Rakuten Trade's Lau said the selling by foreign funds has dwindled down and should pose limited downside to the local market looking ahead.
PETALING JAYA: Bursa Malaysia bucked the trend among key Asian stock markets, closing marginally higher by 0.03% at 1,600.09 points yesterday.
This followed a more hawkish signal from the US Federal Reserve (Fed) that it would cut rates at a slower pace, moving forward.
On Wednesday, the Fed wrapped up its final meeting of 2024 by implementing a 25-basis point (bps) cut to its benchmark interest rate, bringing the target range for the fed funds rate (FFR) to 4.25% to 4.5% from its peak of 5.25% to 5.50% this year.
This decision marked the third consecutive rate reduction by the Fed this year, following a jumbo-sized 50-bps cut in September and an additional 25-bps adjustment in November.
The Fed’s decision was widely in line with market expectations.
However, what sparked a broader market sell-off across major markets was the Fed’s indication that it would shave borrowing costs by only 50 bps, unlike the previous projected 100 bps in September.
All three major Wall Street indices sank following the revised Fed outlook.
The S&P 500 fell 2.95% on Wednesday, while the Dow Jones Industrial Average suffered a drop of 2.58%, entering its 10-day losing streak, the longest stretch of consecutive daily declines since 1974.
Further, the tech-heavy Nasdaq composite also suffered a drop of 3.56%.
Regionally, Japan’s Nikkei 225 ended lower by 0.69% at 38,813.58. Singapore’s Straits Times closed down 0.44% at 3,762.88 while the Shanghai stock exchange fell 0.36% at 3,370.033.
Taiwan’s Taiex and India’s Nifty 50 both shrank by 1.02% to 22,932.25 and 23,955.15, respectively.
South Korea, which is battling an internal political crisis, saw its Kospi fall by 1.95% to 2,435.93, emerging as the worst performer in the region.
Analysts are largely of the view that the local bourse is expected to see limited pullback from the Fed’s more measured pace of policy easing going forward.
“I believe the correction on Bursa Malaysia should be minimal, extending into 2025, given the strong potential we have with data centres as a catalyst, coupled with a stronger US dollar,” Malacca Securities’ research head Loui Low told StarBiz.
Low added that slower-than-expected rate cuts will benefit the greenback and subsequently result in a weaker ringgit which is good for export-oriented countries like Malaysia and in particular, the glove and technology sectors.
“We expect the FBM KLCI to end the year within the 1630 to 1640 range, with the broad sentiment supported by window dressing. As for the ringgit, we project it to end relatively stable at 4.50 to 4.60 levels versus the US$ this year,” he said.
Analysts expected the ringgit to be supported by continued inflow of foreign direct investments and conducive government policies.
The local note depreciated to 4.5030/5080 against the greenback yesterday, compared to Wednesday’s close of 4.4670/4725.
In its fund flow report for the week ended Dec 13, MIDF Amanah Investment Bank Bhd said foreign investors continued to sell on Bursa Malaysia for the eighth consecutive week, with outflows totalling RM882.4mil, leading to the second-highest single-week outflow in the last six weeks.
This selling trend is not expected to end anytime soon with the momentum likely to continue until the next Fed meeting in Jan 2025, Tradeview Capital, CEO and founder Ng Zhu Hann said.
“Previously, there was already an outflow of foreign funds after president-elect Donald Trump won the election. So, the foreign fund outflow will not be as severe this time around as the Fed hints at a slower pace of rate cuts moving forward. The turnaround in foreign funds outflow could occur if the Fed shifts its hawkish stance in the upcoming meeting,” he said.
Rakuten Trade head of equity sales Vincent Lau said the selling by foreign funds has dwindled down and should pose limited downside to the local market looking ahead.
“Given the current conditions, our market is not as volatile as others, and I expect it to close around the 1,600 level. The Dow Jones has seen its longest losing streak recently, and while the Nasdaq and other indices have also taken a hit, I believe this is just a reality check after their earlier substantial gains. It’s likely just a case of profit-taking, which explains the sell-off,” he said.
