The decline in value came as Trump threatens further tariffs to be slapped on Chinese goods

by MARK RAO/ pic by MUHD AMIN NAHARUL

CONTINUED political and trade uncertainties are keeping Malaysian capital markets susceptible to outflows and a weaker ringgit exchange value.

Last Friday, the local unit closed at 4.1710 against the greenback — depreciating 0.4% for the week prior and 1.1% since Nov 7, 2019, when the local note closed at 4.1240, a three-month best.

The decline in value came as US President Donald Trump threatened further tariffs to be slapped on Chinese goods and as political unrest in Hong Kong took a toll on regional markets.

The protracted US-China trade conflict has been a key driver of volatility in regional markets as major global trade flows were put at risk.

Malaysia remains beset by both external and internal issues, resulting in the country’s capital markets to underperformed according to Oanda Corp senior market analyst for Asia-Pacific Jeffrey Halley.

He said “a lot of bad news has been priced in” and pressure will build until a succession date for the country’s leadership becomes clear. “Until we have more clarity on that and the trade situation, both the stock market and currency will underperform (compared to) regional peers,” he told The Malaysian Reserve (TMR).

Year-to-date, the Malaysian stock market noted the steepest declined compared to the performance of other Asean markets and remains in the red along with Indonesia, as billions of ringgits in foreign money exited the country.

AxiTrader Asia-Pacific market strategist Stephen Innes said an issue still plaguing the Malaysian capital markets is the lack of a non-deliverable forward market for investors to hedge against currency risk effectively.

“Political uncertainty and fiscal concerns continue to hang over the Malaysian markets while regional markets with more robust growth outlook are hurting local stock inflows,” he told TMR.

He expects the ringgit to improve into year-end 2019 on a US-China trade deal but is now likely to trade in a range highly sensitive to trade-related headlines.

This is as a trade deal looks set to be delayed until at least next year, though Innes noted both Washington and Beijing are likely still keen on a deal despite recent developments.

Beijing will start to posture for a better deal in the wake of the Hong Kong bill, Innes added.

Trump would favour a US-China trade deal especially heading into the run-up to the US elections next year, while trade tariffs have materially impacted the respective economies.

Halley said Beijing will make “angry noises” about the US interfering in domestic affairs vis-à-vis the Hong Kong bill.

“In the end, once the chest thumping has finished, pragmatism will rule and both sides will continue to talk,” he said.

FXTM market analyst Han Tan said investors remain vigilant over the US-China trade negotiations as the global economy is weighed down by the ongoing trade conflict unless a deal is struck which includes the rolling back of existing tariffs.

The Malaysian ringgit will be primarily exposed to extraneous factors given the light domestic calendar for the week.

“Over the near-term, a break above the US dollar-ringgit pair’s 50-day moving average could bring the RM4.19 resistance line into play, while the immediate support level is seen at RM4.14,” he said in a research note last week.

He said the latter level is close to where the currency pair’s 200-day moving average currently lies.