MONEY makes the world go round, they say. And money begets money. There was money to be made last year, so how will 2025 unfold?
Here are some facts.
For boom times to happen, there have to be good conditions, which facilitate the expansion of goods and services.
Economic growth is certainly a prerequisite, without which there can rarely be a true boom time.
A growing and expanding economy facilitates business growth, profit expansion, job growth and the overall well-being of the economy.
Another crucial element for “good times” is a healthy stock market.
Rising values of equities create a penchant for risk-taking by companies with them more than willing to commit to growing their business and as a result their profit.
Another great byproduct of a robust stock market is the wealth effect.
We have seen it in the past, particularly during Malaysia’s Golden Age in the 1990s. Then, a booming stock market, together with a charging economy, led to some great gains by companies and the workforce.
This two-in-one fillip makes for a potent wealth effect.
That was why Malaysians back then revelled in the “Malaysia Boleh” spirit with an unquenchable appetite for risk taking and consumption, and so many sectors experienced a tremendous upliftment – until the Asian Financial Crisis.
Has that good feeling ever returned to Malaysia since?
It has. Last year can be considered a really good year for the wealth effect.
First off, the economy grew by 5.1%, the strongest since 2017 when gross domestic product expanded by 5.8%. Together with that good growth rate, the FBM KLCI rose by 12.9%.
Together with 55 initial public offerings, it was the strongest yearly gain since 2010 when the index expanded by 19.34%.
The strong stock market also translated to health gains seen by government-linked investment companies with the Employees Provident Fund declaring a dividend of 6.3% for 2024, the highest since the 6.9% declared in 2017.
Khazanah Nasional Bhd had its best performance with the strong rise in the stock market and Retirement Fund Inc had a strong year with the size of its investment income growing by a record RM18bil, hitting RM185.6bil.
Permodalan Nasional Bhd also announced its strongest dividend in five years as a result of the strong local market.
This meant more money in the pocket of unit holders and that can only boost consumption in 2025.
The rising stock market will not only bring a feel-good effect, but also put actual money in the pockets of the people. It is the wealth effect that has a domino impact on the rest of the economy.
The wealth effect from the stock market gain last year was around RM300bil, a significant gain that had fed into consumption of the economy that year.
Helped by the lowest unemployment rate in a decade, the sustained nature of the stock market – notwithstanding a small decline in the fourth quarter – translated into many pluses for economy.
Private consumption was decent at 5.1% but it was the construction sector that made a huge leap – rising by 17.5% in 2024.
A strong construction sector is crucial as it has the largest linkage to the broader economy. A rising construction sector will also see the benefits being translated the fastest in an economy.
Property developers reported bumper earnings, feeding into the wealth effect for the economy, and the property sector reported the best performance in a decade.
The volume and value of property transaction was the highest in a decade. Prices of houses below RM300,000 made up more than half of the volume of residential transactions in 2024.
It was not just houses that sold well. The number of cars sold in the country breached the 800,000 mark for the first time in 2024 to rise to nearly 817,000 units.
With Malaysians feeling good about their prospects from steady employment and the wealth effect, the question is whether this boom can continue.
As pointed out earlier, a strong economy and robust stock market are the necessary ingredients to keep the good times rolling for the country.
Let’s hope the strong employment numbers also see a large share of corporate profits going towards higher employee wages, thus making the wealth effect more than sustainable.
