KUALA LUMPUR: HSBC Global Research projects the FTSE Bursa Malaysia KLCI (FBM KLCI) to rise about 4.0 per cent this year to 1,510 points, as the country continues to provide opportunities for investors based on the trade diversion theme arising from the US-China tension.
Head of equity strategy Herald van der Linde said the bright spot for Malaysia’s equity market falls on companies with exposure to the semiconductor sector that are set to continue to benefit from a growing distrust between the world’s two largest economies.
"The story for Malaysia is really that it doesn’t stand out from the rest of the region. On average, earnings growth of about 12 per cent this year is a pickup from last year, but it is also in line with the rest of the markets. It is generally a low-beta market, and that is its attractiveness,” he said during a virtual media briefing on HSBC Asian Outlook 2024 today.
On the bond market, HSBC Global Research’s head of Asia-Pacific rates strategy Pin Ru Tan said Malaysia is among the emerging countries to benefit from the lower rates in developed markets this year, which may encourage more foreign fund flows into the region.
"Actually, data suggests that Malaysia has been quite a well-loved market. In the last five years, Malaysia’s bond market saw net outflows only in 2022. Otherwise, every year, it has actually been net inflows,” she said.
"Foreign investors’ view of Malaysia’s bond market has been quite positive, by and large, regardless of the cycle. I think that stems from the understanding that this market is very much anchored by local investors, particularly the likes of the Employees Provident Fund, all with sizeable holdings, and that adds a stability anchor, which is why foreign investors love it very much,” she said.
Meanwhile, HSBC Global Research expects Bank Negara Malaysia (BNM) keep the current overnight policy rate (OPR) steady at 3.0 per cent for a prolonged period of time until end-2024, before a possible 25-basis point rate cut in the first quarter of 2025 (1Q 2025).
"BNM has kept the policy rate steady at 3.0 per cent since May, despite the regional peers’ recent resumption of rate hikes. A clear distinction is that Malaysia’s inflation has been well in check, though partly thanks to continued subsidies,” it said.
However, it added that there may be more tightening bias if inflation shoots up after the shift to targeted subsidies in 2024.
"Meanwhile, the upside risks to inflation need to be watched closely - we’ll wait for details on the implementation of targeted subsidies’ announcement. This will influence whether BNM will have to resume rate hikes as a precautionary measure, although this is not our central case,” it said.
Overall, HSBC Global Research said the positive signs of recovery have emerged for Malaysia since the second half of 2023, with higher-than-expected growth of 3.3 per cent year-on-year (y-o-y) in 3Q 2023 - an impressive performance as Malaysia saw a significantly high base of 14.1 per cent y-o-y in 3Q 2022.
"We recently raised our growth forecast to 4.1 per cent (from 3.8 per cent previously) for 2023 but retained our 2024 forecast at 4.5 per cent, accounting for the better outturn in 3Q 2024 and a gradual uplift in the trade cycle.
"While any trade recovery is likely to prove gradual, an upside risk to Malaysia’s growth is a sharper-than-expected turnaround in the global electronics cycle, wherein Malaysia will no doubt be one of the main beneficiaries (from this),” it said. - Bernama
