KUALA LUMPUR, Malaysia June 10 (NNN-Bernama) — It is too early to determine if the domestic capital and foreign exchange markets are projecting an unhealthy performance, judging from the general downtrend witnessed in recent weeks.
Foreign investors are ‘playing safe’ and remaining on the sidelines, looking out for concrete measures to be announced by the new government.
“The current downtrend (in the market) is normal, especially when the ruling government is replaced. It usually takes about three months for the market to consolidate. Now is too early to determine the market’s direction. We don’t even have a full Cabinet yet, said Hermana Capital Bhd Chief Executive Officer Dr Nazri Khan.
Investors need more clarity in terms of policies from the new government as Pakatan Harapan’s manifesto announced during the General Election was too broad-based.
Recently, Prime Minister Dr Mahathir Mohamad announced the scrapping of the Kuala Lumpur-Singapore High-Speed Rail project due to high financial costs, along with other mega-projects which may be halted, including the Light Rail Transit 3 and Mass Rapid Transit Line 3 while the East Coast Rail Link project was being reviewed.
“What is important now is our fundamentals, which in my opinion, remains strong. Also, investors will start looking at Dr Mahathir’s track record. He was the Prime Minister of Malaysia for 22 years, he said.
On Friday, the benchmark FTSE Bursa Malaysia KLCI (FBM KLCI) fell 7.49 points or 0.42 per cent to 1,778.32, as investors remained concerned over the outcome of the zero-rated Goods and Services Tax which has been eliminated from the system, effective June 1.
Nazri said investors were also concerned over market talk that Bursa Malaysia’s Chief Executive Officer (CEO) may be replaced along with the CEOs of several other multi-national companies.
Telekom Malaysia CEO Shazalli Ramly resigned on June 6.
“They (investors) are waiting to see who is going to replace those who have resigned as it would affect the market, moving forward, he added.
Meanwhile, according to research notes, foreign funds withdrew RM12.9 billion from local bonds in May, the largest since March 2017, due likely to position trimming associated with the General Election and exaggerated by a risk-off tone in emerging markets.
Maybank IB Research said heavy net selling of Malaysian equities was noted in May by foreign investors to the tune of RM5.6 billion, which reversed out the cumulative foreign net buying of RM3.5 billion in January to April 2018.
However, investors drew comfort from the Finance Minister Lim Guan Eng’s statement recently that Malaysia would meet its 2.8 per cent fiscal deficit target for 2018.
The tabling of a mini/revised Budget 2018 in June and Budget 2019, will, subsequently address the ongoing concerns and instil confidence over government finances, said the research firm.
Another dealer said that foreign inflow was expected to gradually recover in the second half of this year as currently, the combination of both external and internal factors had led to an acceleration of foreign outflow to the highest level in four years.
He said foreign investors were seen pulling out from emerging countries, including Malaysia, as they shifted to economies with consistent overseas interest rate hikes.
Investors were also more cautious amid heightened tension in Europe and the trade war between the United States and China, as well as, a potential interest rate hike by the US Federal Reserve.
“For some emerging countries, investors are focused on the debt level and current account deficit while for the matured markets, investors are cautious over the potential Eurozone break-up, he said.
Meanwhile, Ramlan Pointon Consultants Sdn Bhd Economic Analyst Dr Jorah Ramlan said the local markets adopted a ‘wait-and-see’ stance, as they await further information on new government policies.
The fluctuation in the ringgit and Bursa Malaysia were not that abrupt and drastic. Investors are actually waiting to capitalise (on the situation) when the opportunity arises, she told Bernama.
Jorah said Malaysia remained investor friendly with a bright economic outlook despite minor sell-offs in foreign exchange, equity, as well as, capital markets, which was deemed momentary.
The local note eased against the greenback to 3.9870/9900 from 3.9770/9800 on Friday.
FXTM Global Head of Currency Strategy and Market Research Jameel Ahmad said locally, investors were monitoring the retail sales figures to be released on Tuesday.
The retail sales data is seen as a crucial indicator of consumer sentiment and a stronger-than-expected reading would help improve optimism that the Malaysian economy can expand above five per cent in 2018, he said.
The ‘relative calm’ ringgit suggest that stabilisation measures may be at play.
Ringgit was expected to remain under pressure in the near-term over uncertainty in relation to the global trade tension, as well as, geopolitical developments in the European Union.
“Stable and improved commodity prices will help support the ringgit and on the domestic front, greater clarity in policy direction, especially on the fiscal front, will help boost investors’ confidence.
“The transparency practice will cause a knee-jerk reaction and it is short-term in nature. Over time, this will help to increase investors’ confidence as proper governance is in place,” said another dealer, adding that the current trend was not unique to Malaysia.
Net selling by offshore bond investors was prominent but that flow had slowed post-election.
But, in general, the ringgit was sensitive to regional risk-sentiment which suggested that if the local equity market performed well, the ringgit would follow-through, he added.
Source: NAM News Network