What's Next for Malaysian Stocks After the Tumble? Goldman Sachs Upgrades Its Market Outlook
Bolstered by increased investments in data centers and the semiconductor industry, the $FTSE Bursa Malaysia KLCI Index (.KLSE.GI)$ reached new heights in July. While recent global market volatility has prompted a pullback, the index has still posted an impressive 9.4% gain for the year (as of August 7th). This robust performance outshines most major Asia-Pacific indexes, trailing only slightly behind India, and even surpasses the once-stellar $S&P 500 Index (.SPX.US)$ returns earlier this year.
Malaysia's Economy Exceeds Q2 Growth Forecasts with Bright Corporate Earnings Outlook
Fueled by robust investments and exports, Malaysia's GDP growth accelerated to 4.2% in the first quarter of 2024. The National Statistics Department reported that the GDP for the April-June quarter is estimated to havegrown by 5.8% year-on-year. This pace marks the quickest growth since the last quarter of 2022 and outpaces the highest Bloomberg survey prediction of 5.1%.
Malaysia's economy is expected to continue its growth momentum, supported by domestic and export-driven factors, with a positive outlook for the remainder of the year.
The administration has expressed a strong conviction in its ability to meet the economic growth objectives set for the full year. Second Finance Minister Amir Hamzah Azizan articulated this optimism last week, stating,“We believe the economic growth projections of four to five per cent in 2024 can be achieved and may go to a higher level.”
As the market sets its sights on the second quarter earnings season, optimism abounds regarding corporate performance. The majority of company reports are slated for release in mid to late August, and analysts at China Galaxy Securities International predict a continuation of Q1's momentum. They estimate that net profits could see a sequential growth of around 1% and a substantial year-over-year increase of approximately 15%.
Strong Ringgit and Bond Purchases Reinforce Market Confidence
The foreign exchange market, often seen as a barometer of a nation's economic performance, has also reflected the positive growth momentum of the Malaysian economy. This quarter, the Malaysian ringgit appreciated by 5.2% against the US dollar. This rise was influenced not only by the anticipated interest rate cuts by the Federal Reserve but also signals investors' growing confidence in Malaysia's economic outlook.
The recent surge in the ringgit's value has propelled the total return of Malaysian ringgit-denominated bonds to 5.9% for the year, ranking among the top in emerging markets. The intensifying expectations for US interest rate cuts could potentially attract further foreign capital inflows into the domestic bond market, enhancing liquidity and underscoring the allure of Malaysia's financial assets. Winson Phoon, the head of fixed-income research at Maybank Securities Pte. in Singapore, stated,
Expectations of ringgit strength attracted foreign bond flows, probably on an FX-unhedged basis to position for FX gains, creating a positive feedback loop. The stars have aligned for the ringgit and local bonds.
Analysts Optimistic on Malaysian Stocks Performance, Goldman Sachs Upgrades Rating
Following the recent selldown, institutional investors stated the potential in purchasing undervalued stocks at the local bourse.While Goldman Sachs has advised investors to maintain a "moderately defensive" approach in their equity allocations within the Asia-Pacific region in their latest weekly report, they have upgraded Malaysian stocks to an "Equalweight" rating. The broker's analysts suggest that the Malaysian market is more defensive in nature and less impacted by the economic growth in the United States and pullbacks in the Japanese stock market.
Vincent Lau, the head of equity sales at Rakuten Trade, agrees and notes that the recent capitulation in the market, triggered by the unwinding of global carry trade strategies, has led to an exaggerated reaction at the local bourse. He sees a substantial selldown in real estate and construction stocks as a potential entry point for investors, given the continued surge in long-term data center investments in Malaysia.
Malaysian stocks' fundamental are still intact, from three to six months from now, I see higher share prices from today; now is a great buying opportunity.
However, market volatility risks in the short term may remain. Although traders might find opportunities to bargain hunt fundamentally strong stocks after the recent selldown, Apex Securities Research cautions investors to stay vigilant amid the current market turmoil in their advisory note.
Source: The Straits Times, Bloomberg, The Edge
Disclaimer: Moomoo Technologies Inc. is providing this content for information and educational use only.
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