Analysts say, among Asean countries, Malaysia had the second highest foreign net inflow behind Thailand, which was the biggest beneficiary with foreign net inflows from Monday to Thursday worth US$107.8 million, while the Philippines saw the largest foreign net outflow worth US$29.0 million. — Bernama photo
KUALA LUMPUR: Emerging market equities look very constructive with a sense of optimism in the markets amid positive economic indicators beaming from the advanced countries, says Bank Islam chief economist Dr Mohd Afzanizam Abdul Rashid.
He said emerging markets were weak from early to the middle of September as the escalating trade dispute between the US and China continued to take centre stage, coupled with concerns over contagion from countries such as Argentina and Turkey following massive declines in their currencies.
“However, equity markets were very constructive lately as China assured that it would not devalue its currency and the extent of retaliation by China with respect to the latest tariff rate by the US was seen to be quite minimal.
“As such, there seems to be a sense of optimism in the markets alongside positive economic indicators beaming from the advanced countries,” he told Bernama.
Bursa Malaysia has performed decently with the benchmark FTSE Bursa Malaysia KLCI index having gained 0.7 per cent on a month-on-month basis, he noted.
“We believe that the markets were really relieved that China was not going to devalue its currency according to remarks by the country’s leaders, although such an option can be quite compelling given that China has limited means to retaliate using tariff measures.
“However, uncertainty remains ahead of the Federal Open Market Committee (FOMC) meeting next week (September 25 to 26). Markets will be looking at the statement from the meeting in order to gauge the extent of the rate hike going forward,” said Afzainizam.
He noted that the US economy had been growing at a fast clip in the second quarter 2018 at a rate of 4.2 per cent, which was beyond its long-term trajectory of 1.8 per cent.
And the average hourly earnings had expanded 2.9 per cent year-on-year in August, surpassing the 2.2 per cent average since 2010, which supported the move for the interest hike.
He said if the Federal Reserve changes its tact towards more aggressive hikes, it may rattle the emerging markets as the US dollar could gain.
In addition, he said with the trade friction between the US and China still fluid despite what seems to be a breather following expectation of no Chinese currency devaluation, investors would remain in cautious mode moving forward.
Meanwhile, Malaysian Industrial Development Finance Bhd (MIDF) Research analyst Adam Mohamed Rahim said for the first three trading days of the week in Malaysia, foreign net inflow surged to RM207 million, compared to last week’s marginal foreign net inflow worth only RM2.6 million.
“Foreign investors were net buyers on Wednesday and Thursday while there was a slight foreign net outflow worth RM1.1 million on Monday,” he said.
Thursday also recorded the highest foreign net inflow worth RM151.6 million during the period under review, as a fresh US-China tariffs war appeared not too severe, helping soothe investors’ nerves.
He explained that there was no doubt that external factors such as global trade woes strongly influenced the appetite of foreign investors in emerging markets.
Adam said among its Asean peers, Malaysia had the second highest foreign net inflow behind Thailand, which was the biggest beneficiary with foreign net inflows from Monday to Thursday worth US$107.8 million, while the Philippines saw the largest foreign net outflow worth US$29.0 million.
On a year-to-date basis as of Thursday, he said Malaysia also retained the same spot as the nation with the second lowest foreign net outflow amongst the four Asean markets worth RM9 billion or US$2.3 billion, while Thailand was the casualty with the biggest foreign net outflow valued at US$6.5 billion.
“In addition to the ongoing external developments on the global trade front, we reckon that the upcoming mid-term review of the 11th Malaysia Plan and the Budget 2019 will be one of the major underpinning factors that could influence investors’ perception towards the local market,” he added.
Afzainizam said the ringgit would continue to oscillate between the current support and resistance levels of 4.09 and 4.15 against the US dollar amid global events and sentiments which are still fluid at this juncture.
He said the local currency had appreciated by about 0.2 per cent on a week-on-week basis to 4.1305 on Thursday, in tandem with external developments which seem to favour emerging market assets.
The ringgit has also performed relatively better than regional peers with traders less concerned about the contagion effect on Malaysia, following developments in Argentina, Turkey, South Africa and to some extent Indonesia, as the nation is not one of the twin-deficit countries.
Hong Leong Bank in a research note said the ringgit is expected to be slightly bullish next week against the US dollar in line with its bearish view on the greenback.
It added that less negative developments in US-China trade relations will be supportive of the ringgit, although the local currency needs strong domestic positive catalysts to sustain a firm bullish trend. — Bernama