Page 83 - SC Annual Report 2018 (ENG)

Securities
Commission
Malaysia
ANNUAL
REPORT
2018

meanwhile, adjusted its yield curve control policy in conditions tightening considerably towards the latter
July 2018 by allowing for wider deviation band for part of 2018 for the advanced economies (AEs).
the benchmark 10-year yield around an unchanged EMEs, on the other hand, faced significant financial
target of about 0%. market pressures since June 2018, driven by the shift
in global liquidity, particularly from economies with
Several emerging markets economies’ (EMEs) central weaker macroeconomic fundamentals and large
banks have also raised policy rates in order to limit financing needs. Overall, global financial market
the currency and financial market pressures. The conditions in 2018 were shaped by three key inter-
People’s Bank of China (PBOC), on the other hand, related developments, namely escalation of the US-
maintained its benchmark one-year lending rate but China trade war, pressures on EMEs arising from a
reduced its reserve requirement ratio four times to stronger US dollar and the general increase in global
prevent a sharp deceleration in growth. financial market volatility especially towards the end
of the year.
Conditions in global financial markets deteriorated
throughout most of 2018 compared to 2017 The intensification of global trade tensions had led
(Chart 2). Stress in the global financial markets was to a repricing of risks that resulted in volatility in the
rising steadily since February 2018 with financial global financial markets. The escalation began after

Chart 2
Conditions in global financial markets deteriorated in 2018 as compared to 2017

Global Financial Stress Index by the US Office of Financial Research (OFR FSI)

5 Global Financial Stress Index
Other AEs
4 US
EMEs
3
2 Higher stress
1 Low global financial stress in 2017

0
-1

-2 Lower stress
-3
-4

-5
Jun-17 Jul-17 Aug-17 Sep-17 Oct-17 Nov-17 Dec-17 Jan-18 Feb-18 Mar-18 Apr-18 May-18 Jun-18 Jul-18 Aug-18 Sep-18 Oct-18 Nov-18 Dec-18

Note:
The OFR FSI is a daily market-based snapshot of stress in global financial markets. It is constructed from 33 financial market variables such as yield spreads,
valuation measures and interest rates. The OFR FSI is positive when stress levels are above average, and negative when stress levels are below average.
Source: Office of Financial Research, US Department of the Treasury

PART 4 »» CAPITAL MARKET REVIEW AND OUTLOOK | 73

NEW_70-89.indd 73 2/21/19 9:29 AM