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Nikkei Markets

Malaysia, Singapore shares slumps after Fed move

Rising U.S. interest rates spark concern of more foreign outflow

KUALA LUMPUR (Nikkei Markets) -- Singapore and Malaysian stocks slipped Thursday amid fears of further foreign outflow from emerging markets following the latest increase in U.S. interest rates.

The Straits Times Index fell 1.1% to 3356.73 while the FBM KLCI edged 0.1% lower at 1761.78. Malaysia's stock exchange shut after the morning session Thursday for the Muslim Eid festival. Trading on Singapore's market continued as usual but will close on Friday. Trading in both markets will resume Monday.

"At the end of the day, interest rates drive the market," said Jake Damien Chow, a Singapore-based market strategist at CIMB Group Holdings. "I'm neutral on Singaporean equities with a slightly negative bias" in light of expectations of heavy fund allocation toward U.S. stocks, he said.

The U.S. Federal Reserve raised funds rate ceiling by 25 basis points, or 0.25 percentage-point, to 2% as U.S. economic growth and inflation accelerates. Stronger U.S. growth and higher interest rates typically draw funds away from riskier emerging markets assets.

Along with a stronger economic growth projection, the Fed indicated it would increase interest rates another two times in 2018. "The economy is doing very well," Fed Chairman Jerome Powell said. "Most people who want to find jobs are finding them. Unemployment and inflation are low."

Asian markets were broadly lower Thursday, with the Nikkei Asia300 Index down 1.1%. Hong Kong's de facto central bank raised the city's base lending rate 25 basis points to 2.25% with immediate effect.

In Malaysia, foreign investors sold $1.4 billion worth of Malaysian equities in May and another $400 million as of June 12. Meanwhile, foreign holdings of Malaysian bonds fell by $3.24 billion to $48.30 billion in May.

"This runs the risk of a spiral between large capital outflows and a weaker currency, given the size of foreign holdings in bond markets, which are particularly sensitive to a deteriorating fiscal position and sovereign creditworthiness," Nomura Group said in a note to investors.

Heavyweight banking stocks in Malaysia and Singapore closed down. DBS Group Holdings and Oversea-Chinese Banking Corporation fell 2.0% and 1.4%. In Malaysia, CIMB Group Holdings and Public Bank - two of the nation's three biggest lenders by assets - fell 1.8% and 0.2% respectively.

In corporate news, Singapore-based food and beverage services firm Envictus International Holdings rose 5.7% after signing international multiple unit franchise and development agreement with US-based Cajun Global to develop 80 franchised Texas Chicken restaurants in Indonesia.

Malaysian glovemaker Supermax Corp. jumped 4.9% after saying it secured a license to export its contact lens products to Japan.

Oil-and-gas services company Yinson Holdings added 1.9%. The company said an associate company was in talks for a contract to supply a floating production storage and offloading unit in Nigeria.

Petra Energy advanced 8.5% after securing a one-year extension on a contract from Petronas Carigali, a unit of state oil firm Petroliam Nasional.

- Alexander Winifred

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