Persian Gulf tensions hit equities and ringgit
RISING tensions in the Persian Gulf saw investors moved to a “risk off” position in favour of safe-haven assets including gold and the US Dollar as energy prices rose in tandem.
Analysts believe the higher oil prices will not lead to inflationary pressures in the Malaysian economy due to the subsidised fuel mechanism in place, and thus allowing Bank Negara Malaysia (BNM) the room to cut rates should economic growth decline.
Iranian missiles hit two US bases in Iraq yesterday in retaliation of the killing of Iranian General Qassem Soleimani last week.
“Financial markets and emerging currencies, including the ringgit, are first to be hit by flight to safety and safe-haven currencies,” Sunway University Business School economist Prof Dr Yeah Kim Leng told The Malaysian Reserve.
The FTSE Bursa Malaysia KLCI Index (FBM KLCI) declined 1.36% or 21.94 points to 1,589.1 yesterday, the biggest fall since Dec 31, 2019.
Bloomberg data showed the index had a similar or greater loss three times in the past year, however, it advanced the next day on all three occasions.
The ringgit weakened 0.26% against greenback to close at 4.1 yesterday.
“The missiles launched by the Iranian forces, which hit the US bases in Iraq, suggest military aggression is likely to be escalated. This could lead investors to be more risk averse, preferring to hold more cash instruments such as money markets and bonds over risky assets such as equities,” Bank Islam Malaysia Bhd chief economist Dr Mohd Afzanizam Abdul Rashid said.
Yeah said the decline in equity and the ringgit are moderated by higher oil prices and domestic economic resilience.
As at 7pm yesterday, Brent oil was priced at US$68.81 (RM282.22) per barrel, while the crude oil West Texas Intermediate was at US$62.95 per barrel.
Yeah expects the Consumer Price Index to normalise this year, but remain below long-term trend.
“Part of higher oil price pass through is mitigated by the postponed fuel subsidy scheme. Muted inflation expectations due to absence of strong demand pressure along with a currency with a strengthening bias will help keep inflation low,” he said.
Mohd Afzanizam agreed, adding that BNM would not want to hike interest rates at a time when growth prospects remain uncertain.
Oil and gas (O&G) companies were most actively traded yesterday with Alam Maritim Resources Bhd gaining one sen or 2.78% to 19 sen with some 180 million shares traded.
Sapura Energy Bhd saw 108.39 million shares traded, but closed unchanged at 28 sen.
Velesto Energy Bhd closed one sen or 2.6% higher to 40 sen, with 89 million shares exchanging hands.
Bumi Armada Bhd fell three sen or 4.72% to 51 sen, while upstream concern Hibiscus Petroleum Bhd rose three sen or 3% to RM1.03 with 58.4 million shares traded.
Rakuten Trade Sdn Bhd research VP Vincent Lau said the absence of a rally in O&G counters is because investors are taking a wait-and-see approach.
“US President Donald Trump said there are no casualties, while Iranian Foreign Minister Mohammad Javad Zarif said his country does not seek an escalation or war, so investors might want to wait and see. People are, however, moving their money to safe-haven assets such as gold, as the counters gained during the day,” he said.
Poh Kong Holdings Bhd was the top gainer in the local bourse yesterday after increasing 17 sen or 30.56% to 71 sen.
Tomei Consolidated Bhd closed 13 sen or 26.6% higher at 60 sen. As at 7pm yesterday, gold prices rose 0.42% to US$1,580.95 per troy oz.
Fears of cautious consumer sentiment saw investors sell down fast moving consumer goods stocks like Nestle (M) Bhd, Fraser & Neave Holdings Bhd and Dutch Lady Milk Industries Bhd.
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