KUALA LUMPUR: Foreign investor sentiment appears to have improved in July, according to MARC Ratings Bhd.
The firm said positive foreign inflows in the local equity market marked a reversal from 10 consecutive months of net selling.
"On the bond market, the negative yield spread between Malaysian Government Securities and US Treasuries widened further to 38 basis points in August amid aggressive US rate tightening.
"The negative spread, in our view, could be a source of volatility in the short term. However, the rhetoric on US monetary policy should turn dovish over time, eventually raising interest in emerging markets," MARC said in a statement today.
The firm said the July Federal Open Market Committee minutes suggested that more rate hikes might be needed to bring down inflation.
However, the below-market expectation data on non-farm payrolls suggest a potential softening of the labour market, which could set the stage for a turn towards a dovish narrative.
"Looking ahead, we believe that the tightening cycle in the advanced economies will conclude as early as the first half of 2024, albeit at a different pace according to their respective economic conditions."
MARC maintained its 2023 inflation forecast at 2.8 per cent, with the easing inflation trend expected to continue into 2024 at 2.5 per cent.
"In view of this, Bank Negara Malaysia is likely to maintain the overnight policy rate at 3.00 per cent for the rest of the year."
Overall, tighter monetary conditions and a challenging external environment could constrain domestic growth ahead, which was reflected in the moderation of the second quarter's (Q2) gross domestic product (GDP), it added.
Malaysia's economy registered moderate growth of 2.9 per cent in Q2, presaged by weaker performance of the external sector.
MARC said sustained economic expansion over two consecutive quarters had kept growth on track towards the official year-end GDP target of 4.0-5.0 per cent.
Private consumption and recovering tourism activities remained key drivers, offsetting the weaker external sector, it added.
For now, the firm maintained its forecast for full-year 2023 GDP growth at 4.2 per cent.
After consecutive months of trade contraction, exports slowed further to -13.1 per cent in July, dragged by a double-digit fall in palm oil and petroleum products as well as exports to Asean partners.
"Softer demand from key partners, lower commodity prices and the global technology downcycle could weigh on the export outlook in the coming months," MARC said.
Source: https://www.nst.com.my/business/2023/09/950969/improved-foreign-inflows-malaysia-marc