Tradeview Capital chief investment officer Nixon Wong.
PETALING JAYA: Market analysts remain confident that the sell-down in the Jakarta Composite Index (JCI) on Monday and Tuesday will not become a contagion and spread over to the FBM KLCI.
This is especially following earlier speculation that Indonesian finance minister Sri Mulyani Indrawati had resigned, sending Indonesian stocks plunging and weakening the rupiah.
The popular Sri Mulyani has since debunked the quitting talk, confirming yesterday she had not stepped down while reaffirming her focus on maintaining fiscal discipline, including keeping the Indonesian state budget deficit at 2.53% of gross domestic product (GDP) in 2025.
Kenanga Research analyst Peter Kong does not see any material “contagion risk” from this more Indonesia-specific episode and, in fact, believes that fundamentally at least, there is a silver lining for Malaysia due to the country’s resilient economic growth with stable interest rates.
In a note to clients yesterday, he said that with the United States implying on Tuesday that countries are allowed to negotiate once reciprocal tariff numbers are released, Malaysia may be under lesser pressure in arriving at a deal.
He also said China’s consumption stimulus push could reverse negative equities sentiment to an extent, thanks to Malaysia’s high relative trade ties.
On the other hand, citing data from Bloomberg, he pointed out that on a year-to-date (y-t-d) basis, foreigners are still net selling Malaysian equities, with numbers showing that the outflow from the country of US$1.7bil is only slightly behind that of Indonesia, estimated to be within US$1.75bil to US$2bil y-t-d.
“Names that are more exposed to the Indonesian economy that may bear watching for knee-jerk reactions may include CIMB Group
Holdings Bhd and to a lesser extent, Malayan Banking Bhd (Maybank) among banks, as well as Axiata Group Bhd,” explained Kong, reporting that Indonesia made up 25% of CIMB’s pre-tax profit and 15% of loans, as well as 3% of Maybank’s pre-tax profit and 5% of its loans.
He said XL Axiata also formed approximately 19% of Axiata’s enterprise value, before noting that other firms that had been looking to venture into the Indonesian market include the likes of IJM Corp Bhd.
Chief investment officer at Tradeview Capital Nixon Wong similarly expects the FBM KLCI to remain relatively resilient in the wake of the JCI’s poor performance earlier this week, supported by Malaysia’s solid economic data and positive policy developments.
It merits to state at this juncture that the Indonesian premier index did stage a mini recovery yesterday, climbing 1.42% to 6,311.66, after persistent sell-offs triggered circuit breakers on Tuesday.
In stock market terms, a circuit breaker is a regulatory mechanism designed to temporarily halt trading on an exchange when prices move too sharply in a short period in either direction, curbing panic selling, excessive volatility or irrational exuberance, thereby giving investors time to reassess and stabilise the market.
“With continued weakness in certain Asean markets, such as Thailand and Indonesia, Malaysia could benefit from a reallocation of fund flows away from these markets,” Wong told StarBiz, before agreeing with Kenanga Research that CIMB and Axiata could face valuation pressure and slower business growth due to the rupiah’s prolonged weakness.
Addressing the more pressing concern that foreign funds have been exiting Malaysia, Wong believes that a key potential catalyst for Malaysian equities is a rate cut from the Federal Reserve (Fed), which could reduce the attractiveness of US assets and drive foreign funds toward higher-yielding opportunities in markets like Malaysia.
“Additionally, greater clarity on trade policies would improve market visibility, enabling investors to make more confident and informed investment decisions,” he said.
Meanwhile, head of equity sales at Rakuten Trade Vincent Lau commented that Malaysia has published encouraging macroeconomic data as of late, including a 5.1% GDP growth for 2024, coupled with the Employees Provident Fund declaring a dividend of 6.3%.
“Malaysia does have many positives going for it and we believe that the Indonesian situation is part of the bigger regional outflow picture, although of course recent news of Goldman Sachs and Morgan Stanley downgrading Indonesian equities is not helping matters there,” he said.
In contrast, he observed that Malaysia is not facing severe unemployment problems, although he acknowledged that investors have been keen to reallocate funds to the current red-hot Hong Kong and China markets.
Despite also pointing to a Fed rate cut as likely to improve impetus for the FBM KLCI, with the Fed having held its second Federal Open Market Committee meeting for 2025, Lau nevertheless cautioned that the American central bank is unlikely to cut rates this round.
“It (the Fed) should stay put on this occasion and we expect the earliest rate cut to occur in June. Basically, we believe markets are cautious at the moment due to the uncertainty still surrounding the trade tariffs situation,” he said.
Comparing the situation to the Asian Financial Crisis in the late 1990s, which commenced in Thailand before spreading throughout East Asia, Lau singled out the difference between the situation then and now as the more solid financial standing of Asean banks at present, with significantly reduced indebtedness.
According to head of Asia equity strategy at HSBC Herald van der Linde, given that many fund managers look at Asean stock markets, he recognises there are risks that volatility in one market impacts another.
“This, however, should be a short-term issue. In the longer run, contagion between markets is only sustainable in case volatility in one market impacts earnings growth in another or impacts interest rates in another. That does not seem a reasonable assumption now in Malaysia,” he explained.
An analyst with a foreign securities firm opined that while the Malaysian market may be resilient, it is still important for investors to closely monitor global market trends and changes in regional fund flows for the remainder of this week and the next.
He said with Malaysia’s economic development and the strengthening of the ringgit, it is anticipated that foreign funds will return once there is more clarity on the tariffs, before also observing that the pace of foreign fund outflows has slowed.
For context, rumours about Sri Mulyani’s resignation appear to have stemmed from a combination of political speculation and economic concerns in Indonesia, such as the impending end of President Joko Widodo’s (Jokowi) term, with President-elect Prabowo Subianto set to take office later in this year, on top of the weak rupiah and Indonesia’s retrenchment situation.
At the bell yesterday, the FBM KLCI closed lower by 10.15 points, settling at 1,517.66. CIMB, Maybank and Axiata saw respective declines of 32 sen, six sen and seven sen, closing at RM6.93, RM10.6 and RM1.78 respectively.
Plantation giant IOI Corp Bhd, who also has Indonesian exposure though, bucked the trend as its share price increased by four sen to RM3.74.
