KUALA LUMPUR: Market volatility, due to trade dispute uncertainties and domestic fiscal concerns, will likely cause foreign funds to continue holding on to safe haven assets, especially in light of heightened concerns over the Turkish lira crisis and its contagion effects on emerging markets.
RAM Ratings head of Research Kristina Fong said this year, global financial flows have been predominantly influenced by the ongoing risks from a full-blown tit-for-tat trade war and its global implications, as well as, the tightening trajectory of the Federal Reserve and European Central Bank.
“These two trends are likely to continue into the foreseeable future.
“For Malaysia specifically, foreign investor flows have been characterised by both global and domestic uncertainties which have mainly resulted in outward flow bias,” she told Bernama.
However, Fong said there could be a boost in interest in the local bond market against a backdrop of easing Foreign Exchange Administration regulations on non-resident ringgit denominated interest rate derivative trading last month as this could help enhance onshore market liquidity conditions.
In the medium-term, she said more forward guidance on the fiscal plan for 2019 and beyond could also reignite more foreign investor interest.
Echoing this sentiment, Sunway University Business School Economics Professor Dr Yeah Kim Leng said investors were eagerly waiting for the upcoming 2019 Budget announcement as this would provide clarity on the fiscal aspect and the changes in the tax system.
“It is imperative for the government to strengthen the foundation of the political and democratic system which would enhance foreign investors’ confidence.
“They need to be more effective and prudent in the fiscal public finance management, as well as, improve integrity and good governance,” he added.
Meanwhile, RHB Research Economist, Vincent Loo Yeong Hong said Malaysia’s foreign exchange reserves declined marginally to US$104.4 billion, as at August 30, from US$104.5 billion as at end-July.
He said this came as capital markets continued to suffer from outflows following the Turkish Lira crisis and contagion effects on other emerging markets, however, capital outflows from Malaysia were relatively contained compared with other regional peers such as Indonesia and India.
“Malaysian equity market saw continued outflows, but at a smaller magnitude of RM97.4 million in August, compared with RM1.6 billion outflows recorded in July.
“On the currency front, the ringgit fell 0.9 per cent against the US dollar to a nine-month low of RM4.1465 in the first week of September, whereby on a year-to-date basis, the local note weakened by two per cent,” he said.
The research house expected the ringgit to remain weak in the coming weeks before settling at RM4.10 against the US dollar by end-2018.
Bursa Malaysia, on the other hand, ended the trading week marginally higher on Friday with the benchmark FTSE Bursa Malaysia KLCI up a marginal 0.60 points at 1,799.17. — Bernama