FBM KLCI falls to 15-week low, more downside seen on global uncertainties

Asian markets fall to the red zone as investors continue to dump equities worldwide and driving funds to safe havens

By MARK RAO / Pic By BLOOMBERG

Malaysia’s equity investors may need to brace for more pain as escalating trade and geopolitical tensions hit sentiment and drove funds to safe havens.

The benchmark FTSE Bursa Malaysia (FBM) KLCI closed 24.87 points or 1.4%, or at a 15-week low, at 1,697.60 points as investors continue to dump equities worldwide.

“Funds are profit-taking around the world and we observe investors moving out of the main asset classes, namely equities and bonds, and into safe-haven assets,” Inter-Pacific Securities Sdn Bhd head of research Pong Teng Siew told The Malaysian Reserve.

He said the losses were led by the performance on Wall Street that has been on a declining trend despite strong third-quarter earnings posted by US firms.

“We expect the second half of 2018 to be a period of lower lows and lower highs for the FBM KLCI and suspect the index could drop below 1,659 before year-end.”

A total of 2.01 billion shares worth RM2.01 billion were traded on Bursa Malaysia yesterday with losers leading gainers 727 to 170.

Asian markets were also in the red with Japan’s Nikkei 225 Index, Korea’s Kospi Index, Hong Kong’s Hang Seng Index falling over 2% each and Singapore’s Straits Times Index down 1.5%.

ForexTime Ltd research analyst Lukman Otunuga said the rally in Chinese equities yesterday failed to jump-start risk sentiment as geopolitical tensions weighed heavily on investor confidence.

“Global equity bulls seem to be entangled in a gruelling battle with ongoing US-China trade disputes, global growth concerns, geopolitical tensions and prospects of higher US interest rates,” Otunuga said in a research note yesterday.

“With the various geopolitical risk factors bubbling violently in the cauldron, all the ingredients for a market-shaking sell-off across global stocks seem to be in place.”

Global news flow have centred on the Saudi Arabia government’s involvement in the death of journalist Jamal Khashoggi, while Italy’s upcoming budget potentially breaching European Union regulations and renewed Brexit risk have also featured prominently.

The ongoing trade dispute between Washington and Beijing and global growth concerns continue to weigh on investors’ risk appetite.

Malaysia’s equity market reportedly noted US$3 billion (RM12.5 billion) in outflows between May 10 and Oct 13 this year, and further sell-offs are expected for the remainder of the year on the heightened risk aversion.

This has had a negative impact on the ringgit, which continues to lose ground against the US dollar and is now trading at the RM4.16 mark.

The pullback in crude oil price has also weighed on the performance of the local note.

“Uncertain global risks, slippery oil prices and pre-budget malaise have traders for the most part sidelined,” Oanda Corp head of trading for Asia Pacific Stephen Innes noted in a research note yesterday.

Innes said the market focus is now on the Consumer Price Index, but given the tepid inflation readings this year, it is unlikely to shift the dial from the market’s more dovish read on future central bank policy.

Foreign investors sold a net RM128.7 million worth of Malaysian stocks last week versus the previous RM1.05 billion net sales, according to MIDF Amanah Investment Bank Bhd research note on Monday.

From a technical perspective, a chartiest with a local brokerage said if the downstrend of the FBM KLCI continues, the market should see strong support at 1,657 points.

“If the next downward move breaks the pivot low of 1,657-point, a very bearish picture of the FBM KLCI is envisage with downside target of 1,648, followed by 1,639 and 1,588-points,” he said.