Malaysia Market Outlook Q4: Back To The Premier League?
Table of Contents
For years, the FBM KLCI has been on the sidelines while investors flock to more exciting markets. But recently, local market sentiment has become more positive with greater political stability, repatriation of overseas funds by government-linked companies (GLCs), prominent foreign investment, and the strengthening of the Ringgit.
Much like a football team preparing for the Premier League, the market is poised for a comeback, focusing on strategic investments and long-term growth to ensure future success.
In 2023, growth in corporate Malaysia was flat-ish but in 2024, Rakuten Trade’s analysts anticipate an eye-catching 15.4% growth. Ahead of 2025, they forecast a healthy 9% growth underpinned by improvements across the board.
Roundup of retail investor participation
Despite improvements on both the FBM Small Cap and ACE markets, year to date shows a net outflow from the retail segments, totalling a whopping RM4.7 billion. Rakuten Trade’s analysts believe that this could be due to IPOs flooding the market and mopping up liquidity, especially from the secondary small-cap space.
For the first half of 2024, there were 21 IPOs raising approximately RM2.1bn. Recently Steel Hawk was oversubscribed by 277x locking in RM1 billion for 24.5m shares at RM0.15 per share or a mere RM3.7m. As a result, retail participation has shrunk from 26% in January to 18% as liquidity within the retail segment is drying up.
Are we Premier League material?
With the increase in Malaysian IPOs and growth projections, are these enough for us to enter the big league? Following are the key factors to assess our readiness.
Political stability
This is of utmost importance. During the 2018 – 2022 period, we had four different prime ministers and today Malaysia has a sitting prime minister (of more than a year), the domestic political environment seems somewhat steady, hence the shift in focus towards the economy.
Strengthening currency
Integral towards broad base investor confidence. This year has been a solid year for the Ringgit, reversing from the low of 4.80 to now 4.23 vs the greenback. That’s a 12% reversal in less than a year!
Foreign investment
Technology sector opportunities. Malaysia has risen as the main beneficiary from the ongoing geopolitical tension to a spate of technology. Approximately RM85bn from the US, Europe, and China has been well documented.
Is market liquidity for Bursa improving?
Another factor to consider is whether there is enough liquidity to power a comeback. Rakuten Trade’s analyst says “Yes”, but not enough.
Bursa Daily Volume | Source: Bloomberg
Both local institutions and foreign funds are already leading in improving market liquidity. As depicted above, the year-to-date average daily volume of RM4.6bn has surpassed the 10-year average of around 3.8bn shares but this has yet to influence the retail segment.
Nonetheless, they remain optimistic. If liquidity continues to improve via the local and foreign institutions. This should eventually cascade down to the retail segment.
Bursa Malaysia stock picks by Rakuten Trade
Following is the sector call by industry according to Rakuten Trade:
Sector call
Source: Rakuten Trade
Bursa Malaysia stock picks
| Stock | Price | Target Price |
|---|---|---|
| Binastra Corporation Bhd | RM1.47 | RM1.95 |
| Crest Builder Holdings Bhd | RM0.67 | RM0.97 |
| EUPE Corporation Bhd | RM1.14 | RM2.02 |
| Kerjaya Prospek Group Bhd | RM2.09 | RM2.39 |
| OCK Group Bhd | RM0.46 | RM0.75 |
Price taken as of 22 October 2024
Welcome to the Premier League Malaysia!
The repatriation of funds by the GLCs back to Malaysia has laid a solid foundation.
Top 6 GLCs collectively manage close to RM1.9 trillion and assuming 10-15% (or RM190 – RM285bn) of the amount is invested overseas, we could see RM20 – RM30bn being pumped back into the local bourse.
Rakuten Trade’s analysts anticipate the FBM KLCI to test 1,780 by the end of 2024 based on 16.8x PER (the 5-year historical average) premised on 16% earnings growth for CY24.
For curiosity purposes, based on the current 15.5x PER on CY25 estimates, the index should hover around the 1,810 threshold.
As for the Ringgit, they believe the local currency is currently undergoing some normalisation and expect it to strengthen to between the 4.10 to 4.20 range by the end of 2024 on the back of easing interest rates in the US.
For 2024, Rakuten Trade’s analysts expect Bank Negara to maintain the OPR at 3% but this depends on if the US Federal Reserve announces a high-interest rate adjustment.
Source: Rakuten Trade Research Team
