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 in the same period last week.
Bank Islam Malaysia Bhd chief economist Mohd Afzanizam Abdul Rashid said global economic uncertainties, coupled with a moderate domestic economic outlook, triggered concerns among investors this week to opt for more stale markets.
“Externally, the inversion of yield curve in US Treasury bonds has triggered concerns of a possible recession in the US.
“The spread between the 10-year yield and 3.0-month yield has been negative since last Friday and the prevailing spread currently stands at -1.0 basis points.
“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.
Afzanizam said other market concerns included Britain’s exit from the European Union (Brexit), which is in limbo as Prime Minister Theresa May is no longer in control of the Brexit deal, and the US-China trade discussion which seems to be fluid and fragile.
On the local front, he said Bank Negara Malaysia’s (BNM) 2019 gross domestic product outlook of between 4.3% and 4.8% suggested that downside risks to growth are rising, while the range forecast for inflation of 0.7% to 1.7% 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 fixed-income markets.
“Going forward, the equity market will remain volatile and we believe the market will monitor the purchasing managers’ index to see business sentiments across the globe.
“There will be US job market reports on non-farm payroll and the unemployment rate. So, we think the market will be cautious next week,” he said.
During the week, Bursa Malaysia traded mostly lower, in line with its regional peers, because of the uncertainties in the 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 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 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 4.0800/0850 against the dollar compared with 4.0600/0650 the previous Friday, while the benchmark FTSE Bursa Malaysia KLCI closed at 1,643.63 points compared with 1,666.66 last week.
Among the major events during the week was BNM’s 2018 annual report briefing.
BNM governor Nor Shamsiah Mohd Yunus allayed concerns that Malaysia was facing deflation as a result of the 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 aimed at providing greater hedging flexibility for residents to better manage their foreign exchange risks.
Effective immediately, 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.