Malaysia Banks Lead the Market Amid the Upcoming Earnings Season

Vincent Lau, Head of Stock Sales at Rakuten Trade, mentioned that fund managers have also been acquiring banking stocks as they hold the largest weight in the country's benchmark index, accounting for over 30%. According to fund flow data, foreign investors were the biggest buyers of Malaysian stocks last week, with a net purchase value of RM 300 million. Last Friday, following Malaysia's announcement of stronger-than-expected second-quarter GDP data, foreign investors net bought RM 288 million worth of stocks.

Malaysia's GDP grew by 5.9% year-on-year, surpassing Bloomberg's survey and official estimates of 5.8%.The Governor of Bank Negara Malaysia stated that due to the strong performance in the first half of the year, the full-year growth rate for 2024 may be closer to the upper end of the 4% to 5% range.

Major banks have raised their economic forecasts, with UOB projecting a growth rate of 5.4% and CIMB revising its forecast from 4.9% to 5.2%. Furthermore, the Malaysian Ringgit continues to outperform other Asian currencies, with the exchange rate against the US dollar further climbing to 4.3748. Year-to-date, the Ringgit has accumulated a gain of approximately 5.0% amid significant inflows of funds. Kenanga Investment Bank indicates that the Federal Reserve is expected to cut interest rates later this year, which would also benefit the Ringgit. The bank forecasts that the Ringgit will reach 4.42 by the end of 2024.

Bank Negara Malaysia (BNM) has maintained the Overnight Policy Rate (OPR) at 3.0 percent, which was in line with market expectations. Datuk Abdul Rasheed Ghaffour, the Governor of Bank Negara Malaysia, mentioned that due to recent changes in diesel subsidies, inflation is expected to rise in the second half of 2024. However, the expected rise in inflation should be manageable as measures have been taken to limit the impact of subsidy adjustments on business costs. He also emphasized that these key structural policies are crucial to maintaining a favorable domestic economic environment, thereby enhancing economic stability and sustainability.

CIMB stated that the risks to the Malaysian economy and inflation remain low as Bank Negara Malaysia maintains its data-dependent stance, and authorities need to wait for greater clarity on targeted fuel subsidies before making any decisions.

Malaysian banks are receiving significant government support and encouragement to expand the adoption of AI within the industry. Lee Lai Fong, the Chief Information Officer of National Savings Bank, mentioned that the government is leading the development of a national AI roadmap (Al Roadmap) to enhance data accuracy and efficiency through AI, thereby increasing business volume.

Shahariz Abdul Aziz, Director of Digital Transformation at Bank Islam Malaysia, stated, "So essentially, we utilize AI to pull all this information together, synthesize it, cut out all the things that are fake or false news, and only then are we able to present it in a manner that allows us to move the proposal forward. The expectation is that AI will reduce the time taken from three or four weeks to just a couple of hours. From there, we will be able to operate more effectively and also increase our volume."

The research firm has given a "buy" rating to the banking sector, suggesting that investors may focus on banks with stronger growth prospects, potentially leading to increased market share compared to slower-performing peers. Enterprise-focused banks may be the main beneficiaries as the growth rate of corporate bank accounts is expected to be faster than retail bank accounts in the short term.Among the seven "outperform" ratings given by Kenanga Investment Bank, CIMB remains the preferred choice with a target price of RM 7.60, followed by Alliance Bank with a target price of RM 4.60. The research firm believes that these two banks are expected to deliver robust return on equity (ROE) and dividend returns in the short term. Additionally, RHB Bank is likely to benefit from improved asset quality, with a target price of RM 7.25.