KUALA LUMPUR: Investors will likely focus on the domestic plantation industry in the coming weeks as crude palm oil (CPO) prices are currently hovering around RM7,500 a tonne on a spot basis.
"Given that such level can be deemed at an all-time high, we could say investor's interest would revolve around this sector in the immediate term," Bank Islam Malaysia Bhd chief economist Dr Mohd Afzanizam Abdul Rashid said.
Afzanizam said apart from the strong investors' interest in the commodity, sentiments will continue to be centred on the war in Ukraine this week.
"It is worth noting that Bank Negara Malaysia has recognised the downside risks emanating from the military conflict in Eastern Europe," he said.
Last week, the central bank's Monetary Policy Committee Meeting decided to keep the Overnight Policy Rate unchanged at 1.75 per cent.
"This suggests that the Bank Negara is wary of the prevailing condition, and such narratives could put a lid on the banking stock prices.
"Following this, the FBM KLCI has been volatile for the week ended March 4," Afzanizam told the New Straits Times.
He expects institutional investors to hold more cash-like instruments to preserve their capital.
"Thus far, we have seen a good traction from foreign funds inflows in the equities market, with total net inflows of RM937.9 million between February 28 and March 3," Afzanizam said.
The FBM KLCI is expected to be holding around the psychological level of 1,600 points this week as issues surrounding the war in Ukraine continues to hog the limelight.
On Friday, Bursa Malaysia ended lower due to profit-taking activities across the board amid the weaker regional market sentiment after Russia seized a Ukrainian nuclear power plant, the largest in Europe.
FBM KLCI fell 14.6 points to 1,603.94 from 1,618.54 at close on Friday.
Rakuten Trade Sdn Bhd vice-president of equity research Thong Pak Leng said the Russia-Ukraine crisis continues to hurt market sentiment following the fighting at Europe's largest nuclear power station in Ukraine, with reports that a building had caught fire and that Russia has seized control of the plant.
Investors are also worried that sanctions imposed on Russia, along with the subsequent surge in oil prices, could derail economic recovery even as the US Federal Reserve prepares to begin raising interest rates, he said.
Thong added that the FBM KLCI remains well supported to stay above the 1,600 level this week despite the market correction.
Moody's Analytics, in a report last week, noted that the global supply chains have been in a fragile state since the start of the pandemic, and the Russia-Ukraine military conflict will only exacerbate the situation for companies in many industries, particularly those heavily reliant on energy resources.
According to senior economist Tim Uy, even if increased supply comes from outside Russia, the conflict's uncertainty will contribute to higher oil and natural gas prices worldwide.
Inventory and reserves can help mitigate short-term supply-chain disruptions, but shortages will be inevitable should the conflict persist, he was quoted saying.