PETALING JAYA: Liquidity will be key as to how Bursa Malaysia performs in 2025, alongside positive fundamentals such as sustained growth in the economy and corporate earnings.
The strong rise in the local benchmark, the FBM KLCI, for nine months of the year to a high of 1,684 points in late August, gave way in November after foreign funds turned net sellers in the final quarter of the year (4Q24), as market expectations about macro fundamentals changed significantly ahead of Donald Trump’s return to the White House following his election win.
Foreign investors’ net selling in local stocks has hit US$1.7bil for the year after Trump warned of new tariffs on imports into the United States along with corporate tax cuts upon assuming office in January.
“Investors are waiting with bated breath for President-elect Trump to take office on Jan 20. The timing and extent of the tariffs will impact many nations, including the United States.
“These tariffs will have ramifications on the liquidity flows of global capital markets,” said high-net-worth investor Ian Yoong.
That in turn has also led the US Federal Reserve (Fed) to shift its guidance for rate easing in 2025, which is set to have a major impact on liquidity flows in emerging markets (EMs) like Malaysia.
“As the Fed delivered a hawkish rate cut in December and reduced its expectations for rate cuts in 2025 from 100 basis points (bps) to 50 bps, this likely redirected liquidity from EMs, including Malaysia, back to the United States.
“In 2025, the focus on sustainable fundamental growth will remain the core investment thesis for the local market to sustain fund inflows.
“However, momentum is expected to slow compared to 2024,” said Nixon Wong, chief investment officer at Tradeview Capital Sdn Bhd.
Yoong added investing in Malaysia and other EMs would be the contrarian trade of 2025.
A potential shift in the expectations could occur if the United States reports slower-than-expected economic growth and unemployment rises, increasing the likelihood of more substantial rate cuts.
Wong said this scenario could reduce the attractiveness of the US dollar and potentially lead to a repatriation of funds to EMs and a stronger ringgit.
Hence, he said for now local funds are likely to remain invested as long as earnings delivery from companies aligns with analysts expectations following policy announcements, while foreign flows continue to play a significant role in driving local equity prices.
Consensus view is for corporate earnings to grow by about 8% year-on-year (y-o-y) for the benchmark FBM KLCI stocks in 2025 following a 12% y-o-y increase this year.
The index gained some 10 points yesterday to close at 1613.7 points, up some 10.9% y-o-y.
The bulk of the gains made this year have been due to domestic funds raising their holdings in the local exchange. Hence, a return of foreign funds into the local market could provide a further lift.
“Followed by the encouragement from government-to-government linked companies and government-linked investment companies to repatriate their earnings from abroad, we have witnessed solid support from institutional players in the local bourse, offsetting the net outflow from foreigners.
“Compared to the previous bull market in 2014, there is still ample upside potential left for the local market to shine in 2025.
“On top of that, we expect the current trend of local institutional support to sustain and act as a support level for the FBM KLCI at current levels,” said Kevin Khaw, senior research analyst at iFAST Capital Sdn Bhd.
Phillip Capital Research, in its recent strategy report had identified banks, construction, technology and gloves to be key earnings growth drivers.
This is to be backed by themes such as sustained foreign direct investment (FDI) growth, acceleration of infrastructure spending, artificial intelligence or AI adoption, rising focus on local green energy and expanding data centre infrastructure and the glove sector making a recovery on the back of tariffs on China.
Khaw is optimistic the foreign fund outflow trend might pivot in 2025, given the anticipation of robust economic growth domestically and the Fed’s recent hawkish stance might not be as hawkish as the market is expecting.
“The Fed’s recent stance is not a surprise, it has been signalling that the current situation is gloomy and is having a wait-and-see approach in order to minimise the policy mistakes.
“Having said that, we believe the Fed could turn slightly dovish (at least more dovish than what the market is expecting), which will make Malaysia attractive for foreign investors, potentially by 2Q25,” said Khaw.
Wong of Tradeview added higher oil prices, slower US economic growth and a potentially faster-than-expected economic recovery in China could also influence market dynamics.
Where and what asset class will the smart money be invested in 2025? Wong said dividend yielding equities are likely to remain attractive amid uncertainties surrounding trade policies and risk-off sentiment.
He added domestically focused equities are poised to benefit from more locally driven growth.
Yoong expects soft commodities to outperform in 2025 because global production has been impacted by climate change.
“Climate is not going to improve any time soon. This bodes well for the price of crude palm oil which is currently trading at RM4,560 per tonne.
In addition, the stringent regulatory framework set by Roundtable on Sustainable Palm Oil will cap any overwhelming growth in global oil palm acreage through the cultivation of greenfield plantations,” he told Starbiz.
Khaw of iFAST believes equities will top bonds due to the resilient local economy coupled with steady earnings from sectors like banking, constructions and consumer staples that will offer more attractive earnings relative to bond yields.
“The fixed income landscape in Malaysia is relatively stable compared to global fixed income and we anticipate Bank Negara to maintain its current stance in 2025 and cause a gradual decrease in yield.
On the other hand, the policy continuation and infrastructure development stated under the Madani economic framework has helped many investors to gain confidence and subsequently boost equity performances upward in 2025,” he said.
