Markets will stabilise with clarity on policies: Economists

KUALA LUMPUR: Multiple factors are affecting the local financial markets and the recent outflow of foreign funds from equities has raised concerns among many quarters, but analysts opine that conditions will gradually stabilise once government policies are firmly in place.
Bank Islam Malaysia Bhd chief economist Dr Mohd Afzanizam Abdul Rashid said the markets would remain edgy, at least for the first 100 days of the new government, as market participants await more policy announcements.
He said the markets would normalise once "the dust settles".
"There have been multiple factors affecting the market. Renewed concerns on geopolitics in North Korea, as well as the Middle East, have caused market participants to stay light and prefer to hold more cash-like instruments as they have become increasingly risk averse," he explained.
At the same time, anxiety over the state of the government's debt revealed by the Ministry of Finance (MoF) had caused the markets to be wary but its assurance to honour the debt obligations should ease such concerns, he told Bernama.
According to the MoF, Malaysia's total debts and liabilities amounted to RM1.087 trillion, or 80.3% of gross domestic product as at end-2017, after official debt, contingent liabilities and lease payments for public-private partnerships were tabulated together.
"Further foreign fund outflows are still possible in the near term. But given the sheer size of prevailing outflows, it could have been overdone as Malaysia's economic fundamentals are still intact.
"Apart from that, the undervaluation of the ringgit could also attract foreign funds to accumulate Malaysian stocks," said Mohd Afzanizam.
He added that the ringgit would remain in a tight range of between 3.97 and 3.98 against the US dollar during the first 100-day period.
Meanwhile, Inter-Pacific Securities Sdn Bhd's head of research Pong Teng Siew said the pace of selling in local equities has eased, helped by buying activities by local investors.
"It is going to be a gradual process (to bring in foreign funds). We will have to work hard to restore their confidence. I think we will get there but it will take some time.
"First order of the day when the local funds are buying, I guess they will have to concentrate on blue chips and that might help bring the index back up. I don't think it will reach a historic high but will narrow the losses since the all-time-high on April 19, 2018," said Pong.
The FBM KLCI clocked its highest of 1,895.18 on April 19, boosted by fund buying of banking and Petronas-linked stocks ahead of the May 9 general election.
Echoing Mohd Afzanizam's observation, Pong said one of the main reasons prompting foreign funds to relinquish their holdings in local equities was concerns over public debt.
"Another reason is the issues surrounding emerging markets (EM). EM (assets) were being sold because of worries about outflows that began with the rise of the US dollar. The greenback strengthened due to higher yield in the US (and it tends), weakening currencies in the EM markets sharply," he added.
For MIDF Amanah Investment Bank Bhd chief economist Dr Kamaruddin Mohd Nor, the recent announcement on the financial position of the country, especially on the debt and liabilities, was not something new to the financial fraternity albeit a few details which were not made public.
He said the disclosure might raise eyebrows but it was not tantamount to credit rating downgrade.
"Our economic fundamentals are intact and both banking and capital markets are well capitalised and vibrant.
"Naturally, there will be a transition period as the new government is assessing and evaluating the 'as is' to move forward with 'how to'.
"At this juncture, the formation of CEP (Council of Eminent Persons) and a task force to address important issues is a step in the right direction to pacify both domestic and foreign investors.
"With greater clarity on policy direction, market confidence will be restored," he said.
On the ringgit, he said the currency would be under pressure, gauging from recent developments, both at the domestic and external fronts.
"US dollar rally continues as US bond yield rises unabated and it put pressure on the ringgit. Nevertheless, we are still maintaining our year-end target for ringgit at 3.95," he added.