Malaysian Stocks Gain Appeal Among International Investment Banks
Following Federal Reserve Chairman Jerome Powell's most explicit signal for a rate reduction at last Friday's Jackson Hole symposium, Nomura Holdings has enhanced its outlook on Malaysian equities, elevating them from "neutral" to "overweight", due to its belief that the anticipated US rate cut will stimulate a rebound in emerging market stocks.
Before Nomura's optimistic revision, several renowned international banks, suchas J.P. Morgan Chase and Goldman Sachs, had already expressed confidence in the Malaysian market's potential.
JP Morgan has revised its assessment of Malaysia's equity market in July, acknowledging it as an exceptional performer in the ASEAN region. This upgrade marks the first in nearly six years byJP Morgan, attributing the positive change to significant policy reforms, investments in data centers, and robust infrastructure development in Malaysia.
During a period of sharp market downturn at the beginning of August, Goldman Sachs also adjusted its perspective on Malaysian equities, enhancing them to an "Equalweight" standing. The firm highlighted the defensive qualities of Malaysian stocks, suggesting a resilience during times of market volatility.After the significant market downturn earlier in August, $FTSE Bursa Malaysia KLCI Index (.KLSE.GI)$ has demonstrated a remarkable recovery, with an increase of approximately 7.5%.
Foreign Investors Rush into Malaysian Market
Bloomberg reports an escalating interest from foreign investors in Malaysian stocks, with the country poised to witness a second consecutive month of inbound capital flow. In a remarkable surge, last week saw an inflow of RM140 million, almost quintupling the prior week's net purchases of MYR 299.6 million, according to MIDF Research.
The sectors that recorded the highest net foreign inflow were financial services (RM1.3 billion), utilities (RM118.9 million), and telecommunication and media (RM54.8 million).
Potential Drivers for Future Growth in Malaysian Stocks
Robust Economy Growth: Recent economic data reveals that Malaysia's gross domestic product (GDP) experienced a robust 5.9% year-on-year growth in the second quarter, marking the most substantial rate of expansion since the end of 2022. 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. Nomura projects Malaysia's GDP growth for 2024 to reach 5.2%, outpacing the general market expectation.
Exports have played a crucial role in this economic uptick. Fueled by a robust demand for commodities and electrical and electronic (E&E) products, Malaysia's exports in July soared to RM131.2 billion, marking a 12.3% increase compared to the same period last year and registering the most substantial gain in the past two years.
Rising FDI and Tech Investments: Amid the ongoing reconfiguration of global supply chains and the 'China Plus One' strategy, Malaysia continues to strengthen its allure as an investment destination. By the end of the second quarter of 2024, Malaysia's foreign direct investment (FDI) position saw an increase of RM16.2 billion from the previous quarter, reaching a total of RM954.2 billion. Key areas of growth include shifts in supply chains, alongside substantial investments in cloud services and artificial intelligence (AI) data center infrastructure by leading technology firms. These developments have further enhanced the attractiveness of Malaysian stocks.
Reasonable Valuation: According to Nomura, the current price-to-earnings (P/E) ratio of Malaysian stocks stands at 14.1x, indicating a reasonable valuation that is below the average level of 15x since 2015.
Analysts' Picks
Nomura has highlighted several key stock picks for Malaysia, focusing on diverse sectors with potential for significant growth. $CIMB (1023.BMS)$ is favored due to its macroeconomic advantages and an improving return on equity trajectory. $GAMUDA (5398.BMS)$ is recommended for its robust order book growth and exposure to renewable energy sectors. Additionally, $PENTA (7160.BMS)$ is seen as a long-term beneficiary within the rapidly expanding automotive and medical industries.
JP Morgan has outlined its preferred sectors in the Malaysian market, including construction, utilities, technology, healthcare, and ports. Its top stock selections feature $GAMUDA (5398.BMS)$, $TENAGA (5347.BMS)$, $FRONTKN (0128.BMS)$, $IHH (5225.BMS)$, and $WPRTS (5246.BMS)$, highlighting a strategic focus on infrastructure and healthcare advancements in Malaysia.
Source: Bloomberg, The Edge, DOSM
Disclaimer: Moomoo Technologies Inc. is providing this content for information and educational use only.
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