The Malaysian stock market is a highly sensitive indicator of the country’s economic conditions. This allows investors to predict the performance of a particular company based on the country’s economic activities. A poor economy will negatively affect a company’s growth, resulting in a lower stock price. Conversely, a healthy economy will increase production and reduce unemployment, influencing the stock price to rise.
In the past several months, the price of crude oil has plummeted, affecting numerous sectors of industry. In particular, the cost of transportation is affected, resulting in a reduction in the selling price of goods. According to Zhang & Chen (2011), crude oil is a vital component of many economies and a large drop in its price can spark a recession.
Other factors that influence the performance of the Malaysia stock market include the inflation rate and the e-change rate. Meanwhile, foreign direct investment has no impact on the stock market. While there are many other factors that affect the market’s performance, these four main ones have the biggest influence on the performance of the Malaysian stock market.
Inflation has a strong negative impact on the Malaysia stock market. Previous literature has found that there is a negative correlation between inflation and stock market returns. DeFina (1991) argues that inflation lowers corporate income because it causes an immediate increase in costs. Inflation also slows the economy, resulting in a decline in share price.