M’sian equities may see mid-term consolidation
Market tightening likely amid positive overall picture
“Key drivers for market growth in the latter half of 2024 would include fiscal reforms, increased development spending and initiatives outlined in the National Energy Transition Roadmap.” Nixon Wong
PETALING JAYA: Fund managers believe that the local equity market is set for some tightening over the coming months, despite the indirect good news that Malaysia had posted a 15.3% year-on-year growth in foreign investments last year.
The Investment, Trade and Industry Ministry had on Monday reported that foreign funds contributed 57.2% or Rm188.4bil of total investments approved last year, with domestic investments making up the balance of Rm141.1bil.
The marked improvement in approved investments, especially from the perspective of external fund inflow, have led analysts and investment managers to link the positive result to a number of structural developments throughout 2023.
Tradeview Capital chief investment officer Nixon Wong is of the opinion that political and economic stability has proven to be a significant factor, especially following the conclusion of the six-state elections in August.
“Additionally, the clarity in local policies, coupled with a strong emphasis on longterm growth plans, research and development, infrastructure development with a focus on environmental, social and governance matters, as well as fiscal discipline is instilling higher confidence among foreign investors in our country,” he told Starbiz.
Furthermore, he said Malaysia’s favourable climate and natural disaster-free environment presents an advantage in attracting the establishment of data centres, particularly when compared to neighbouring countries that are susceptible to phenomena such as earthquakes.
On top of that, Wong said the anticipated peak in the strength of the US dollar, expected around the time of a possible rate cut in June, is likely to favour the current position of the ringgit for future investments.
On the other hand, he is cautious for the medium term, foreseeing a phase of consolidation in the local equity market as it awaits notable policy developments over the next two months before the onset of the coming corporate earnings season.
“Key drivers for market growth in the latter half of 2024 would include fiscal reforms, increased development spending and initiatives outlined in the National Energy Transition Roadmap,” he said.
In addition, factors such as appealing valuations, attractive dividend yields and currency fluctuations are poised to draw the interest of foreign investors, said Wong.
He elaborated that attention will be directed towards upcoming government initiatives, including subsidy rationalisation and tax reforms, which hold the potential to influence market sentiment and economic performance in the coming months.
At the same time, abrdn Islamic Malaysia Sdn Bhd chief executive Gerald Ambrose views the structural rise in foreign direct investment into Malaysia as evidence that foreign industries see Malaysia as clearly competitive.
“The advantage is apparent in terms of logistics, power supply, electronics manufacturing, transport and parts of the service sector. In electronics, the competitiveness is not just in testing chips but increasingly in designing and fabricating them,” he said.
Of interest, however, he revealed that many large computer-driven equity traders find Malaysian stocks too small and illiquid, which is a reason the benchmark FBM KLCI has “not gone anywhere for 10 years”.
“But scratch the surface and there is a large pool of high quality companies most foreigners are too lazy to find,” he remarked.
On the flipside, a noteworthy turn of events is the fact that foreign investors have continued to sustain their selling trend on Bursa Malaysia for the fifth consecutive week ending March 29, with a net sale of equities amounting to Rm435.1mil in that week itself.
Pertaining to this development, Tradeview’s Wong commented that higher FDIS stand apart from foreign investors’ net sales of equities, which largely represent profit-taking actions.
Having said that, he noted that the sustained release of healthy economic data in the United States may suggest the likelihood of interest rates remaining elevated for a prolonged period before the next rate cut is implemented.
In turn, Ambrose said the greenback is appearing to control the FBM KLCI’S fate, as it does with many bourses and other forms of investments globally.
He pointed out that if the dollar begins a structural decline, then emerging markets, including Malaysia, will experience a quick bounce, hinting at investors to put their money on the table before that happens.
It is also interesting to note that in contrast to foreigners, MIDF Research reported that local institutions had persisted in their net buying trend for the fifth consecutive week, with a net purchase of Rm587.7mil for the week ended March 29.