Bursa turnaround only in second half of 2023

 

The Malaysian bourse is not likely to recover until the second half of 2023, say market analysts.

PETALING JAYA: Spooked by the turbulence of 2022, investors may have to wait for a while more to see the local equity markets stage a robust turnaround.

This is because the anticipated pivot by the US Federal Reserve to ease interest rate hikes does not appear to be happening anytime soon.

Throw in the ongoing Ukraine conflict where Russia is about to unleash a major winter offensive, and escalating geopolitical tensions between the US and China, there are more than enough reasons for markets to be highly volatile in coming months.

Market watchers agree the formation of the new government is a sign that conditions will improve going forward, but some experts believe it is still too early to pop the champagne.

As one market analyst sees it, the market should recover but not within the first half.

Mercury Securities Sdn Bhd equities analyst Ronnie Tan told FMT Business possible rate hikes in the US could still keep the market bearish in the first six months of 2023.

Even the more optimistic ones have warned that external forces could dampen any feel-good factor in the market.

For instance, Rakuten Trade Sdn Bhd vice-president of research Thong Pak Leng points out the conflict in the Ukraine could present some challenges if it continues unabated.

Global equities markets suffered from the increased geopolitical tensions in 2022. Tan cited the conflict between the US and China as one such factor, apart from China’s zero-Covid policy that led to a prolonged lockdown.

Bursa Malaysia’s decline

Bursa Malaysia is no exception. The benchmark FTSE Bursa Malaysia KLCI (FBM KLCI) started the year on a positive note, opening at more than 1,540 points on Jan 3, the first day of trading for the year.

It hit a high of 1,620 in early March before sinking to its year low of 1,410 in July, only to recover to 1,510 a month later before it began its slide again. The FBM KLCI closed yesterday at 1,467.32.

Tan said the market could see an improvement in the second half (H2) of 2023 as investors have already priced it in up to 2024.

He also does not expect foreign funds to begin investing in Malaysian stocks anytime soon given the high US interest rate now. He expects the US Federal Reserve (Fed) to raise interest rates by another 50-basis-point if inflation continues to rise.

On Dec 16, the Fed announced a 0.5% increase in its benchmark interest rate to 4.5%. In contrast, Bank Negara Malaysia’s overnight policy rate (OPR) hikes have been modest in comparison, settling in at 2.75% after its latest increase in November.

Political stability vital

Thong has a more optimistic view. He sees the formation of the new government, led by Anwar Ibrahim, as a sign that political stability has returned to Malaysia.

He also expects the prime minister, who crucially won a confidence vote in Parliament on Monday, to win over foreign investors. The new man at the helm has always been viewed positively by the West, anyway.

This will be a drastic change from the last two years when foreign funds were deterred from coming to Malaysia. Foreign shareholding in Malaysian equities declined in 2020 and 2021 before recovering marginally this year.

However, there was a huge exodus in the weeks from the middle of November. In the week from Dec 5 to Dec 9, foreign investors dumped RM731.8 million worth of Malaysian equities, more than double that of the RM301.2 million in the week before.

Nevertheless, Thong expects foreign shareholding to continue to rise. “The construction sector is also poised for growth with the resumption of the Mass Rapid Transit (MRT) 3, Pan-Borneo highway and various flood mitigation and hospital projects,” he told FMT Business.

MIDF Bhd is equally optimistic. It said in a recent report the Malaysian gross domestic product (GDP) is likely to continue to rise, albeit at a slower pace of 4.2%.

Just like Rakuten, it has a positive view of the construction sector but pointed out that it is susceptible to uncertainty with every change in government policies.

On the bright side, MIDF said the Russia-Ukraine war and sanctions imposed on the Kremlin would have a limited impact on Malaysian corporate earnings or the stock market.

The economic blowback has varied from country to country, depending on their bilateral exchanges with the parties involved, namely the US, Russia and the EU and some of their allies, it said. - FMT