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Market to be positive next week due to optimism in China's economic reopening against recession fears, rising interest rates

Market performance is expected to be positive this week despite the mixed sentiment in the Asian markets.  REUTERS/Olivia Harris

KUALA LUMPUR: Market performance is expected to be positive this week despite the mixed sentiment in the Asian markets last week due to optimism in China's economic reopening against recession fears and rising interest rates.

Rakuten Trade Sdn Bhd vice-president of Equity Research Thong Pak Leng said China's shift away from its strict zero-Covid policy will help to curb inflation.

"I think the market will be positive as investors are hoping for more relaxation in lockdown in China, which will help restore global supply chains and curb inflation," he told the New Straits Times.

Widespread protests were held last month in China against the strict measures enforced to curb the spread of Covid-19.

The public had called for political freedoms, which led authorities to announce a loosening of restrictions on Wednesday.

In light of the anticipated interest rate increase by the United States Federal Reserve, Thong said there would be a 'knee-jerk' reaction if the US central bank decides to announce a 50 basis point (bps) hike at its final policy meeting.

This is compared with the previous four-straight 75-point increase that the Fed had taken.

"However, the US cannot forever raise the interest rate because this will eventually hurt their economy too. I believe there will be a slowdown in this," he said.

Areca Capital chief executive officer Danny Wong said the market would be influenced by the outcome of the US Federal Open Market Committee (FOMC) meeting, which will be held on December 13-14.

"But I am positive on the Asian market as China is moving towards opening its door," he said.

Analysts have also warned of a 'moderate recession' next year, which has weighed on the US markets.

With the looming recession, corporations are also expected to see a dent in their profits next year.

However, Thong said the expected risks would not impact Malaysia compared to the western bloc.

"We believe Malaysia will still be fine and not as bad as the western bloc.

"Malaysia has a lot of natural resources, and the regional economy will also be fine.

"We will see corporate earnings grow in 2023," he said.

He added that sectors to look out for next year include retail real estate investment trusts, construction and tourism related.

Wong said a possible recession in the US would not hit the Asian market significantly as the counter effects from China will balance up.

"Also, Asian equities usually react positively when the US Fed cuts rate," he added.

Meanwhile, Bank Islam Malaysia Bhd chief economist Firdaos Rosli said a 50bps hike by the US Fed is on the cards, and the local note is still pressured by the widening interest rate gap between the fed fund rate (FFR) and overnight policy rate.

The Fed has raised the FFR by 375 bps since March this year.

"However, aside from the FOMC meeting, the announcement of the monetary policy decisions by the European Central Bank and Bank of England in the coming week could sway the ringgit's movement.

"Further tightening financial conditions could drag further the USD index, which is already slipping below the 105 level, thus, benefitting the local note.

"In addition, continued momentum on China's reopening news could lend support to the ringgit during the week," he said.

Given the mixed views, he added that the local note could trade between RM4.40 and RM4.42 this week.

https://www.nst.com.my/business/2022/12/859804/market-be-positive-next-week-due-optimism-chinas-economic-reopening-against

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