Stoking the bear
By Supriya Surendran / digitaledge Daily | August 25, 2015 : 9:05 AM MYT
KUALA LUMPUR: Market analysts see no light at the end of the tunnel in the short term as the world’s growth outlook worsens.
As expected, Asian stock markets got off to a dismal start to the week yesterday, after stocks in Wall Street were clobbered last Friday on growing concerns about a slowdown in China.
Last Friday, the Dow Jones Industrial Average finished with a decline of 3.12% or 530 points; the Nasdaq plummeted 3.52%; and the Standard & Poor’s 500 lost 3.18%. Yesterday, Wall Street opened sharply lower in early trade, with the Dow Jones losing more than 1,000 points.
Yesterday, China’s shares took a 9% dive, its biggest one-day loss since the global financial crisis in 2007, spooking investors in Southeast Asian stock markets, which plunged to fresh lows.
Malaysia’s stock market was not spared the widespread declines, as the FBM KLCI tumbled 42.53 points, or 2.7%, to 1,532.14 points yesterday — its lowest level since January 2012 — from its close last Friday. All of the indices on Bursa Malaysia retreated yesterday, except the mining index. Hong Kong’s Hang Seng Index also fell 5.17%; Japan’s Nikkei 225 slumped 4.61%; South Korea’s Kospi dropped 2.47%; and Singapore’s Straits Times Index ended down 4.3%.
The ringgit tumbled 1.79% to close at 4.2430 versus the US dollar after earlier sinking to a 17-year low of 4.2640 yesterday, according to prices from local banks compiled by Bloomberg. Year-to-date, the ringgit has weakened 18% amid growing political concerns.
The ringgit also breached the 3.0000 mark to close at 3.0019 against the Singapore dollar yesterday. Brent crude was trading at a six-and-a-half-year low of US$44.40 (RM187.81) a barrel, while the benchmark palm oil contract for November on the Bursa Malaysia Derivatives Exchange closed 3.6% lower at RM1,915 a tonne, its lowest level since March 2009.
Jupiter Securities chief market strategist Benny Lee, for one, does not see the local stock market recovering anytime soon.
“The technical indicators show the FBM KLCI in a bearish tone in the last two months of the year (November and December), following the weakening global market situation. However, the benchmark index may bounce between resistance levels of 1,550 points and 1,600 points during the period, partly attributable to year-end window dressing activities,” he told the digitaledge DAILY.
Maybank Investment Bank regional chartist Lee Cheng Hooi sees the market heading to much lower levels of 1,515 points and 1,448 points.
“I am definitely looking at a much lower market based on weak fundamentals, with a stronger US dollar which is negative for commodities and emerging markets, foreign fund selling, lower crude oil prices which reflect badly on Malaysia’s gross domestic product figures, and shrinking equity market liquidity,” he said.
He added that technical chart-wise, a level below 1,515 points would push the KLCI into bear market territory.
On the ringgit’s performance, Hong Leong Investment Bank Research said with the confluence of China’s slowdown, sustained strength of the US dollar and concerns about the impact of low commodity prices, confidence in the ringgit could remain jittery.
“We maintain our ringgit forecast range of RM3.55 to RM4.20 against the US dollar for the remainder of the year, and we expect Bank Negara Malaysia to stand pat for the remainder of the year, given the resilient economic outlook and absence of an inflation threat,” the research house said in a note yesterday.
RHB Research chief economist for Asean Peck Boon Soon said the performance of the ringgit would be dependent on the outcome of the US Federal Open Market Committee (FMOC) meeting, scheduled to be held on Sept 16 and 17.
“Global investors would have more clarity once the FMOC meeting has taken place, and the decision on whether the US Federal Reserve will raise interest rates is announced, [which will affect capital outflows/inflows,]” he told the digitaledge DAILY.
However, there is some comfort in the fact that the stronger US dollar will help boost the country’s export trade.
Areca Capital Sdn Bhd chief executive officer Danny Wong said the KLCI could show some signs of recovery in the fourth quarter of this year (4Q15), boosted by export-driven counters.
“Export-driven counters, to a certain extent, could help boost the FBM KLCI’s performance in 4Q15, but this has to go hand-in-hand with some improvement in China’s economic situation, as China is one of the biggest export markets [of Malaysia] and its performance affects the economic viability of the Asean region,” he said.
This article first appeared in digitaledge Daily, on August 25, 2015.