PETALING JAYA: Investors should brace for further impact as the near-term outlook for the Malaysian stock market is unflattering, with US stocks sinking into bear territory.

       An analyst even recommended investors hold more cash than equities, considering the mounting risks globally including recessionary fears and inflationary pressures.

       “Foreign investors have been net sellers of Malaysian stocks in the past seven consecutive trading days, as part of their portfolio readjustment amid the interest rate hike in the United States.

       “This has been pressuring the local stocks.

       “I would recommend investors to just focus on short-term trades, if they really want to go into equities. But then again, any technical rebound will likely be capped,” the analyst told StarBiz.

       Investors on Bursa Malaysia are already moving to the sidelines.

       In the past week, 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%.

       Hit by low liquidity and poor sentiment, the FBM KLCI has fallen by 7.3% to below the 1,500-point level over the past two months.

       The selldown was also glaring among the second and third-liner stocks.

       However, Bursa Malaysia is not alone in enduring the market turbulence.

       The US’ S&P 500, for example, slumped by more than 20% this year, sending it into a bear market for the first time since 2020.

       Investors are fearing a potential recession in the United States – the world’s largest economy – and the domino effect on the global economy.

       The fear is triggered by market expectations that the US Federal Reserve (Fed) will raise its interest rate further to tame the rising inflation.

       Fund manager Danny Wong said it is possible for Wall Street, as well as Bursa Malaysia, to fall further if the global fears do not subside.

       “People are too concerned about the rising inflation trend, and thus, the expectation of rate hikes is high,” the CEO of Areca Capital said.

       Ahead of the Fed meeting, major US stock indices such as Dow Jones Industrial Index, Nasdaq Composite Index and S&P 500 dived by 2.79%, 4.68% and 3.88%, respectively, on June 13.

       Ipek Ozkardeskaya, a senior analyst at Swissquote Bank, said that all assets were heavily sold and the money piled into the US dollar, which is a sign of extreme stress in the market.

       “No one wants to take a chance on any asset other than the US dollar before the Fed’s decision, even the traditional safe haven assets are suffering right now,” she said.

       In the event the Fed proceeds with a 50-basis-point rate hike as planned, Ozkardeskaya said a relief rally could take place.

       “We don’t know on which foot the Fed will dance but the (hike) decision will probably be nothing more than ripping the band aid off, unless the Fed has a further hawkish surprise in its hat,” she said.

       Meanwhile, Rakuten Trade head of equity sales Vincent Lau opined that the US market could be due for a rebound, subject to the tone of the Fed in the June 14 meeting.

       As for Bursa Malaysia, Lau said the local market is “not far from the bottom”, although he acknowledged that the sentiment is “not great”.

       “The opportunities are still there. This is the time to buy, especially growth stocks such as high earnings technology counters.

       “For those who are risk averse, they can hold more defensive stocks,” he said.

       Lau pointed out that the outlook for Bursa Malaysia is likely to improve in the second half of the year, underpinned by the recovery in corporate earnings.

       “The fact that Malaysia is a beneficiary of crude palm oil and crude oil commodities could support market sentiment, as related listed companies are expected to report encouraging earnings,” he added.

       Another analyst also said that the FBM KLCI would be cushioned from a sharp fall because of the plantation as well as oil and gas-related stocks.

       “The weightage of technology stocks in FBM KLCI is also not huge, so the big drop in technology counters would not significantly affect the index,” he said.

       The technology sector holds a weightage of 1.57% in FBM KLCI, according to FTSE Russell.

       “For those investors who want to go into equities in this turbulent time, they can consider defensive stocks with good dividend yield such as Tenaga Nasional Bhd,” the analyst added.

       Areca Capital’s Wong also continues to believe that there are opportunities in the local stock market.

       “Our market has a low beta (risk) historically and we have many stocks with good fundamentals and valuation.

       “This is the time to look into value stocks.

       “For those who are taking a long-term view, growth stocks can be explored,” said Wong.