Affin Hwang says some countries have increased their gold holdings
PETALING JAYA: Affin Hwang Capital is seeing a shift in the demand for gold and its related instruments, as global uncertainties begin to affect investor sentiment.
In a note yesterday, the research house said demand for gold had risen 2% year-on-year.
“There has also been a gradual increase among developing nations to purchase gold, with the Russian Federation increasing its gold holdings by almost 200 tonnes in three quarters since the end of 2017, while Turkey had begun to increase its holding of gold in light of its currency crisis.
“While China and India have not increased their gold holdings significantly, with the current economic and political uncertainty, their respective central banks could undertake a round of gold-buying to boost their holdings.”
On the local front, Affin Hwang Capital said the upside to gold would be partially offset by a possible stronger ringgit of RM3.90 by end-2019, supported by Malaysia’s healthy economic fundamentals.
“The ringgit’s projection, however, would also be dependent on development in the United States Federal Reserve’s (Fed) monetary policy, including the ongoing shrinking of the Fed’s balance sheet,” it said.
The research house added that since the initial months of the trade war, the market has been relatively stable.
“Many saw opportunities that could have been taken advantage of with the imposition of tariffs upon China.
“However, as the trade war loomed, data on the effects of the trade war was published and it has evidently taken a toll on global demand and slowing production.”
Affin Hwang Capital said the grimmer outlook painted by many US companies during their quarterly briefings shed even more light on the effects of the trade war and bubbled up fears among investors.
“Exacerbated by the growing instability in the European Union with Brexit and the fracas between populist governments and the European Central Bank, we can observe an increase in fear among investors with the increase in the VIX index.
“The VIX index is slowly reaching levels where the 2015 to 2016 oil crisis took place and almost halfway to the 2008 to 2009 financial crisis.”
Furthermore, it said the decreasing oil prices, despite efforts by the Organisation of the Petroleum Exporting Countries or Opec to reduce global oil supply, were one of the many indications of an overall weakening global demand.
“All these factors prey upon investors’ risk appetite, as the risks stemming from these uncertainties do not justify their investments in equities, which has us heading into a bear market or bear market territory.”
But where risks in equities have increased, gold would find a pedestal whereupon most investors would turn to in this time of turmoil, said Affin Hwang Capital.
“Over the past two months, there has been a gradual shift in the inflows of gold purchases throughout the globe.”