‘EVERYDAY HAS BEEN A NET-SELL DAY’: MALAYSIAN MARKET OUTLOOK REMAINS UNCERTAIN

WHILE many regard the selling on the stockmarket to be overdone, there are those who caution that foreigners may not be done yet with their selling.

“It’s been net sell everyday for almost two weeks.

“Since Oct 20, about RM3.2bil in stocks have been sold by foreigners,’’ noted Pong Teng Siew, head of research, Inter-Pacific Securities.

“Volatility was expected due to currency weakness but it (selling of stocks, currencies and even bonds) is all overdone. This is a temporary issue of sentiment and may be an opportunity for a longer term perspective,’’ said Danny Wong, CEO of Areca Capital.

The main reasons for foreign selling are uncertainty over new Trump policies and a potential US interest rate hike next month, said Wong, who expects clarity after December.

The impact of that potential rate hike has largely been priced in but the market is likely to take a few days to settle down, said Chris Eng, head of research, Etiqa Insurance & Takaful.

Unlike earlier diminished expectations of a US rate hike, there is now increased talk of a December spike following the testimony by Fed chair Janet Yellen who said there would likely be a rate rise soon.

The strong US dollar is impacting emerging currencies including the ringgit; its uptrend is further fuelled by the expectation of rate rise, besides upcoming US fiscal stimulus and US dollar shortage.

There is reportedly a current US$10 trillion shortage of the King dollar globally.

Some may regard ringgit weakness to be overdone, but this may linger for a while based on these factors influencing US dollar strength; at the same time, the ringgit is also one of the most popular emerging market currencies for traders.

Hope is pinned on year end recovery for the stockmarket while a development to watch for is Malaysia’s credit default swap (CDS) premium which on Friday, stood at just 12.24 basis points below that of Indonesia’s.

A CDS involves the transfer of credit risk of, for example, municipal or emerging markets bonds, for a premium for which a rise, in this case, indicates a less positive mood concerning the country in international markets.

Having gone through the devastating financial crisis of 2008, some voices at the top have spoken up against the possible dismantling of US banking reforms such as those under Dodd-Frank, parts of which are considered by some as draconian.

The Dodd-Frank Act is a US federal law that is aimed at preventing another significant financial crisis through the creation of new regulatory processes based on transparency and accountability.

“We lived through a devastating financial crisis,” Fed chair Janet Yellen was quoted by Bloomberg as saying at the US Congress Joint Economic Committee last week.

“And many of the appropriate reforms are embodied in Dodd-Frank,” said Yellen, adding that she ‘wouldn’t want to see the clock turned back on those.’

In advocating prudence on the budget, she warned that ‘with the debt-to-Gross Domestic Product ratio at around 77%, there is not a lot of fiscal space,’ should there be an adverse shock that did require fiscal stimulus.

Is the oil production deal on or off? As the month-end meeting of the Organisation of Petroleum Exporting Countries (OPEC) meeting nears, there is renewed speculation that a deal may be forcefully cut.

Hedge fund manager Pierre Andurand, who had won big by predicting the oil market’s downturn in 2014, said Opec is still likely to agree on an output freeze this month despite disputes among its members, and places a 70% chance of an agreement.

The years-long supply glut that had hammered oil prices is gone with no sign that production will grow next year, Andurand said in a note to investors obtained by Bloomberg News.

“History has demonstrated that Opec typically never reaches an agreement before the headlines,” Andurand was quoted as saying in his note.

“Unfortunately, the noise surrounding negotiations is often misinterpreted by the media and most analysts who perceive bargaining techniques as a sign of a deal falling apart.”

A freeze could bump up prices to US$55-US$60 a barrel by year end and even without an agreement, prices will ‘slowly trend upwards’ towards US$60-US$70 by the end of 2017, said Bloomberg, quoting Andurand.

Some see continued downward pressure on oil prices.

“The uncertainty over the prospects of oil prices in the medium term is magnified by Trump’s vision of unleashing more output from US shale production,’’ said Nor Zahidi Alias, chief economist, Malaysian Rating Corp.

While this will likely exert more downward pressure on prices, Trump’s proposed policies for higher spending could lift US, and hence global growth, in the medium term.

And this will be positive for commodity prices, noted Zahidi.

“Without a forceful production cut that is fully abided by members, the strength of oil prices will likely be short lived especially with the strong US dollar that will make the commodity more expensive,’’ said Lee Heng Guie, executive director, Socio Economic Research.

ANN

.