PETALING JAYA: While the emerging markets are still shuddering from the Covid-19 fallout, investors are gripped with the tapering of US Federal Reserves’ (Fed) stimulus and China’s economic reform.

       Last week, many emerging markets were in the red on the expectation that the Fed will end its bond purchasing programme worth billions of dollars that has driven the global equity market for more than a year.

       It was reported that the Fed is planning to reduce its US$120bil (RM509bil) monthly bond purchases before year-end after a string of economic data that indicated the world’s top economy was on the recovery track.

       Given the weaker economic outlook amid the Covid-19 pandemic, investors are worried that the risk of monetary policy tightening in the US could spark sell-off in emerging market assets.

       MIDF Research vice-president and head of research Imran Yassin Md Yusof expected the impact of Fed’s tapering would not be as huge as in 2013 when the Fed ended its four-year bond purchases programme with US$2 trillion (RM8.5 trillion) in total from the global financial crisis.

       MIDF Research vice-president and head of research Imran Yassin Md Yusof (pic, above) expected the impact of Fed’s tapering would not be as huge as in 2013 when the Fed ended its four-year bond purchases programme with US$2 trillion (RM8.5 trillion) in total from the global financial crisis.

       “The US Fed tapering of bond purchase in 2013 does not have any impact on our or emerging-market economic performance.

       “The impact was more limited to the financial markets. We believe that it will be more subdued because of fewer net inflows into emerging markets and better communications by the Fed.

       “We have observed that the Fed has communicated more on its plan and discussions on the issue of tapering to the market and this may give some time for investors to digest and reassess financial market pricing,” he told StarBiz.

       However, Imran reckoned that the volatility in the market would increase from the tapering of the Fed’s bond purchases programme.

       Last week, Bank Indonesia maintained its benchmark interest rate at a record low to protect the rupiah and to support the country’s recovery from the pandemic. Its governor Perry Warjiyo (pic below) also said the central bank had formulated a plan to deal with the eventual US policy tightening.

       Indonesia central bakn governon Perry Warjiyo

       Back in Malaysia, the local stock market has been in the doldrums since the beginning of the year.

       The country faced an uphill task in balancing between public health, economic activities and political uncertainties.

       On a year-to-date basis, the benchmark FBM KLCI as measured by 30 top companies on Bursa Malaysia fell more than 6.7% to 1,518 points.

       Former investment banker Ian Yoong expected the market to see a “mild rally” at the end of the year but it will depend on the government’s effort to shore up investor confidence and streamline policies.

       “The new government offers a fresh start for our financial market,” he said.

       He suggested that investors monitor the global capital markets as the US Fed is expected to start pulling back on stimulus measures this year.

       “It is probable that there will be a slowdown in the massive asset purchases in the coming months.

       “This generous stimulus package has been feeding the frenzy in global equities.

       “The outlook for equities is negative when the music stops. It is not the role of central banks to provide stimuli to stock markets,” he said.

       In terms of sector, Yoong prefers logistics compared to technology.

       He said the logistics sector is expected to experience a compounded annual expansion of 15% to 30% over the next three years on the back of astronomical growth in online shopping and the paradigm shift to working from home.

       “The technology sector on Bursa Malaysia has been on a tear. The technology index has appreciated 58.5% over the past 12 months. Certain technology stocks are trading at earnings multiples of 60-90 times.

       “The growth in earnings has to be astronomical to justify these stratospheric valuations,” he said.

       Meanwhile, Imran has maintained his outlook on the market, with the expectation of the FBM KLCI to end the year higher at 1,700 points.

       Among the sectors that he recommended are those tied to economic recovery such as automotive and banking.

       “We are also positive on commodities-linked such as the plantation and oil and gas sectors, as we believe there is a disconnect between the performance of the underlying commodities prices and the share prices of those companies, which we believe will likely narrow,” he said.