KUALA LUMPUR, Sept 8 (Bernama) -- Bursa Malaysia closed almost flat on Tuesday as buying interest rotated away from index heavyweights towards smaller-cap construction stocks, with sentiment affected by geopolitical uncertainty, said an analyst. At 5 pm, the FTSE Bursa Malaysia KLCI (FBM KLCI) eased 0.39 of a point to 1,714.40 from Monday’s close of 1,714.79. The benchmark index opened 1.65 points lower at 1,713.14 and moved between 1,710.44 and 1,714.50 throughout the trading session. The broader market was almost evenly balanced, with decliners leading gainers 548 to 546, while 598 counters were unchanged, 1,107 were untraded and 25 were suspended. Turnover expanded to 4.13 billion units valued at RM3.14 billion from 3.60 billion units valued at RM2.45 billion on Monday.
The bond-market tremors came two weeks and two continents apart.
Key Takeaways:
- French Election Impact: In mid-June, French President Emmanuel Macron’s decision to call a surprise election triggered a selloff amid fears a new government would ramp up spending.
- US Political Turmoil: Treasury yields jumped after Donald Trump trounced Joe Biden in the presidential debate, raising concerns about a surge in the US deficit if Trump returns to the White House. Biden's announcement to withdraw from the race and endorse Kamala Harris added another twist.
- Global Debt Surge: The OECD projects government debt from major nations will swell by $2 trillion this year to a record $56 trillion. Deficits have piled up due to heavy spending post-pandemic.
- Market Reactions: Investment firms like BlackRock Inc. are favoring shorter-term bonds to mitigate long-term risks associated with surging debt and political instability.
- Fiscal Warnings: The IMF warned that newly elected governments might boost spending, exacerbating fiscal challenges. The Bank for International Settlements highlighted the growing vulnerability of governments to a loss of investor confidence.
European Bond Market Turbulence:
- Macron’s Snap Vote: Macron dissolved France’s parliament, calling for a snap election. Concerns over Marine Le Pen’s far-right National Rally victory pushed French bond yields to their highest against German debt in over a decade.
- ECB Concerns: ECB President Christine Lagarde emphasized the need for adherence to fiscal rules, breached by several EU nations.
US Election and Fiscal Risks:
- Deficit Concerns: With the US deficit nearing $2 trillion, Trump's plans to extend tax cuts could increase fiscal strain. Vanguard and Fidelity noted that a Republican sweep would pose significant risks to bonds and inflation.
- Trump Trade: After an assassination attempt boosted Trump’s candidacy, long-term bonds slid as investors speculated on a steeper yield curve, briefly erasing the inversion between 30-year and 2-year yields.
Lessons from Other Economies:
- Japan: Despite a debt-to-GDP ratio of about 250%, Japan has seen little fallout due to its central bank's quantitative easing program.
- UK’s Cautionary Tale: Former Prime Minister Liz Truss was ousted after her plans for large unfunded tax cuts led to a surge in government bond yields, highlighting the swift market reaction to fiscal imprudence.
Investor Sentiment:
- Political and Fiscal Stability: Investors are wary of political uncertainty, instability, and increasing fiscal risks. The focus remains on policy credibility to maintain market confidence.
The bond market continues to navigate the complex landscape of rising debt and unpredictable political shifts, with significant implications for global financial stability.
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