KUALA LUMPUR: The FBM KLCI fell further yesterday, marking its fourth consecutive day of losing streak. The benchmark index, which started the day on a positive note, failed to stage the expected technical rebound as news on China devaluing its currency triggered panic selling across the region and exerted pressure on Asian currencies, including the ringgit.
The KLCI rebounded to an intraday high of 1,661.62 points in the first hour of trading, but soon the bear swarmed the market, pushing the index to a low of 1,635.77. The index closed at 1,636.71, down 1.06% or 17.66 points from yesterday.
The market barometer has lost 88.85 points or 5.15% in the past four trading days.
Meanwhile, the ringgit continued on its downward path, weakening to 3.9735 against the greenback. China’s move to devalue the yuan adds fuel to the fall of the ringgit, in addition to the domestic political headwinds and concern about the local economy.
“The FBM KLCI was dragged down by continued selling pressure. We were hoping for a rebound today (yesterday), but since China had devalued its yuan, there was an aggressive decline in regional equities,” Etiqa Insurance & Takaful head of research Chris Eng told digitaledge DAILY.
“The FBM KLCI appears to be oversold, so there should be a rebound soon, but we will still have to keep an eye out for any further negative news,” he said.
Eng added that buying opportunities have surfaced, following the current selldown in the banking, utility, telecommunications and plantation sectors. He noted that there had been some weakness in plantation stocks, following Monday’s announcement of a 34% year-on-year surge in palm oil stockpiles to 2.27 million in July, its highest since November 2014.
Areca Capital Sdn Bhd chief executive officer Danny Wong opined that this could be the last leg of foreign selling on the local bourse. He said the direction of the KLCI moving forward will depend on the second-quarter gross domestic product figure to be announced tomorrow, and corporate earnings performance for the second quarter of 2015 that is due this month.
Meanwhile, MIDF Research maintained its year-end target of 1,800 points and said it expects the 1,650 support level to hold, unless foreign outflow from the domestic equity market intensifies and the ringgit continues to weaken against the US dollar.
“Even so, any breaches below the support level would only be sustainable if the move is associated with a major deceleration in the macro growth outlook,” it said.
It added that the weakening ringgit is positive for some companies with incomes or assets denominated in US dollar, and expects near-term price outperformance among glove makers, shipping companies and electronics exporters.
While the ringgit has seen a sharp drop, RHB Research said the ringgit had not entered a free-fall state, with the economic impact to be manageable. Despite the country’s lower international reserves, it said the reserves were still sufficient to finance 7.6 months of retained imports as at end-July, which is considered high.
“The level is still considered high by [the] international standard of three to four months of retained imports, and compared to 2.6 to 4.3 months registered during the 1997-98 period,” said RHB Research.
However, it noted that the cover of short-term external debt was low at 1.05 times, highlighting it as one of the country’s weaker points, compared with the days of the 1998 Asian crisis.
“The low short-term debt coverage suggests that it is important for Malaysia to maintain a high level of confidence among foreign investors through prudent economic management in order to encourage them to keep invested in the country,” said the research house.
Eng, on the other hand, said the ringgit seems to be approaching the 4.0 mark against the greenback.
“We had previously viewed that it would be unlikely that the ringgit will break the 4.0 mark against the US dollar, but it seems to be approaching that level,” he said, adding that the ringgit is currently undervalued.
This article first appeared in digitaledge Daily, on August 12, 2015.