KUALA LUMPUR: From the impending higher interest rates in the United States to conflict in Europe, stocks on Bursa Malaysia continued their downward spiral that was triggered by a broad-based selldown of technology stocks.
The FBM KLCI ticked off another down day and inched closer to the psychological 1,500-point mark amid mounting geopolitical tensions between Russia and Ukraine.
Investors were also jittery ahead of a key US Federal Reserve (Fed) meeting that could offer hints about the timing and pace of rate hikes.
The FBM KLCI dropped 0.85% or 12.95 points to 1,508.91 at the close yesterday after rising to an intraday high of 1,517.09.
Market breadth was negative as losers overpowered the gainers on a ratio of four to one. A total of 2.8 billion shares worth RM2.14bil was traded yesterday.
Areca Capital chief executive officer Danny Wong said the stock market’s dismal performance was expected and in line with regional and global equity market trends.
“There will be sentiment issues in the market. Some of the short-term investors are switching gears to a more defensive play to preserve their capital in light of the global volatility,” he told StarBiz.
Areca Capital Danny Wong
Rakuten Trade head of equity sales Vincent Lau said the volatility in the local stock market would likely continue if conditions on the global front continue to worsen.
“Our market is also taking cue from the global volatility. The Dow Jones was down 1,000 on Monday but it closed higher. The news of the tensions in Europe and potential interest rate hike by the Fed will continue to sour investor sentiment.”
However, Lau said the volatility may just be temporary and more of a “knee-jerk reaction” to the near-term uncertainties.
“I believe it’s just a knee-jerk reaction and volatility could continue, looking at the upcoming Fed meeting. However, with the results season already commencing, we believe that this will provide a bit more guidance and also a catalyst to sustain our market.”The US Federal Open Market Committee is set to meet this week and make a decision on how to curb the surging US inflation, which is at a 40-year high.
Experts said interest rates could start rising by as early as March for the first time in three years.
In a report published on Sunday, the Jubilee Debt Campaign (JDC) revealed that debt payments by developing countries had more than double since 2010 and would increase further if the Fed does push up interest rates.
Some experts have predicted that the Fed would hike interest rates four times.
The JDC is a coalition of national organisations and local groups around the UK that focuses on external debt incurred by governments of developing countries.
Additionally, global investor sentiment has also been rocked by mounting fears that Russia could launch a military invasion into Ukraine, with the United States threatening to impose sanctions on the former in a bid to prevent a full-blown war.
Rakuten's Vincent Lau
This saw the Dow Jones Industrial Average eking out a 99-point gain on Monday in an 11th-hour rally, after plunging as much as 1,000 points on a day of volatile trading.
The North Atlantic Treaty Organisation, an intergovernmental military alliance comprising 30 countries, said on Monday it was putting forces on standby and reinforcing eastern Europe with more ships and fighter jets, in what Russia denounced as Western “hysteria” in response to its build-up of troops on the Ukraine border.
In the event that things get worse, Wong cautioned that investor sentiment all over the world would be affected.
“Sentiment will be affected globally, as the environment becomes more averse on the equity side.
“However, Asia, especially Malaysia and Hong Kong, being the laggards since last year, may benefit from this.”
Wong suggested that tensions in the West could see more investors looking to Asia for better investment prospects.
“International investors may shift their funds and allocate their investments into this part of the world where there is still growth.
“In such a situation, they may look to markets that can offer deep value, especially Malaysia, which has not seen an increase in foreign interest.
“But lately, you can see the foreign flow has been quite positive.”
Lau, meanwhile, is hopeful that tensions between Russia and Ukraine will not escalate further.
“For now, we believe that investor reaction is premature but it remains to be seen whether it will escalate into a full-blown war. We are hopeful that it will not happen.”