PETALING JAYA: A sell-off in Japan triggered selling pressure in key regional markets and Europe, and sent Malaysia’s FTSE Bursa Malaysia KL Composite Index (FBM KLCI) down as much as 18.26 points to a low of 1,765.62.
However, the local market managed to reduce the losses, reflecting the firmer and resilient investor sentiment, although extended selling pressure in key regional bourses could have an adverse impact.
At the end of the day, the 30-stock index was down 10.82 points or 0.61% to 1,773.06. Losers outpaced gainers by 808 versus 160, signalling a weaker broader market. Total turnover was 2.14 billion shares valued at RM2.96bil.
However, the key regional markets fared worse. The Nikkei 225 – fresh from recording all-time highs in recent days – tumbled as much as 7.3%, while European bourses were also in the red.
The sell-off of Japanese equities yesterday, caused by speculation that the Federal Reserve might cut bond purchases, caused key regional markets, including the Malaysian and European markets, to dip into the red. European markets fell between 1.8% and 2.7%.
Additionally, China’s manufacturing data unexpectedly contracted in May for the first time in seven months, showing signs of economic growth slowing down for a second quarter. Albeit slower, China still recorded a gross domestic product growth of 7.7% in the first quarter, ahead of its government’s full-year projection of 7.5%.
The Nikkei 225, which fell 7.3% to 14,483.98, was the biggest one-day percentage drop in two years. The Hang Seng Index fell 2.54% to 22,669.68, while Shanghai’s Composite Index fell 1.3% to 2,275.67. Singapore’s Straits Times Index, meanwhile, fell 1.85% to 3,390.53.
Supported by global liquidity, an influx of foreign funds as well as a strong performance of the ringgit, the FBM KLCI climbed to a record-breaking high of 1,826.22 points on May 6 before ending the day at 1,752 after the 13th general election (GE13) results were announced.
Since then, it has been hovering at an average of 1,775.57 points.
Inter-Pacific Research Sdn Bhd head of research Pong Teng Siew is concerned that the Bank of Japan’s attempt to bolster growth via an unprecendented monetary stimulus is a reflection that the economy might fail.
He has told clients that Japan was the factor that posed the current biggest risk to worldwide financial systems.
Meanwhile, chief executive officer of Areca Capital Danny Wong expects foreign inflows to continue, as Malaysia is still relatively attractive in terms of valuations, compared to its regional peers.
“We still have some upside compared to regional markets. Foreign inflows would continue to come in until our valuations are the same as the region’s. Our market has been a laggard leading up to GE13. We are only now starting to catch up,” he said. However, Pong expects the inflow of foreign funds into Malaysia to end at some point of time. “All the owners of ‘hot money’ would be looking to profit from this inflow,” he said.
Since two years ago, about RM37bil in foreign funds have been flowing into the country cumulatively. “If the same amount were to flow out, it could be disruptive to our markets,” he added.
He said the biggest issue in the local bourse was excessive optimism. “Markets are growing complacent and pushing all worries aside. Although some earnings have dropped, or stalled, prices are still going up. This could lead to valuations being inflated,” he noted.
A bank-backed research head said that foreign funds that were in the country were mainly regional hedge funds. “The ‘hot money’ will rotate where the money is good. They may not continue to be a support if regional markets drop sufficiently. Instead, if local funds find value, they may step up to the plate and get back into the market, which would form some sort of support if foreign funds exit,” he said.
Banking stock CIMB Group Holdings Bhd dragged the FBM KLCI down by 1.89 points, down 11 sen to RM8.51. Genting Bhd fell 20 sen to RM10.30, while Hong Leong Financial Group Bhd was 46 sen lower to RM14.94.