Investor Ian Yoong Kah Yin.
PETALING JAYA: The rally in the local equity market has been underpinned by the policy measures introduced by Putrajaya under the Madani framework and macro factors like the China + 1 strategy global investors have adopted as economic tensions rise between Beijing and the West.
The foresight to respond to the evolving demand of the global supply chains with policies such as the National Energy Transition Roadmap (NETR) is starting to pay dividends, more so on Bursa Malaysia.
Stocks in the utility, IT and construction sectors like YTL Power International Bhd
, SNS Network Technology Bhd, Vstecs Bhd, Tenaga Nasional Bhd, Sunway Construction Group Bhd and Solarvest Holdings Bhd are among many that have gained from the NETR thematic.
Since the NETR was launched in July last year, investor sentiment on the local exchange has been up, with the benchmark FBM KLCI rising some 245 points or 17.8% to 1,622 points at the close on Tuesday, with the market capitalisation of Bursa Malaysia surpassing the RM2 trillion mark for the first time this month.
“The announcement of the Madani economy framework followed by several other medium to long-term policy proposals and initiatives has provided clarity to investors on the medium-term direction of the country under the leadership of Prime Minister Datuk Seri Anwar Ibrahim.
“This is a significant shift from the policy uncertainties that we saw over the period from the second half of 2018 (2H18) to 1H23. The policy framework along with trends such as China + 1, we believe, enhances the medium-term growth trajectory of the domestic economy both in terms of better growth in private consumption and investment.
“At the same time, the government is committed to fiscal consolidation and a move towards targeted subsidies which is also good for forward ratings of the market,” said Chehan Perera, managing director and head and strategist, Malaysia Research at CGS International Securities Malaysia (CGSI).
How much more investor sentiment could improve could determine whether we could see a cyclical or secular bull market on Bursa Malaysia.
The reforms undertaken and proposed such as the rationalisation of subsidies – a politically unpopular but necessary move to shore up government finances – could add to the improving investment climate here, more so with 2024 being a year when general elections are being held in many major countries, none more important than the US presidential election in November.
The rising trade tensions ahead of the US elections highlights the importance of the China + 1 strategy and an opportunity for a country like Malaysia to gain investments and technology that could help it break out of the middle-income trap.
There is a window of opportunity for Putrajaya to capitalise on, a country head with an international bank told StarBiz.
“The fear of further tariff and non-tariff barriers by the United States and even the European Union on China and vice versa is leading many businesses to procrastinate on investments across the world.
“This is an opportunity for Malaysia to attract investors here, as the country has good relations with both China and the United States and is resource rich with ample energy and is a hub in the semiconductor supply chain.
“The NETR is a bold policy which no country in the region has an equal to offer to foreign investors. It strategically builds on its energy resources and transitions to renewable sources, which has attracted a lot of investments into areas like data centres which require a lot of power and green power to add to that,” said the country head of the foreign bank.
The new tariffs introduced by Washington recently for various Chinese products are a case in point, he said, which makes investors cautious with their investments, more so with presidential candidate Donald Trump threatening more measures next year should he win the elections in November.
With over 1,100MW of new data centre capacity already proposed in Malaysia, the banker said the NETR has helped to form a base to build on to attract more investments.
So he advised Putrajaya to move ahead with the restructuring of its finances, especially the restructuring of its subsidies, which took up some RM50bil for fuel and RM30bil more for other subsidies last year, although inflation may pick up as a result.
“More importantly, Malaysia must get its story out to investors globally to attract the attention of investors in a crowded field of competitors,” he said.
Investor Ian Yoong Kah Yin said the willingness of the Madani government to hold the bull by its horns in addressing the fuel subsidy issue and attacking corruption has given hope to domestic and foreign investors.
“The China + 1 trend has undoubtedly benefited Malaysia and regional economies, but it is worth noting that Malaysia has benefitted the most in South-East Asia.
“Much credit must go to our Prime Minister and his team. But at the same time, it is best not to spook foreign investors by being overly involved in international politics. There is so much to do domestically as it is,” he said.
With the benchmark index up some 17.8% from its 52-week lows, is the market ready to go into a bull phase (20% gains and above) with say the rationalisation of subsidies or some other policy measure?
“We think so. We see improved earnings delivery, improved policy clarity and continuity and a potential appreciation of the local currency (more towards 2H24) as key drivers that could take the market further up towards our year-end target of 1,755 points,” said Perera.
That and some fresh liquidity, both from local and foreign sources, could do the trick.
Yoong added that Anwar’s directive in January to government-linked corporations and government-linked investment companies (GLICs) to scale back foreign ventures that were not showing profits and focus on domestic investments was a major boost to Malaysian equities.
“GLICs which manage close to RM2 trillion in assets had to focus on investing domestically. A part of this flowed into Bursa Malaysia,” he said.
