Inflationary fears sent share prices tumbling across the region on June 12. With prices for energy and food near record levels, inflation concerns will continue to weigh on investors' minds in the near to medium term. As such, appetite for equities will likely remain soft.
Investors are spooked that rising inflationary pressures are forcing central banks to raise interest rates, which could further throttle the already flagging economies. The Reserve Bank of India hiked interest rate for the first time in 15 months this week, hot on the heels of credit tightening measures by the Chinese government. Inflation in China is running at 12-year highs.
The US Federal Reserve has also hinted that its recent string of rate cuts, to bolster the economy, is near the end. Some market observers are now betting that the Fed might even be raising interest rates before the end of the year.
Inflation and interest rate worries are definitely muddying the already cloudy outlook for global growth. The closely monitored Dow Jones Industrial Average has fallen back to its March-lows, which was the peak of the country's credit crisis. Bellwether indices in key regional markets ended sharply lower on June 12.
The KL Composite Index opened in negative territory and stayed there throughout the trading day. Market breadth was also in the red. On a positive note, market volume was thin suggesting that whilst investors are staying on the sidelines they are not rushing for the exit, at least not yet.
The benchmark index closed some four points lower at 1,225.5. Among the bigger losers were Nestle, Lafarge Malayan Cement, YTL Cement, Guinness Anchor, RHB Capital and Hong Leong Bank. At the close, the number of losing counters outweighed gaining ones by a ratio of about eight to five. Some 431 million shares were traded. Transmile was the day's most actively traded stock. The shares surged 14% to RM1.53.
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