Foreign fund outflow slows over holiday-shortened week

Foreign fund outflow slowed during the holiday-shortened week of May 21 and 23 to RM252.98 million compared with RM1.0 billion last week.

Bank Islam Malaysia Bhd chief economist Mohd Afzanizam Abdul Rashid said foreign investors were offloading their position in view of the heightened uncertainties.

"We believe that this period of heightened uncertainties will continue to hog the limelight between now and until the G20 summit scheduled for end-June. Economic data has been soft judging from the recent Purchasing Managers' Index (PMI) indices," he told Bernama.

The PMI for manufacturing in the Eurozone is currently at 47.7 points for May, suggesting manufacturers' sentiment is generally pessimistic, and this could have an impact on their decision to hire and capital expenditure, said Mohd Afzanizam.

Similarly in the United States, the PMI for manufacturing fell to 50.6 points in May from 52.6 points previously, while Japan’s manufacturing PMI slid to 49.6 points in May from 50.2 in April.

"Businesses in the advanced world are very cautious now. Therefore, it is a risk-off mode and typically, investors would seek shelter in safe haven instruments such as bonds and safe haven currencies such as the US dollar, Yen, Euro and Swiss Franc," Mohd Afzanizam pointed out.

Meanwhile, local institutions remained a net buyer at RM230.67 million between May 21- 23, lower against the RM934.18 million recorded in the same period the previous week.

Asked about the escalating trade tensions between the US and China, Mohd Afzanizam said the impact on the global supply chain in the technology sector could be quite severe, with the blacklisting of Chinese telco giant Huawei.

"Of course, there is talk that trade diversion would happen and benefit other Asian countries. However, the transition to a new supplier could take a while in many respects, especially from the operational point of view.

"So, we think the trade diversion story is for the medium to long term," said Mohd Afzanizam.

According to the International Data Corporation (IDC), the sales of global smartphones declined by 6.6 percent in the first quarter of 2019, led by major brands such as Samsung and Apple, which fell by 8.1 percent and 30.2 per cent respectively, while Xiaomi and OPPO contracted by 10.2 percent and 6.0 percent.

"In that sense, the technology sector is already on a declining trend in terms of sales. With or without the trade war, the technology sector appears to be already softening," said Mohd Afzanizam.

On another note, it was reported that oil prices tumbled on rising demand risks over the US-China trade war.

The benchmark Brent crude was trading lower at US$67.23 per barrel on Friday (as at time of writing) from US$73.08 per barrel on May 20.

FXTM market analyst Han Tan said the rapid deterioration in US-China ties brings next month’s Organisation of the Petroleum Exporting Countries (Opec) meeting into sharper focus.

“Demand side risks are set to feature prominently in the upcoming decision by oil producers on whether to maintain production cuts going into the second half of the year.

“Ultimately, the US-China standoff is expected to dent global oil demand for 2019 and complicate attempts by OPEC+ producers to rebalance the global oil markets, while further bouts of volatility should not come as a surprise to traders moving forward,” he added.

On a Friday-to-Friday basis, the ringgit fell to 4.1870/1900 against the US dollar from 4.1750/1780 previously.

Due to the ongoing global uncertainties, the ringgit is expected to trade between 4.1850 to 4.1950 against the greenback next week.

- Bernama