This article first appeared in Capital, The Edge Malaysia Weekly on January 15, 2024 - January 21, 2024

THE first few trading days of 2024 have been a beacon of hope for investors on Bursa Malaysia. The market bellwether FBM KLCI crossed the 1,500 mark during an intra-day session, boosted by foreign investors’ buying activity, a level last seen in November 2023. Sentiment towards large-cap stocks has been positive, thanks to foreign funds.

In less than two weeks in 2024, the FBM KLCI, which tracks 30 of the largest companies on Bursa, has already recouped most of the losses recorded in 2023. The index was down 2.7% last year.

In comparison, the benchmark index has gained 2.06% year to date to close at 1,483 points last Thursday. It touched 1,503.93 points briefly during intra-day trading before ending the day at 1,498.83 points last Tuesday.

The boost in big-cap stocks has also propelled the lower-liners, as evidenced from the movement of the FBM ACE Index, which surged 1.94% over the last two weeks to close at 5,414.62 points on Thursday. The FBM Small Cap Index gained 3.43% and FBM Mid 70 Index rose 3.42% in the same period.

MIDF Research says foreign investors have been net buyers of Malaysian stocks for four consecutive weeks. The local research house says foreign net inflow stood at RM524.9 million in the first week of 2024.

“The sectors that recorded the highest net foreign inflows were utilities (RM208.9 million), financial services (RM156 million) and property (RM126.9 million),” it says in a Jan 8 note to clients.

“Meanwhile, the sectors with the highest net foreign outflows were technology (-RM69.4 million), consumer products and services (-RM64 million) and telecommunications and media (-RM16 million).”

Against this backdrop, overall market trading activity has shown a strong rebound, with RM3.26 billion in average daily trading value (ADTV) recorded in the first week of 2024, up 58% from the RM2.06 billion recorded for all of 2023.

The daily trading volume on the local bourse has also been buoyant, surging to 6.14 billion shares last Tuesday, almost double the average daily volume of 3.31 billion recorded in 2023. The total number of shares traded have been above the four billion mark each day since the start of 2024.

The inflow of foreign buyers has brought fresh hope for the local stock market, which has seen a lack of stamina over the last three years as sentiment was affected by a changing political landscape, aggressive rate hike campaigns by major central banks, untamed inflationary pressure, supply chain disruption and China’s economic slowdown.

The aggressive interest rate hike by the US Federal Reserve that started in early 2022 has seen hot money leaving developing economies, including Malaysia. The weakening local currency further dampened sentiment.

Moving into 2024, market observers reckon that the recent rally in Malaysian stocks stemmed from the Fed’s pause in raising interest rates for the last three cycles.

“The local stock market is expected to do better in 2024, following the Fed’s decision to pause its rate hike [as well as] investor confidence in the Madani government and better corporate earnings,” Rakuten Trade Sdn Bhd head of equity sales Vincent Lau tells The Edge.

“In addition, we expect that the National Energy Transition Roadmap (NETR) launched last year will come into force this year, which in turn would be a catalyst for the market and economy.”

On the possibility of the Fed’s cutting its rates on the back of moderating inflationary pressure, Lau suggests that the rates may have peaked, but it is too early to predict a rate cut.

He adds that Malaysian stocks offer further upside and the recent upward trend in the local stock market is only the beginning. “We expect some volatility as the local stock market regains momentum. We expect the market could touch the 1,500 level [again] by the end of January as investor confidence improves.”

The strong market outlook applies not only to Malaysia. DBS Group Research expects 2024 will be a better year for Asean economies on the back of stronger economic growth prospects, driven by exports, recovery in the electronics cycle and support from travel and tourism.

“Malaysia, Singapore, Thailand and Viet­nam will be the key beneficiaries, given their high trade openness and considerable electronics exposure. Electronics exports for these four economies have bottomed [out] and are recovering at a varying pace, with Vietnam leading the pack,” it says in a Jan 8 report.

DBS Group expects Malaysia to record a stronger economic growth of 4.8% this year compared with the estimated 4% in 2023, hinting at the pace of external recovery.

“Malaysia’s economy under Prime Minister Datuk Seri Anwar Ibrahim has faced tough global conditions in the government’s first full year in office in 2023. Yet, it is against the [backdrop of] new post-pandemic and cyclical challenges that the administration has set out a clearer economic direction and ambitions under the ‘Madani Economic Narrative’ for the next 10 years,” it says.

Kenanga Research expects the FBM KLCI to maintain its momentum in the coming week, supported by continued foreign interest and the Sultan of Johor’s endorsement of the unity government, which is favourable for political stability.

It points out that the FBM KLCI has broken past its key resistances at 1,465 and 1,470 points, but the index might face a substantial challenge near the 1,500 level.

“A pullback is likely before it potentially resumes its upward trajectory,” it says in a Jan 8 report.

The surge in ADTV has spilled over into the share prices of stock exchange operator Bursa Malaysia Bhd and listed stockbroking firms such as Kenanga Investment Bank Bhd (KIBB), M & A Equity Holdings Bhd and Mercury Securities Group Bhd, in view of better earnings prospects.

Last Thursday, Bursa Malaysia’s share price closed at a peak of RM7.31, its highest since October 2021, amid increasing foreign funds inflow into Malaysian stocks. The stock market operator derives the bulk of its revenue from securities trades.

UOB Kay Hian Research is maintainaing a “buy” call on Bursa Malaysia, with target price of RM7.80 on the back of an expected market upward cycle as a result of a peaking interest rate cycle in the US.

“Market sentiment is picking up, as reflected by encouraging ADTV recovery. Bursa’s  ADTV has been trending upwards from RM1.76 billion in 2Q2023 to RM2.2 billion in July-August 2023 on improving foreign net equity inflows, which is above its historical mean ADTV of RM2.1 billion,” it says in a report.

The foreign research house estimates the ADTV for this year at RM2.4 billion, higher than the RM2.13 billion recorded in 2023.

According to Bloomberg consensus, five analysts have a “buy” call on Bursa Malaysia, eight have a “hold” and three recommenda “sell”.

KIBB’s share price also surged to its highest since April 26, 2022, to settle at RM1.08 last Thursday. Nonetheless, some would argue that the fresh interest in the counter could be a result of the presence of Sarawak-based conglomerate Cahya Mata Sarawak Bhd, which owns an 18.93% stake in KIBB via CMS Capital Sdn Bhd.

The surge in share price came after Affin Bank Bhd confirmed that its largest shareholder, the Armed Forces Fund Board (LTAT), was in talks with the Sarawak State Financial Secretary for the latter to increase its stake in the bank.

Listed stockbroking houses Mercury Securities and M & A Equity are also trading at their highest levels so far this year, closing at 84.5 sen and 36.5 sen respectively last Thursday.

Mercury Securities was listed last September at 27 sen, and has seen its share price triple in less than five months.

The encouraging price movement in these counters indicate that investors are also betting on more robust trading activity this year.

Most research houses expect the local stock market to improve this year. In 2023, the FBM KLCI closed the year 3% lower, at 1,455 points, with foreign outflow of RM2.3 billion that was cushioned by local institutional buying of RM3 billion, according to AmInvestment Research.

The research house estimates that the FBM KLCI will end 2024 at 1,545 points, pegged to an unchanged 2024 forecast price-earnings ratio of 14.9 times, on the back of better corporate earnings growth, dividend yields and low foreign shareholding of 19.6% currently and prospects of a stronger ringgit next year.

“Our 2024 forecast FBM KLCI earnings projections of 14.4% are driven largely by oil and gas, plantation, power and financial services. This is comparable to Bloomberg consensus’ 2024 forecast FBM KLCI index earnings growth of 13.6%,” it says in a Jan 3 strategy report.

AmInvestment Research adds that the improvement in corporate earnings is also in line with the performance of those in regional countries. It estimates that Indonesia’s corporate earnings will grow 35%; Thailand, 18%; the Philippines, 16%; and Vietnam, 52%. 

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