PETALING JAYA: The Malaysian capital market may see modest growth especially in equities and bonds as the FBM KLCI is poised to hit 1,510 points by the end of 2024, according to HSBC Global Research.
The research house said the nascent recovery in the global electronics cycle, as seen in peers such as South Korea and Singapore, provides some hope that Malaysia’s exports are seeing the light at the end of the tunnel.
Consistent foreign direct investments (FDI) continues to pour into the country, it said, making the country one of the top recipients in Asean, and the added capacity should enable the manufacturing sector to rebound strongly when the trade cycle turns, which would be beneficial for its financial market.
Predicting an average earnings growth of 12% for the FBM KLCI in 2024, HSBC Global Research head of equity strategy for Asia-Pacific Herald van der Linde, however, commented that this does not stand the local index out from the rest of the region.
“The attractiveness of the FBM KLCI is that it is a low beta market, and we believe there are going to be some individual companies and stocks that would outperform the market come the end of the year,” he said at the banking group’s Asian outlook virtual conference yesterday.
Expounding further on his prediction, van der Linde has kept his previous forecast that companies manufacturing technological components would gain from the reshuffle in global supply chains, particularly testing equipment producers in the semiconductor industry.
Meanwhile, if the performance of the FBM KLCI yesterday is anything to go by, it would appear that it may well surpass HSBC Global Research’s forecast way before year-end. The local premier index went on a surge of 13.77 points or 0.93% to close at 1,501.11, above the psychological barrier of 1,500, with gainers outnumbering losers by 516 to 403, as almost five billion shares changed hands.
The last time the bourse closed above 1,500 points was in Aug 30, 2022 when it closed at 1,512.05
As if on cue with the market strong showing yesterday, HSBC Global Research head of Asia-Pacific rates strategy Tan Pin Ru is of the view that there would be more fund inflows into emerging markets, with Malaysia also being one of the candidate beneficiaries.
Of interest, however, she observed that Malaysia has been a comparatively popular bond market in recent years, and in the last five years, it was only in 2022 where Malaysian bonds had seen a net outflow.
“This means that foreign investors are largely positive of Malaysian bonds, regardless of cycles, stemming from the understanding that the market is very much anchored to stability by local investors, such as the Employees’ Provident Fund,” she pointed out.
HSBC Global Research sees an acceleration of economic growth for Malaysia, bringing up its gross domestic product (GDP) growth forecast for the country to 4.5% from the 4.1% it projected for last year.
This is despite the apparent recent expedition of geopolitical issues, including the outbreak of the Red Sea crisis late last week, with the research group pointing to Malaysia’s trade stabilisation, which would help attract continued investments.
“The question is of course whether the Red Sea crisis will derail export recovery, and we believe this depends on how long this latest conflict will last, seeing a manageable situation if the crisis is only a few weeks long,” chief Asia economist for HSBC Global Research Frederic Neumann observed.
Despite acknowledging that prolonged fighting may weigh on trade, explaining that prices could be raised especially for European importers, Neumann holds on to the view that it would not be material enough for the research team to alter its growth forecasts for Malaysia,
He commented that shipping can still be redirected around Africa – as before the existence of the Suez Canal – but opined that ultimately, markets would adjust to the slightly higher shipping costs and therefore would not impact Malaysian trade significantly.
In addition, he said Malaysia’s tourism-related sectors continue to provide much-needed support, particularly since the country is among the frontrunners in Asean in attracting Chinese visitors.
“The tourism outlook has brightened further, after the recent announcement of China and Malaysia’s mutual visa exemption programme, making it more competitive among regional peers, not only in attracting tourists, but also potential investors,” said Neumann.
At the same time, the group is expecting Bank Negara to keep its overnight policy rate (OPR) steady at 3% until the end of the year, projecting a possible 25 basis points (bps) rate cut in the first quarter of next year.
The research team’s head of Asia foreign exchange research Joey Chew noted that should the central bank maintain its OPR, it would help the ringgit’s standing against the dollar by mitigating the outflow pressure of 2023.
On the other hand, she said the local note’s recovery may be moderate, as Malaysia’s economy is significantly plugged into China’s growth cycle, which has been sluggish.
“The dollar is also remaining resilient, amid bouts of risk aversion, which would strengthen currencies with a defense mechanism. This may be a factor of the ringgit that is not as strong as some other currencies,” she said.
