The NEXT for the market~

The KLCI fell close to pre election levels yesterday (22 Aug 2013) almost wiping out gains made after the 13 GE partly due to the sell down of big cap stocks by foreign investors.

The market may be volatile for a while. However these should be no cause for concern as foreign holders in local shares are 23% to 24% relatively lower than the historical high of about 28% before the Asian Financial Crisis of the late 1990s.

Though some panic sellers may still be looking to reduce their holding out of fear of further foreign selling in emerging market, market observers foresee that a suture sell down of Malaysian equities would be a short term event driven by sentiment.

Do not anticipate more to come as we are relatively not as bad as other emerging markets such as Indonesia and Thailand and India.

GDP is still 4% with the current account still in surplus, compared with Thailand which has entered a technical recession with two consecutive quarters of contraction.

Another contributing factor to the sell down is the rising US dollar that has worried emerging markets as US assets become more attractive.

The Asean sell off is in its second leg, noting that weak balance of balance is prompting a sell off in most Asian currencies. This has prompted a fair amount of foreign fund withdrawals as their portfolios are measured in US dollars.

Weak Asian currencies have led to shrinkage in the value of portfolio even if stock prices stayed flat.

A large part of the Malaysian stock market’s peaks and troughs has been driven by foreign liquidity.

A significant number took the position that the BN would be returned to power and they were amply rewarded with the post election bounce.

The heard response will end when there is greater clarity in the timing and effects of the unwinding of the US Fed’s balance sheet.

Meanwhile the ringgit fell to a fresh three year low against the greenback to 3.31 on the back of concerns overt the FED’s withdrawal of it asset buying programme, a narrowing current account surplus and weakening government finances in Malaysia.