MORE analysts and fund managers are telling investors not to catch a falling knife.

       Global stock markets are going through a turbulent time, where fear has overwhelmed fundamentals.

       Even the companies with strong earnings prospects are seeing their shares tumbling, signalling that the frenetic stock rally may have finally come to an end.

       So far this year, the US Dow Jones Industrial Index is down by over 18%, while the FBM KLCI fell by only 7%.

       The FBM KLCI “outperforming” the Dow Jones is not a complete shocker, considering that Malaysian blue-chips have already been battered since last year due to weak local sentiment.

       What is more worrying is that the FBM Small Cap Index is edging closer to bear territory after falling by 14.5% in the past two months.

       The bearish market sentiment has also affected assets outside of the equities universe such as cryptocurrencies.

       Luno Malaysia country manager Aaron Tang says the cryptocurrency market has been in a sideways or bear market since May 2021.

       “However, since November 2021, sentiment has changed drastically given the Federal Reserve’s (Fed) rate hikes and inflation management.

       “If one looks at previous bear markets, bitcoin has declined around 80% normally, with altcoins typically doing 90%.

       “If that remains the case, we could see much lower bitcoin prices over the next month or two,” he says, adding a caveat that past performance is not indicative of future trends.

       Meanwhile, the spot price of gold – traditionally seen as a safe haven – has also fallen by almost 7% in the past two months.

       Amid the massive sell-off in risk assets, global fund managers have turned more cautious on equities.

       In addition, an increasing number of them are keeping cash as they take a wait-and-see approach.

       In its recent monthly survey, Bank of America reported that fund managers’ fears of stagflation are at the highest since the 2008 financial crisis, while global growth optimism has sunk to a record low.

       Global profit expectations also dropped to 2008 levels, with about 73% of the respondents expecting a weaker economy in the next 12 months.

       Looking ahead, one wonders whether the world is entering a long period of a bear market. Concerns on surging inflation and a potential recession just as the global economy starts to recover, have dampened sentiment.

       The fact that the Fed and central banks across Europe are raising interest rates, some by amounts that shocked markets, have elevated the fear on global economic outlooks.

       In Malaysia, all eyes are on Bank Negara’s decision on the overnight policy rate in its upcoming July meeting.

       While many economists believe that the central bank is unlikely to be as aggressive as the Fed in raising interest rates, there are fears that an untimely hike in the overnight policy rate could cap economic recovery.

       As it is known, higher borrowing costs would erode households’ disposable income and squeeze corporate profits, especially when the economy is yet to return to its full capacity.

       A veteran investment analyst says the world economy is seeing “unprecedented pressures”.

       “The market is expected to be in doldrums for the next 12 months,” he opines.

       He notes that the current market situation is somewhat similar to that of the early 1980s.

       This is a period where the stock market slumped, amid rapid inflation and slow economic growth.

       It took several years for the stock market to recover.

       “Nevertheless, the market dynamics is certainly different now, and Malaysia has a more diversified economy now than in the 1980s.

       “But, external factors including the economy-related issues faced by the world’s two biggest economies – the United States and China – will continue to pose headwinds on Malaysia,” he says.

       The bearish market sentiment has taken a toll on market liquidity.

       In the past week ended June 10, the average daily trade value (ADTV) of institutional and foreign investors saw a reduction of 20.67% and 56.81%, respectively, according to MIDF Research.

       Only retail investors experienced a weekly ADTV growth, albeit a marginal 0.32%.

       After weeks of encouraging foreign fund inflows, the trend has seen a reversal in the past several trading days.

       Out of 10 trading days between June 2 to June 16, foreign investors have been net sellers for nine days.

       As investors continued to take flight, the FBM KLCI sank 1.09% yesterday to its lowest in two years.

       The market bellwether eased 16.03 points on June 17, or 1.09% to 1,456.74 points, its lowest since May 2020. On a Friday-to-Friday basis, the index tumbled 37.21 points.

       Amid concerns on market liquidity and the net selling by foreign investors, fund manager Danny Wong notes that Bursa Malaysia is supported by a “significant presence” of local institutional funds.

       These include the Employees Provident Fund, the Retirement Fund Inc, Permodalan Nasional Bhd and other private asset management firms.

       Local institutional investors comprised 31.16% of the total value of securities traded on Bursa Malaysia.

       The presence of local institutional investors would somewhat help to cushion the local market from a massive crash.

       Wong, the CEO of Areca Capital, however cautioned that it is possible for Wall Street, as well as Bursa Malaysia, to fall further if the global fears do not subside.

       Amid the widespread negative headlines globally, it is not entirely doom and gloom for the stock market.

       Rakuten Trade head of research Kenny Yee believes that there remain opportunities for investors.

       He also does not think that investors should keep cash instead of equities, moving forward, as urged by some market players.

       “I’m not saying that investors should go all in, but this is the time to acquire shares that you have been wanting to, given the current prices.

       “Nobody can say for sure whether the market has bottomed, you wouldn’t want to miss the ride if the market rebounds,” he says.

       Yee expects the Asian stock markets to rebound faster than those in advanced markets.

       “Most of Asian markets have been trading below historical average valuations. Now that the US dollar is stronger, it makes more sense for foreign investors to invest in Asian markets.

       “The sentiment will remain cautious moving forward, nevertheless, trading opportunities will continue to be there,” he tells StarBizWeek.

       Within the cryptocurrency universe, players think the recent dramatic crash would not stop investors’ interest in the instrument.

       Changpeng Zhao, the boss of the world’s biggest cryptocurrency exchange Binance, told AFP that the recent crash is just part of an economic cycle.

       Luno Malaysia’s Aaron Tang says that the cryptocurrency exchange has always reminded its investors to be cautious and not take on any risks they cannot manage.

       “In times of high volatility, as we’ve seen over the past few weeks – trading volume on digital asset exchanges increases.

       “This has happened on Luno as well. We regularly see days where more than 100 bitcoins per day are being traded on our Malaysian platform,” he says.