KUALA LUMPUR (March 29): Renewed uncertainty over the speed of monetary tightening in the US in the face of sustained inflation growth and the failure of some US banks in the first quarter of 2023 have dampened the performance of global equity markets, including Malaysia.

However, recent volatility in the banking sector of some advanced economies had minimal impact on Malaysian financial markets, according to Bank Negara Malaysia (BNM). 

“While the risk of sentiment among investors due to the concerns in the global banking sector has placed some pressure on the domestic equity market, especially banking counters, the impact was nevertheless moderate and short-lived,” said BNM in its Financial Stability Review report for the second half of 2022.

“The [central] bank remains vigilant of potential spillover risks from the global banking sector to domestic financial markets,” it added. 

The domestic equity market performance declined in 2022, in tandem with the performance of regional markets, weighed down by profit-taking activities in technology and healthcare counters, amid an environment of rising interest rates and waning concerns over the Covid-19 pandemic.

“Notwithstanding this, an easing in global financial conditions towards the end of 2022, stronger domestic economic activity, and positive investor sentiment amid an orderly political transition, following the 15th general election, lent some support to equities in the fourth quarter of the year,” said BNM. 

Meanwhile, non-resident flows into equities had turned negative since September 2022, partly reflecting subdued investor sentiment, following continued inflationary pressures and expectations of faster monetary policy tightening by major central banks, said BNM. 

“However, for 2022 as a whole, non-residents were net buyers in the domestic equity market (with a net inflow of RM4.4 billion), after recording four consecutive years of net outflows since 2018,” it said. 

“Retail investors remained a key player in the market, although the level of participation has declined from the highs seen during the pandemic (year-to-date average: 27.3%; 2020-2021 average: 34.3%) amid higher returns on deposits, and sharp price corrections in the technology and healthcare sectors. 

“These investments have not, so far, been associated with an increase in leverage, shielding households from debt-related stress due to volatile equity prices,” said BNM. 

Household loans to purchase quoted shares remained small and stable at 0.5% of total banking system loans, unchanged from the five-year average share of banking system loans, the central bank added. 

Don't miss the other highlights of the BNM Annual Report 2022. Read the articles here.