Outlook for the Second Half of the Malaysian Stock Market

In the first half of the year, economic recovery has accelerated, driven by the rebound in private spending and exports. The first quarter GDP growth of 4.2% exceeded expectations, according to data from Malaysia's central bank and statistics department. This figure is higher than the estimated 3.9% and the median forecast of Bloomberg's survey. Quarterly, the economy grew 1.4% compared to the previous three months.

Abdul Rasheed Ghaffour, the governor of the Central Bank of Malaysia, said at a briefing in Kuala Lumpur that forward-looking indicators show that the Malaysian economy will continue to grow. He expects that consumer spending will improve with higher income levels, a robust balance sheet, and government support. The Central Bank of Malaysia expects GDP to grow by 4% to 5% this year due to improved external demand.

The risk of slowing domestic spending appears to be diminishing, and domestic spending is the main driving force behind economic growth. Prime Minister Anwar Ibrahim said on Tuesday that he is not in a hurry to cut fuel subsidies because he is concerned that it will stimulate price pressures and suppress consumption. OCBC Bank said that the first-quarter report shows that Malaysia's economic expansion rate will accelerate from 3.7% in 2023 to 4.2% this year.

The continued global economic growth has also stimulated local trade activities in Malaysia. Against the backdrop of increased external demand, improved tourism industry, and sustained growth in semiconductor sales, Malaysia's trade activities have rebounded strongly in Q1 2024.

S&P Global, which compiles the surveys, reported that Malaysia's seasonally adjusted manufacturing PMI dipped to 49.9 in June from 50.2 in May. Economists believe that Malaysia's manufacturing sector is still on track for growth, despite the slight contraction in June's purchasing managers' index (PMI). According to TA Securities, the average reading for the second quarter of this year was the highest since the third quarter of 2022, indicating a potential improvement in economic growth.

"Looking ahead, sustained growth in new orders is expected over the coming year, bolstering optimism for the outlook of manufacturing production," TA Securities said.

It is worth noting that the deflationary trend in Malaysia has ended, and the inflation rate remains relatively moderate, according to Malaysian Rating Corporation.

Policymakers remain "vigilant to ongoing developments to inform the assessment on the outlook of domestic inflation and growth," the central bank said.

Additionally, MARC said geopolitical uncertainty has increased future inflation expectations, as commodity price fluctuations and rising supply chain costs pose a challenge. Despite this, the Central Bank of Malaysia has chosen not to follow recent interest rate hikes in other Southeast Asian countries, and instead maintained the benchmark interest rate at 3%. The national bank stated that this decision was based on moderate inflation and optimistic growth prospects, while strong domestic spending and global economic recovery provided support.

"Resilient growth prospects amid benign inflationary pressures will allow Bank Negara Malaysia to keep its policy rate unchanged in 2024," said Lavanya Venkateswaran, a senior Asean economist at Oversea-Chinese Banking in Singapore.

THE Kuala Lumpur Composite Index (KLCI) has demonstrated resilience and strong performance in the first half of 2024 (1H24), drawing attention to the anticipated shift in the US Federal Reserve’s (Fed) interest rate policy. This shift is poised to have a substantial impact on Malaysia’s economy, currency, and stock market in the coming months.

HLIB Research anticipates a temporary slowdown for the KLCI in the third quarter of 2024 (3Q24), followed by a resurgence in 4Q24. "In our view, the next upswing will be driven by the long-awaited Fed pivot, anticipated in 4Q24 following a series of cooling inflation figures," HLIB Research added.

In early May, Microsoft announced a $2.2 billion investment in Malaysia's AI infrastructure and plans to purchase land in Kulai, Johor, to set up a new data center. Sime Darby Property, in collaboration with its partner Pearl Computing, is developing a data center on a 49-acre site within the 1,500-acre Elmina Business Park in May.

Tan Ka Leong, Managing Director of WTW Group, said that the outlook for data centers in Malaysia is optimistic, and the country has the potential to become a major player in the data center industry.

Bursa Malaysia has indicated that the 2024 forecast for IPOs is set to meet a major KPI with an expected 42 IPO stocks listing across its Main Market, ACE Market, and LEAP Market, aiming for a total IPO market capitalization of MYR 13 billion.

Muhd Farrish Ishak, the Vice President of IPO Marketing at Bursa Malaysia, has voiced that the momentum is anticipated to intensify in the second quarter of the year. In fact, the number of IPOs so far in 2024 has already surpassed half of the previous record year of 2022.