PETALING JAYA: Lower corporate earnings for the first quarter (1Q23) and expectations of fund flows going into US dollar assets weighed on local sentiment and added to the pain of a weaker ringgit.
Expectations of weaker domestic economic growth in the months ahead as signalled by falling trade figures in April and news of Germany going into recession saw investors sell heavyweights on Bursa Malaysia leading the benchmark index to close eight points down at 1,396.9 points, which is just six points off year-to-date (y-t-d) lows, or down 6.6% y-t-d.
“Market sentiment is bearish due to a combination of factors. Data showed Germany was in recession and the persistent inflation in America has analysts expecting the Federal Reserve could raise its policy rate again next month. The weak China economic recovery is a further damper to market expectations and cyclical exposures like energy and other commodities.
“All of this will likely mean the local economy could slow and have a knock-on effect on domestic corporate earnings and the local currency ahead,” said an analyst with a local brokerage yesterday.
Bearish investor sentiment was reflected in 466 counters closing lower to 358 gaining with 2.38 billion securities valued at RM2bil traded.
The analyst said the volume-to-value ratio was due to selling of shares in big counters with Tenaga Nasional Bhd, Nestle (M) Bhd, Public Bank Bhd, PETRONAS Chemical Group Bhd, Kuala Lumpur Kepong Bhd, Petronas Dagangan Bhd, Malaysian Airports Holdings Bhd and Press Metal Aluminium Holdings Bhd.
He added the technically weak price chart of companies like Public Bank suggests the local market could go lower more so as investors turn cautious and take money off the table ahead of the six state level elections due next month.
The ringgit, meanwhile, remained unchanged at RM4.598 against the greenback and struggled to hang on to gains against the euro on the news out of Germany.
The more immediate red flag for the local equity market was the weaker 1Q23 earnings season amidst what is transpiring in the macro environment.
“Local 1Q23 earnings were largely weaker-than-expected but most of the giants of the financial sector have delivered 1Q23 results that were within expectation followed by decent loan growth and lower provision losses,” said Kevin Khaw Khai Sheng, research analyst at iFAST Capital Sdn Bhd.
This was in contrast to the US corporate earnings in 1Q23, where most of the companies in S&P500 (486 out of 500) registered a positive revenue surprise of 2.6% and positive earnings surprise of 6.45%.
Most of the companies beat analysts’ consensus in 1Q, outpacing the broad consensus that a recession will hit the US economy this year.
The ongoing US debt ceiling negotiation and Fed’s monetary policy continue to cloud the outlook for emerging markets (EMs) as the prospects of more treasury notes coming to market could draw liquidity away from EMs to developed markets as investors seek safe haven options against potential recession risks.
Nevertheless, Khaw believes the market has wrongly estimated the resiliency of fundamentally resilience companies to withstand the macro backdrop.
“We do not rule out the probability of temporary drawback given the uncertainties ahead, yet we suggest investors view the drawdown caused by the US debt ceiling uncertainty as a buying opportunity to build positions within fundamentally resilient securities at a discounted price,” he said.
He added EMs like Malaysia are still an attractive play for investors given the weaker greenback once the Federal Reserve’s terminal rate is hit, will act as a strong catalyst to push EMs higher.