The FBM KLCI managed to hold relatively firm, losing less than a point to 1,812.76 as it awaited fresh leads from the external environment.
The pullback in Asian markets really took hold at midweek as it became apparent that the turbulence in emerging market currencies was set to worsen. Investors further sold down on Indonesian equity in expectation of further interest rate hikes to safeguard the nation’s currency.
The Jakarta Composite Index fell 3.8% at the close, its biggest slide since November 2016, with one analyst remarking that a contagion effect from Argentina and Turkey was taking hold.
Meanwhile, the Philippines posted a jump in inflation, sending its markets tumbling amid an equities downgrade from Jefferies Hong Kong Ltd.
The ringgit was not spared as it slid to 4.14, a marked depreciation from the previous Thursday’s pre-Merdeka day close at 4.10.
On domestic policy, Bank Negara’s decision to keep its overnight policy rate at 3.25% came as expected. At market close, the local benchmark index tumbled 17.26 points to 1,795.50.
A powerful earthquake that hit Hokkaido early Thursday morning resulted in an islandwide power outage and a negative impact on the Japanese stock exchange. Other Asian markets, nonetheless, followed in the red as the deadline for the US trade tariffs on China imports had arrived and was expected to present a serious escalation of the conflict.
The domestic market was spared the regional slide, however, as it rebounded on the strength of telco and financial stocks. Heavyweight telcos, which had been on a five-session decline on expectations of declining revenue, saw some retracement of losses. The FBM KLCI closed 3.07 points higher at 1,798.57.
Yesterday, tech stocks on Bursa tracked the sector selloff on Wall Street overnight while investors were put on edge by a Wall Street
Journal report that suggested US President Donald Trump may be looking to start a trade fight with Japan. China markets eked out a rebound as investors waited for any escalation of trade conflicts.
Statistics: Since its close the previous Thursday, the major index was down 20.49 points, or 1.1%, to 1,799.17. Total turnover for the trading week stood at 11.68 billion shares amounting to RM10.15bil compared with 10.65 billion shares worth RM9.9bil over the previous four-day trading week.
Outlook: As monetary tightening, bad debt and currency selloffs hit emerging markets and the risk of contagion grows stronger, there looks to be little reason for positive sentiment over the immediate term. The momentum on the local stock exchange reflects this caution with the index retreating to the support of 1,796 over the previous week.
The short-term daily price chart has not yet turned negative, given the index staying above the 1,775 mark. Trapped below the resistance of 1,825, however, the index may move forward in consolidation mode.
The slow-stochastic momentum index shows an oversold condition. A recovery over the next few sessions will reconfirm the strength of the current 1,796-1,800 support.