Rakuten's Lau says the outlook is mixed, given the recent first-quarter earnings reports.
KUALA LUMPUR: Investors appear to be focusing on the negatives of the recently concluded dismal first-quarter 2023 (1Q23) corporate earnings results as the risk sentiment turns more cautious, say analysts and fund managers.
Many opined that these expectations have been high coming into the new year and are now needed to be re-calibrated closer to reality, following the performance of the 1Q23 report card.
This cautious sentiment also appears to be apparent from the FBM KLCI, which has fallen below the key 1,400-point handle, particularly in the last few days of the results season.
Furthermore, the current political uncertainties pending the upcoming state elections in six Peninsular Malaysia states also appear to be among the factors highlighted by analysts, comparing it to “a cloud” that is hovering over the sentiment in the stock market and the ringgit.
Apart from the US dollar, which could be an exceptional case, the ringgit had also seen falls against the neighbouring Thai baht, Indonesian rupiah and Singapore dollar in the recent couple of days.
Neither has the risk sentiment been great internationally, with the macro picture turning more cautious with a potential recession on the horizon.
Tradeview Capital Sdn Bhd’s portfolio manager Ng Tzyy Loon noted that most sectors apart from the banking and insurance industry on Bursa Malaysia posted results which were quite underwhelming.
“The results season has been demotivating for me. Apart from the banking and insurance sectors, there have been no other sectors which have delivered results that have outperformed expectations in a broad-based industry sense,” Ng told StarBiz.
“The banking and insurance industries do generally benefit (temporarily) in the short term from higher net interest margins as interest rates go higher.
“Investment returns are also better on slightly lower Malaysian Government Securities’ yields and they posted quite good investment returns in the first quarter, especially when compared to the first quarter of last year – these are up to standards and have exceeded expectations,” he added.
Ng also said pressure also appeared to be coming from an increase in operating costs locally despite a fall in many commodity prices internationally due to the stronger US dollar.
Commodity prices are historically inversely linked to the US dollar and reflect the broader risk sentiment, said analysts.
Ng also said costs have increased for companies in general from the rise in the minimum wage, electricity and coupled with the weaker local currency.
“I believe those who did not have solar panels in their business operations, for example, have seen a big hit in their 1Q23 earnings.
“Manufacturing and construction companies have also been hit,” he said.
“It is also likely that market expectations have been too high prior to this and there are also continuing concerns from the economic picture globally.
“Some have taken the opportunity to close their positions from the recent solid earnings report (of some companies).
“Perhaps, we would see more realistic expectations in the next one to two quarters,” Ng added.
Meanwhile, Vincent Lau, head of equity sales at Rakuten Trade, said the outlook is quite mixed at the moment from the recent first-quarter earnings reports.
On the flip side, he did not discount that the first quarter may have just been the “worst quarter” for companies and things may potentially improve from here on.
“Only a handful have done well, but we may see recovery in the coming quarters once the talk of recession fizzles out and then confidence can be regained,” Lau said.
SPI Asset Management’s managing partner Stephen Innes said the ringgit has been impacted by the drop in commodity prices, including weaker data from China.
“The fall in commodity prices affects Asian rates and foreign exchange (forex) through two primary channels: inflation and the trade balance.
“The Philippines and Thailand have benefitted the most from commodity-driven disinflation, while South Korea and Taiwan have benefited the most from improving their trade positions. But the ringgit has struggled on both fronts, with Malaysia being a key energy exporter,” Innes said.
“With China data continuing to disappoint and driving sentiment weaker, we think forex fundamentals will likely continue to trend in a currency-negative direction for the China yuan, keeping crosses with a high sensitivity to the yuan also under pressure,” he added.
He noted that the Asian market sentiment has been affected by the great unwind of China recovery trades in the past month, as data has disappointed.
“With China cast down as a driver for regional performance, it could leave local sentiment flapping in the wind,” he said.
