Foreign funds reportedly dumped RM2.48 billion of local equities in reaction to the unexpected outcome of the 14th general election and the market remained volatile last week after a spate of developments and revelations of bad numbers.
Bank Islam Malaysia’s chief economist Mohd Afzanizam Abdul Rashid said the markets would remain edgy, at least for the first 100 days of the new government, while awaiting more policy announcements.
He said the markets would normalise once “the dust settles”.
“There have been multiple factors affecting the market. Renewed geopolitical concerns in North Korea and 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 and liabilities had caused the markets to be wary, but its assurance to honour the debt obligation should ease such concern, he told Bernama.
The Ministry of Finance said that the total amount of official debt, contingent liabilities and lease payments for public-private partnership debts came to RM1.087 trillion at end-2017.
Mohd Afzanizam said further foreign fund outflows were still possible in the near term but the undervaluation of the ringgit could also attract foreign funds to accumulate Malaysian stocks.
Inter-Pacific Securities Sdn Bhd’s head of research, Pong Teng Siew, said selling of local equities had eased off, 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.”
Pong said the main reason for the sell-down by foreign funds was the concern over public debt, as well as worries about outflows that began with the rise of the US dollar.
MIDF Amanah Investment Bank Bhd’s chief economist, Kamaruddin Mohd Nor, said the recent announcement about national finances was not new to the financial fraternity except for a few details not made public previously.
“With greater clarity on policy direction, market confidence will be restored,” he said.
MIDF Amanah Investment Bank Bhd analyst Adam Mohamed Rahim said foreign selling might continue throughout the year with intermittent phases of buying.
Hence, the selling could continue until year-end, he opined while foreign investors looked to Thailand and Indonesia, where elections are expected to be held in February and April next year respectively.
RHB Banking Group chief economist Arup Raha said the government debt, excluding contingent liabilities, was about 65% of the GDP, and should not merit a downgrade, though it will certainly draw the attention of rating agencies.
Hence, he said what followed in terms of policies would be important to see.
If the Pakatan Harapan government proved that it could keep the fiscal deficit in check and has plans to reduce the debt levels, this would help rebuild investors and rating agencies’ confidence, he said.