Page 85 - SC Annual Report 2018 (ENG)

Securities
Commission
Malaysia
ANNUAL
REPORT
2018

spreads also widened in line with the exchange lived as the release of stronger-than-expected
rate dynamics. Nevertheless, the pressures were US labour market data led to the upward shift
uneven across EMEs, reflecting differentiated in US interest rates expectations. The rise in US
stress conditions related mostly to economic Treasury (UST) yields accelerated in late January,
fundamentals and policy frameworks. Emerging preceding the US equity market correction. This
Asia, in particular, continued to exhibit resilient subsequently spread to other major markets. Market
financial market performance, given the region’s correction re-occurred in October, triggered by
solid macroeconomic fundamentals and lesser unsustainably high US equity valuations on the back
dependence on external financing (Chart 4). of challenging global macroeconomic outlook. The
trend exacerbated through the final part of the year,
After a prolonged period of low volatility in the wiping off 2018 gains as the abrupt decline in oil
preceding year, 2018 marked the return of global prices in November, alongside the inversion of the
financial market volatility (Chart 5), with broad- UST 5/3 yield curve in early December, collectively
based increase in volatility across all asset classes contributed to the widespread risk-off sentiments
especially in the latter part of the year. The strong across all markets.
equity prices at the start of the year was short-

Chart 4

EMEs faced increased pressure with the strengthening of the US dollar, but the effect was not
generalised and was differentiated based on macroeconomic fundamentals

US$ Index and EMEs credit spread 1 Selected EMEs currencies’ performances versus
current account balances
520 100
10
500 98 0 Mexico Malaysia Thailand
480 Indonesia China
96 -10 India Philippines
460 South Russia
94 -20 Africa Brazil
bps 440 Index 2018 currency performance (%)
92 -30 Turkey
420
90 -40
400

380 88 -50 Argentina

360 86 -60
Jan-18 Feb-18 Mar-18 Apr-18 May-18 Jun-18 Jul-18 Aug-18 Sep-18 Oct-18 Nov-18 Dec-18 -10 -5 0 5 10 15

EME sovereign credit spread US$ Index Current account balance, 2017 (% GDP)
(LHS) (RHS)
Note:
1 JP Morgan Government Bond Index-Emerging Market (GBI-EM) spread over 10-year US Treasury
Source: Thomson Reuters Datastream, Bloomberg, IMF, SC’s calculations

PART 4 »» CAPITAL MARKET REVIEW AND OUTLOOK | 75

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