Thursday 28 Mar 2024
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This article first appeared in The Edge Financial Daily on April 4, 2019

KUALA LUMPUR: Malaysia’s financial markets may be negatively affected by the rebalancing of investment portfolio by international investors as they move away from volatile emerging markets to more stable advanced economies, given that foreigners own about a quarter of local listed equities, according to Moody’s Investors Service.

Moody’s senior analyst for sovereign risk group, Anushka Shah, suggested keeping an eye on the situation as there could be an impact on confidence in terms of the financial flows which could have “spillover effects into other areas of the economy.”

“For one, there would be a degree of choppiness associated with these flows now as you see policy uncertainty filter through into the capital market,” she said, adding the high degree of participation and foreign investment in the equity market, whereby about 25% of equities listed on Bursa Malaysia are held by international investors, which “puts Malaysia on a high risk”.

At a media briefing yesterday on Moody’s credit outlook for Malaysia in 2019, its managing director and chief credit officer for the Asia-Pacific region, Dr Michael Taylor, said financial market volatility in the region is expected to continue throughout this year.

“We’ve seen in the first quarter of the year [that the financial markets were in] relatively stable and benign conditions but we still think that there is potential for further volatilities in the rest of 2019.”

Taylor attributed the volatility to the uncertainty of US trade policy following heightened trade tensions with China, as well as with its other trading partners. “Even if we do see a US-China trade agreement, I think there are other areas of tensions between the US and its other major trading partners that will continue to dominate the news flow in 2019.

“Markets don’t like uncertainty. If uncertainty rises, there is always a chance that the financial markets will respond to that,” he added, pointing to the outflow of capital from emerging-market assets, especially equity markets, in 2018.

“The move into emerging-market assets was something which happened post global financial crisis because the yields or the returns on those assets were higher than what was available in advanced economies especially when US dollar interest rates were so low. As US dollar interest rates have risen, that has encouraged some portfolio rebalancing to move out of emerging-market assets.”

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