KUALA LUMPUR, 1 March 2020 – Malaysia saw its net outflow dominated the equity market last week, surpassing a net sell of over RM1.15 billion compared with the previous week’s RM447.9 million due to the unnerving political turmoil which culminated in the scramble among political parties seeking to form the next government.
The new government that is set to be formed with Tan Sri Muhyiddin Yassin as the 8th Prime Minister must ensure that effective policy implementation and national development reforms are in place without any delay, so as not to jeopardise Malaysia’s economic growth.
An analyst said the one-week political instability had caused the net outflow to spike on Monday as the main index, the FBM Bursa Malaysia KLCI (FBM KLCI), declined 2.68 per cent or 41.14 points to 1490.06 points, as well as on Friday, with the index tumbling 1.52 per cent or 22.95 points to 1,482.64.
At present, Malaysia is facing multiple threats from COVID-19 to trade war to its economy, policies, and reforms to stir the economy so as to strengthen the fundamentals of the nation.
Markets globally have been jolted to the implication of COVID-19. The deadly virus is seen to be the immediate threats to the global economy as it has spread to more than 50 countries outside China.
Measures such as institutional reform should continue to be the mainstay, given that such reforms are very universal and can be accepted by all parties, which would then improve confidence in the financial markets, as well as among businesses and consumers.
On Thursday, Dr Mahathir, as interim Prime Minister, presented the 2020 Economic Stimulus Package worth RM20 billion to shield the country’s economy from the COVID-19 impact and boost local consumption, while assisting the sectors affected the most such as tourism and services.
However, the results would not be immediate.
Investors, either foreign or domestic, would continue to look for signs of a steady government transition towards a stable political climate as policy and political uncertainties remain to some extent.
Besides the political squabble, the market would also be influenced by the corporate results season, as well as the upcoming FTSE World Government Bond Index (WGBI) review in March, where exclusion from the WGBI list would cost the local bourse its international market accessibility.
On the ringgit performance, the political realignment had caused the local currency to decline to 4.2120/2180 on Friday compared with 4.1900/1940 previously, while the FBM KLCI dropped 48.56 points to 1,482.64.
According to an analyst, the ringgit is expected to remain on the downside due to a lack of positive catalysts, the political scene, as well as the prevailing COVID-19.
Meanwhile, Bank Islam chief economist Dr Mohd Afzanizam Abdul Rashid said the risk aversion had been prevalent since the COVID-19 outbreak outside China spread at a rapid pace alongside the domestic political uncertainty.
“We could see the bond yields had fallen with the 3-,5- and 10-year Malaysian Government Securities (MGS) yields dropping by 8.0, 10.0 and 8.0 basis points on week-on-week basis to close at 2.62 per cent, 2.67 per cent and 2.83 per cent, respectively, on Friday.
“Given the current COVID-19 situation, all eyes will be focusing on the February’s PMI indices to gauge its immediate impact on the economy,” he said.
As for next week, Afzanizam said investors would await the next Bank Negara Malaysia’s decision on its overnight policy rate (OPR) on March 3.
“We see a high chance that BNM would reduce the OPR by 25 basis points to 2.50 per cent to complement the fiscal stimulus measures announced on Feb 27,” he said.
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