PETALING JAYA: The local equity market could consolidate for a while as investors evaluate the impact the introduction of the service tax and potential subsidy rationalisation will have on consumer spending and inflation.
In what could be a big week for world markets with the US Federal Reserve’s (Fed) chair Jerome Powell set to address Congress in the United States, and China holding its week-long annual session of the National People’s Congress (NPC), analysts believe the FBM KLCI, coming off its year high, is a healthy sign of investors trading the rally in anticipation of policy changes domestically and abroad.
The benchmark index fell 21 points to hit a low of 1,518 points in early trade yesterday as investors were left disappointed with China’s plans to support its economy fell short of investors’ expectations.
However, fresh buying in the second half of the trading day saw the index recover to close just two points lower at 1,537 points.
Given the strong performance in the first two months of the year, Tradeview Capital chief investment officer Nixon Wong said some profit taking is a healthy sign.
“The recent completion of the results season has shown more misses than beats, prompting investors to reset expectations, which in turn triggers some profit taking.
“However, the longer-term outlook for Malaysia remains promising, supported by the gradual rollout of government policies, incoming foreign direct investment and the potential for a stronger ringgit once the United States begins its rate-cut cycle,” Wong told StarBiz.
March has seasonally been a consolidation month for the KLCI, judging from the past three years and Wong said the market may pause for a while until the next catalyst, which could be the Fed rate cut that analysts anticipate could come in June.
He expects Powell to continue advocating for a “higher for longer” approach to interest rates until signs of US economic weakness emerge at his address to Congress this week.
China’s NPC has somewhat disappointed the market, which hit regional market sentiment in the early trade. Wong advised investors to be patient and wait for additional details that may be released by the NPC, which continues throughout the week.
Kevin Khaw, a research analyst for iFAST Capital, said domestic factors would buoy Bursa Malaysia over the long run despite some cooling in interest in the near term.
“The service tax and subsidy rationalisation will trigger a slightly cautious spending trend in the near term, yet it is just a matter of time for the headwinds to diminish as the impact is just relatively minor.
“We reiterate our favourable stance on the Malaysia bourse shining in 2024 when the catalysts start to kick in and put Malaysia back on investors’ radar,” Khaw said.
He said while Beijing has vowed multiple policy support measures for the Chinese economy, the level of support might not be sufficient to pivot the country’s already-weak market sentiment.
“Given that dampened sentiment across the Chinese market is already a known fact, we deem the China economy recovery to be a wildcard to buoy emerging market peers including the FBM KLCI, if sentiment has pivoted, although it might require some time,” he told Starbiz.
Wong said the local market has been bolstered by net foreign inflows of RM2bil in the first two months of the year, compared with a net outflow of RM2.4bil for the whole of 2023.
He said this was primarily due to the positive impact of the implementation of constructive policies announced by Putrajaya such as the National Energy Transition Roadmap and Malaysia-Singapore Special Economic Zone in Johor.
The arrival of data centres, he added, is seen favourably by investors as a means to attract increased foreign direct investment, thereby supporting local economic growth.
What is clear is the support-buying seen on the local market yesterday following the early sell off shows strong support for the market at the 1,500-point level, backed by forecasts from research houses like CGS International Securities Malaysia for corporate earnings to grow by 17% in 2024 and a further 9% in 2025 as the economy continues to expand sustainably.