Markets shrug off BNM’s OPR pause, focus is on bigger issues

 

The FTSE Bursa Malaysia KLCI is one of the world’s worst-performing indices this year, dropping 109.54 points or 7.32% year-to-date. (Bernama pic)

PETALING JAYA: Bank Negara Malaysia’s (BNM) widely-expected decision yesterday to maintain the overnight policy rate (OPR) at 3% had already been priced in by investors, say market analysts.

Instead, the analysts expect the equity markets to be impacted more by larger issues such as the upcoming state elections, the weakening ringgit, and poor corporate earnings prospects.

The OPR announcement did little to boost trading on Bursa Malaysia yesterday.

At the close, the benchmark FTSE Bursa Malaysia KLCI (FBM KLCI) fell 3.95 points, or 0.28%, to 1,385.95 from 1,389.9 on Wednesday, in tandem with the negative performance of regional markets and Wall Street.

Rakuten Trade head of research Kenny Yee feels BNM’s decision will likely not have a negative impact on the stock market as it falls within consensus expectations.

“(Prior to the decision) we did not see any strong reason why the OPR should be increased. So, maintaining it at 3% is a good move for the market,” he said.

He did not foresee any particular sectors to be affected by the OPR decision.

“I think companies in most sectors are probably breathing a sigh of relief, as this means there is no rise in their interest costs.”

However, Yee pointed out that the market sentiment would remain cautious until the conclusion of the state elections next month.

Business as usual

Bank Islam Malaysia Bhd chief economist Firdaos Rosli said BNM’s move to keep the OPR steady means it is “business as usual” for most companies.

“The impact (of the OPR decision) is rather muted, perhaps because investors have already priced in the impact of the pause,” he pointed out.

Regarding the ringgit’s underperformance, he believes the local note’s movement owed more to other factors than simply the interest rate.

“I think the ringgit will continue to be under pressure as long as the US Federal Reserve, and other major central banks, continue its interest rate hike path,” he said.

“There is a lack of a strong positive catalyst that could drive the ringgit higher, and investors are staying on the sidelines ahead of the state elections in the six states.

“Malaysia needs a solid post-pandemic growth strategy to make investors excited about the country’s economic potential,” Firdaos added.

Lower corporate earnings

Meanwhile, Penjana Kapital CEO Taufiq Iskandar said that some local companies will be negatively impacted due to the continued downward pressure on the ringgit given there was no increase in the OPR.

A weaker ringgit, he said, will put an upward pressure on companies’ cost curve, and reduce their earnings.

“In addition, our domestic economy this year is no longer supported by direct cash injection from Covid-19 pandemic stimulus packages, such as the one-off EPF withdrawals.

“We expect lingering poor performance of Malaysia’s corporate earnings and stock market if there is no catalyst and intervention to address weaker corporate earnings prospects,” Taufiq added.

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In the meantime, Bank Muamalat Bhd chief economist Afzanizam Rashid highlighted that local companies would become “more wary in their revenue outlook” following the persistent decline in manufacturing data globally.

“This could prompt them to relook at their business strategy including hiring plans as well as capital expenditure.

“In a way, the outlook for the labour market and price pressures are expected to be subdued going forward,” he said.

The FBM KLCI – one of the world’s worst-performing indices this year – has dropped 109.54 points or 7.32% year-to-date.

Foreign investors have also pulled out RM4.19 billion from Bursa Malaysia this year after becoming net sellers for 20 out of 26 weeks in 2023.

BNM’s monetary policy committee (MPC) announced yesterday the OPR will be kept unchanged at 3% – a level which is “slightly accommodative and remains supportive of the economy”.

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The decision was made on the back of moderating inflation despite core inflation remaining elevated relative to the long-term average.

For the second half of 2023, the central bank forecasts both headline and core inflation to trend lower. - FMT