KUALA LUMPUR: All eyes are on the global stock markets including that in Malaysia today after US Treasury yields hit the critical 3% milestone for the first time since January 2014 after most Asian markets closed.
Analysts and fund managers have warned that a breach of the 3% level could derail the risk appetite in the stock markets.
The Malaysian stock market closed lower again yesterday, stoked by fears of the increase in US Treasury yields which once again edged towards 3% during trading session. The FBM KLCI closed down 15.02 points or 0.8% to 1,865.34 points.
On Monday, the yield on the benchmark 10-year Treasury note jumped to 2.99% to toy with the key 3% level. The yield has not been that high since January 2014, which economists say could be a sign that the US’ inflation is picking up and it could slow consumer and business spending.
Affin Hwang Asset Management Bhd director of equity strategies and advisory Gan Eng Peng is of the view that the pace of the US yield increase is what is important.
“An acceleration of the rise in the US Treasury yield will lead to US dollar strengthening, and that will be negative for risk assets in emerging markets and [they]could see some outflows,” he told The Edge Financial Daily.
However, if the pace of the increase is gradual, the market will be able to absorb it, he added.
Areca Capital Sdn Bhd chief executive officer Danny Wong concurs, noting the Malaysian stock market remains fragile as the rising US Treasury yields indicates a possibility of a faster-than-anticipated rate hike, which could trigger an outflow of foreign funds from the country.
He noted that Malaysia has been one of the main beneficiaries from foreign fund flows this year and it could be affected if that happens. Similar to most emerging markets’ currencies, the ringgit weakened by 0.19% to touch a one-month low of 3.905 against the US dollar yesterday.
Technology counters, meanwhile, saw a spike at the last hour of the trading yesterday. The Bursa Malaysia Technology Index fell as low as 30.53 points in early trade before rebounding to close higher by 1.8% or 0.57 points to 31.55 points.
Wong said while the semiconductor stocks have seen some heavy selldown recently, if the inflation were to rise faster than expected, leading to a rising US Treasury yield, it will strengthen the US dollar and could benefit some of these technology companies, which are mainly exporters.
He remains optimistic about the stock market, pointing to sectors such as the manufacturing players, some of the semiconductor players on the back of their expansion in capacity, the oil and gas industry with the current oil level, as well as the small- and mid-cap segment, overlooked for most part of the year.
Wong acknowledges that in the short term, prior to the 14th general election, there will be some negative bias due to uncertainties surrounding it.
“Most of the institutions will reposition their portfolios to include more big caps compared with the small- and mid-cap stocks prior to the election. This would explain the strong rally seen in the [FBM] KLCI compared with the poor performance for the second and third liners so far this year,” he added.