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Monday, December 22, 2014

Foreign-selling temporary, market to bounce back: Philip Capital

KUALA LUMPUR: The foreign-selling of Malaysian bonds and shares in the last two months leading to depressing market sentiments is due to a weaker ringgit rather than a bleak economy, and as such the trend is temporary, according to Philip Capital Management.
“When foreigners sell their stockholdings due to weaker currency instead of deteriorating economy, the disposals are only temporary as a weaker currency will erode their investment based on exchange rate,” the fund management company said.
It opined that the weaker ringgit was unwarranted because while lower oil price had some impact on government coffer, it did not impact the overall economy so much.
“The 45% plunge in crude oil price has led to fear that our Malaysian government oil revenue from Petronas would be substantially reduced and it would not be able to trim its 2015 budget deficit from -3.5% this year.
“On top of that, there is also fear that our trade balance may also turn into deficit. Traders took the opportunity to short our ringgit, which fell by more than 10% since August peak,” Philip Capital said.
However, it pointed out that Malaysian Government debts were almost entirely from domestic sources, and there would be no problems in servicing the debts. It added that were also no fears of ratings agency downgrading the country’s sovereign rating, as the Government had done the right things by implementing GST, removing subsidies and taking concerted efforts in reducing the budget deficit.
“Therefore, we consider the present foreign-selling as reluctant sellers and when the ringgit stabilises, these funds will return and so will our market,” Philip Capital said.
It explained that such a scenario had happened before in other overseas markets.
“When the drop in currency finally stabilised and subsequently recovered, these stock markets also rebounded. Therefore, we see the ringgit weakness as temporary and when the ringgit rebounds so will our stock market,” the fund manager stressed.
Philip Capital cited the example of the Indonesian and Philippines stock markets, which plunged last year following the fall in their currencies for fear of their twin deficits (budget and current account deficits).
The Jakarta Composite Index (JCI), for instance, fell by 19.6% between June and August 2013 when Indonesia rupiah tumbled 13% over the same period.
“However, once their currencies recovered, both the JCI and the Philippines stock exchange rebounded strongly with year-to-date gain of 18%,” it said.

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