Ringgit, KLCI continue to fall

Bursa Malaysia and the ringgit have come under heavy selling pressure in recent months

Local bourse down 24 points while ringgit closes at 4.099 to US$

PETALING JAYA: The FTSE Bursa Malaysia KL Composite Index (FBM KLCI) has come under pressure as the ringgit slipped further, dragging the FBM KLCI down as much as 10.71% year-to-date.

The FBM KLCI closed down 24.28 points to 1,572.54, with the ringgit closing at 4.099 against the greenback.

UOB Kay Hian Malaysia Research believes the continued depreciation of the ringgit would further impact the already weakening Malaysian equities market, which could lead to modest near-term downside and capping near-term recovery.

This could be seen from foreign funds stepping up their selling pressure on Malaysian equities last week, as the ringgit continued to depreciate, with net selling surging to RM1.47bil.

Net foreign selling was at RM403.8mil on Friday alone, with local retailers seen picking up battered-down stocks, with net buying rising to RM98.1mil in the week and RM24.8mil on Friday.

Local institutions were net buyers last week at RM1.318bil and RM379mil on Friday itself.

BIMB Securities Research said at this juncture, it believes that small mid-caps would continue to outperform the market, unlike past periods of high risk aversion.

“We expect the local market to trend sideways, with a slight downside bias due to continuous selling by foreign investors with the index hovering circa 1,590,” it said.

The FBM KLCI is set to trend lower due to China’s yuan volatility, the softer ringgit, the fall in commodity prices and the growing signs of a interest rate hike by the United States Federal Reserve.

CIMB said the fact that the stock market’s fall is closely tied to the weakening ringgit reminded investors of the 1997/19987 Asian financial crisis, which was triggered by plunging regional currencies, which, in turn, led to the collapse of the stock market.

However, it believes that this time, the pain is mostly domestic and corporate Malaysia has strong balance sheets and minimal foreign-currency debt.

“In fact, Malaysian companies in general should benefit from the weak ringgit, as exporters will become more competitive, while many companies have successfully ventured overseas and will gain from the currency effect,” it said.

The ringgit tumbled 3.8% against the dollar last week after reports on foreign-exchange reserves falling below US$100bil for the first time since 2010.

There are some views that it could further weaken to the 4.25 mark should there be more negative news.

Bank Negara governor Tan Sri Zeti Akhtar Aziz had said the central bank will not peg the ringgit and institute capital controls for the country.

She said that while the drop in the ringgit was unsettling, the central bank is confident that the ringgit would rebound and reflect its fundamentals once the external uncertainties are clear.