What's NEXT For The Market as at 23 Dec 2013 ..

Most markets across Asia had only reacted mildly towards news that the US Fed would start to taper its US85 billion monthly bond buying programme in Jan 2014. It will scale back its QE measures by shrinking its monthly buy back quota by USD10 billion to USD75 billion a month.

Tapering is negative for Asean markets, but so far (19 Dec 2013) the reaction has been stable and the impact has been minimal. Part of the reason is that most of the foreign fund managers have already wrapped up for the year and have gone on holiday. Once they come back in 2014, we could see some impact.

Amid QE tapering concerns, foreign institutions have been net sellers on Bursa Malaysia for most of 2013. Going forward, as US continues to see improving fundamentals in its economy, the flow of funds back to the US is expected to pick up.

There is not going to be a one off hit on the market but this is far from over. The USD10 billion cut is well within expectations and not too big. However the Fed is expected to continue to tapering in 2014, possibly brining it down to zero by end of 2014.

The ringgit has weakened but it has less to do with QE tapering and more to do with inflationary expectations within Malaysia.

Observers expect any increase in interest rate in the near term will to be to address rising inflation.

Moreover we will likely to see another round or two of subsidy rationalization in 2014.

Also expecting BNM to only consider rising interest rates sometime in second quarter 2014, possibly after their May 2014 meeting.

Since foreign holdings of MGS were larger than foreign holdings of equities, there was a bigger concern on the local debt market than the equity market.