PETALING JAYA: The FBM KLCI technically entered the bull market albeit briefly as momentum fizzled out by market close with the index ending in the red on profit-taking yesterday.
The local bourse hit an intraday high of 1,658 points in the morning session, a 20.4% increase from a low of 1,376.68 in mid-2023. At the close, the 30-stock index fell by 5.93 points, or 0.36% to 1642.77.
As a rule of thumb, a bull market is defined as a 20% gain or more in the stock market index from the most recent low over a sustained period of time.
On Monday, strong domestic second-quarter gross domestic product and trade data, along with improved global investor sentiment over an impending US rate cut, pushed the FBM KLCI to a fresh four-year high.
Rakuten Trade head of equity sales Vincent Lau said the premier index still has legs to run, with many investors adopting a wait-and-see approach.
“While there are a confluence of positive factors driving the performance of the market, it still has not performed as well as it should, especially for the small and mid-caps.
“Many are waiting to see further materialisation of ongoing and planned reforms before investing further. This is a good thing as it reflects a prudent attitude, rather than scepticism.
“The market has done fairly well in the first half of the year (1H24), and now there is pullback and consolidation. Nevertheless, the FBM KLCI is expected to do relatively well for the second half of 2024, and we should see broad-based gains including the small and mid-caps,” he told StarBiz.
FBM KLCI is the fourth top performer among key Asian indices year-to-date, following Taiwan’s Taiex, Japan’s benchmark Nikkei 225 index and India’s Nifty 50.
Rakuten Trade Sdn Bhd’s in-house view is for FBM KLCI to test the 1,730 level by end-2024, a target that Lau said is “not far off”. Given that the banking sector has a near 40% weightage in the FBM KLCI, the upcoming financial results of these institutions are the bedrock for the market to hit the 1,700 mark.
“The key thing here is the broader market’s performance. As banking stocks improve, this positive momentum is expected to extend to the wider market,” Lau said.
Tradeview Capital Sdn Bhd portfolio manager Ng Tzyy Loon said the local bourse would likely experience a medium to long term bull run, potentially lasting until the next general election in 2027.
“The catalysts for the market will still be the government’s ongoing pro-business policies and development plans. Moreover, foreign investors also see the potential upside from the government’s subsidy rationalisation move.
“Under the current government, foreign investors are gradually building their interest and confidence in our market. Hence, the current rally is just the beginning,” he said. Nevertheless, Ng did not foresee an immediate, broad-based bull run and instead there could be some sector rotation, where investments shift from high-valuation sectors to those with lower valuations.
“One example is data centres whose valuations are related to thematic play and are a bit stretched. Hence, we may see some selling pressure from these thematic plays to year-to-date laggards,” he opined.
Maybank Investment Bank head of Malaysia equities research Wong Chew Hann said the catalysts that could take FBM KLCI higher from its current levels are the US interest rate cuts and the outlook of a firmer ringgit.
“Our end-2024 FBM KLCI target is 1,680, while our bottom-ups calculation, from our target prices for FBM KLCI stocks, derives 1,740 by mid-2025. We expect the US Federal Reserve to move in 2H24 with a 50 basis points (bps) cut and a further 100 bps cut in 2025.
“The USD/RM is expected to end the year at 4.450 (4.3815 at press time),” she said. On the other hand, geopolitical risks arising from higher tensions between China and the United States along with inflation as an adverse effect from the rationalisation of RON95 petrol subsidies, continue to pose as downside risks to the FBM KLCI.
“Regardless of whether the Democrats or the Republicans win the upcoming presidential election, the hostility between the United States and China will still be there. As a result, the trade war may continue. It is uncertain whether Malaysia will be caught in the crosshairs, given our close trade relationship with China, and will this pose some kind of sanction risk to our country,” Tradeview’s Ng said.
On this note, Wong predicted that a Trump 2.0 outcome would be a key risk for equities to end the year on a stronger note due to its more protectionist trade policy.
“Other risk factors include a ‘hold for longer’ US interest rate environment,” she said.
Japan’s Nikkei 225 ended higher by 1.8% at 38,062.92. South Korea’s Kospi rose by 0.83% at 2,696.63.
Singapore’s Straits Times closed up 0.44% at 3,370.31 while Shanghai stock exchange fell 0.93% at 2,866.66.
Turnover stood at 4.2 billion securities worth RM4.6bil. Market breadth was negative as 857 decliners thumped 357 gainers while 433 counters were unchanged.
