KUALA LUMPUR: Local markets remained sluggish for most of the week just ended , taking the cue from several uncertain factors, including news that the US Federal Reserve was planning to tighten its monetary policy further coupled with declining oil prices and well as the post US mid-term elections.
Most investors shifted their interest towards safe haven assets after the International Monetary Fund (IMF) warned of a slower global expansion, forecasting growth for 2018 to 2019 at an estimated 3.7 per cent.
Global oil prices were also on a declining trend for most part of this week, with West Texas Intermediate and Brent oil dropping below US$60 per barrel and US$70 per barrel, respectively, on Wednesday, dragged down by surging supply from US and expectations of faltering demand from an economic slowdown.
However, a dealer said markets recovered slightly, beginning Thursday, after news report that the Organisation of Petroleum Exporting Countries (OPEC) and its partners were discussing a proposal to cut output by up to 1.4 million barrels per day (bpd).
Moderate US inflation data, released on Wednesday coupled with cautious comments about the economic outlook expounded by US Federal Reserve Chairman Jerome Powell subdued the dollar, giving the local currency the opportunity to recover some lost ground.
The recovering ringgit prompted demand on commodity markets which saw traders accumulating stocks ahead of the weekend.
FXTM Global head of Currency Strategy and Market Research Jameel Ahmad said the local currency struggled for direction, just like it’s regional counterparts, for most part of the week.
“The currency has performed resiliently to the latest US interest rate increase and the price of oil rallying to its highest level since 2014, but it is likely to conclude the week under pressure after confirmation that the US economy expanded above four per cent which encouraged a flurry of buying for the greenback on Thursday afternoon,” he said.
Meanwhile on the stock market, discouraging external developments continued to weigh heavily on foreign interest, with selling intensified compared with the previous week.
For the Monday to Thursday period, foreign selling amounted to RM457.87 million compared with RM182.9 million previously.
Foreign investors turned net sellers soon after the 2019 Budget announcement.
In contrast, the market saw active participation by local institutions which accounted for RM359.06 million of the total buying activity on the local bourse compared with last week’s selling mode.
Bank Islam Malaysia Bhd chief economist Dr Mohd Afzanizam Abdul Rashid said concerns continued for oil prices, especially when Brent was trading below US$70 per barrel.
He said the market imbalances in the crude oil markets were still prevalent as supplies were still in excess.
“We also believe that the market will closely watch developments relating to the meeting between President Trump and Chinese President Xi Jinping by end-November during the G20 summit. There is also the Brexit discussion and Italian 2019 Budget 2019 negotiations with the European Commission, which could potentially sway investor sentiment.
“In a nutshell, sentiment is going to be cautious and investors might adopt a defensive strategy,” he told Bernama.
On the third quarter Gross Domestic Product growth, it was below market expectation owing to the contraction in net exports and public investment.
However, consumer spending was holding the fort with rapid growth seen at nine per cent which was above the current trend.
“Private investment continues to grow at a healthy pace, suggesting that companies have been expanding their production capacity.
“So the private sector is the key driver. Going forward, the outlook remains uncertain especially with the ongoing trade war, interest rate hikes in the US and other developed economies. Therefore it’s going to be challenging next year,” Mohd Afzanizam added. — Bernama