Malaysian stocks fell to their lowest in two months yesterday on concerns of weak US economic data but analysts think improving private investments may help cushion the local economy.
Consumer spending in the US, Malaysia's fourth biggest export destination, declined in June, the first drop in nearly two years, hin-ting that the economy is stalling at midyear.
"With the US borrowing limit issue solved, investors are now concerned on the long-term challenges to US public finance," said Jupiter Securities Sdn Bhd head of research Pong Teng Siew when contacted.
The US deficit has now reached about 9 per cent of the country's economy, close to the highest since World War II. US lawmakers approved a plan to cut US$2.1 trillion (RM6.24 trillion) in spending over the next 10 years.
However, analysts remained split on the likelihood of a US recession this year. Pong believes there's a 50-60 per cent chance of a US recession this year, while Chris Eng, head of research of OSK Research, believed otherwise.
"I think there's a 20-30 per cent chance that the US will enter into a recession this year. There're risks, but they're minimal. We believe, if a recession were to happen in US, it would probably be next year," added Eng.
Investors will also keep a close watch on rating agencies' next move. Moody's, which maintained its US ratings for now, assigned a negative outlook to the "AAA" ra-ting. This means a downgrade is possible in the next 12-18 months. Standard & Poor's, which has been tougher than its rivals, threatened to downgrade by mid-October if lawmakers do not come up with a plan to meaningfully cut the budget deficit.
The FTSE Bursa Malaysia KLCI fell by as much as 1 per cent yesterday before recouping losses to end 0.6 per cent lower to 1,545.10 points yesterday. Casualties were across all sectors - from banks and plantation companies to gaming and tobacco companies. Top losers include British American Tobacco (Malaysia) Bhd (down 44 sen or 0.9 per cent), MISC Bhd (down by 17 sen or 2.25 per cent), Nestle Bhd (down 16 sen or 0.3 per cent) and Genting Plantation Bhd (down 9 sen or 1.1 per cent).
The decline is in line with the regional market performance. Stocks in Singapore, Hong Kong, South Korea, Indonesia, Thailand, fell by as much as 3 per cent yesterday.
Although the Malaysian stock market will not be spared should the US enter a recession and Europe's sovereign debt crisis worsen, the negative impact on local stocks and economy may be cushioned.
"The Economic Transformation Programme (ETP) is going to play an important role in cushioning the effects of these global issues. I think the ETP came at the right time and without the ETP, we would be in a much, much worse situation," said Pong.
Nevertheless, this may not be able to prevent a downgrade by local analysts, as they are now considering lowering their year-end forecasts on the benchmark index.
Jupiter has a 1,640-point target on the FBM KLCI, and may lower its forecast once it obtains more data. OSK remained optimistic of its 1,680 target.
Consumer spending in the US, Malaysia's fourth biggest export destination, declined in June, the first drop in nearly two years, hin-ting that the economy is stalling at midyear.
"With the US borrowing limit issue solved, investors are now concerned on the long-term challenges to US public finance," said Jupiter Securities Sdn Bhd head of research Pong Teng Siew when contacted.
The US deficit has now reached about 9 per cent of the country's economy, close to the highest since World War II. US lawmakers approved a plan to cut US$2.1 trillion (RM6.24 trillion) in spending over the next 10 years.
However, analysts remained split on the likelihood of a US recession this year. Pong believes there's a 50-60 per cent chance of a US recession this year, while Chris Eng, head of research of OSK Research, believed otherwise.
"I think there's a 20-30 per cent chance that the US will enter into a recession this year. There're risks, but they're minimal. We believe, if a recession were to happen in US, it would probably be next year," added Eng.
Investors will also keep a close watch on rating agencies' next move. Moody's, which maintained its US ratings for now, assigned a negative outlook to the "AAA" ra-ting. This means a downgrade is possible in the next 12-18 months. Standard & Poor's, which has been tougher than its rivals, threatened to downgrade by mid-October if lawmakers do not come up with a plan to meaningfully cut the budget deficit.
The FTSE Bursa Malaysia KLCI fell by as much as 1 per cent yesterday before recouping losses to end 0.6 per cent lower to 1,545.10 points yesterday. Casualties were across all sectors - from banks and plantation companies to gaming and tobacco companies. Top losers include British American Tobacco (Malaysia) Bhd (down 44 sen or 0.9 per cent), MISC Bhd (down by 17 sen or 2.25 per cent), Nestle Bhd (down 16 sen or 0.3 per cent) and Genting Plantation Bhd (down 9 sen or 1.1 per cent).
The decline is in line with the regional market performance. Stocks in Singapore, Hong Kong, South Korea, Indonesia, Thailand, fell by as much as 3 per cent yesterday.
Although the Malaysian stock market will not be spared should the US enter a recession and Europe's sovereign debt crisis worsen, the negative impact on local stocks and economy may be cushioned.
"The Economic Transformation Programme (ETP) is going to play an important role in cushioning the effects of these global issues. I think the ETP came at the right time and without the ETP, we would be in a much, much worse situation," said Pong.
Nevertheless, this may not be able to prevent a downgrade by local analysts, as they are now considering lowering their year-end forecasts on the benchmark index.
Jupiter has a 1,640-point target on the FBM KLCI, and may lower its forecast once it obtains more data. OSK remained optimistic of its 1,680 target.
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