It was another non-starter for FBMKLCI in 1H23, though we have been expecting this. The uncertainty over US policy outlook was a major market dampener, which hurt sentiment, whilst also trampled the Ringgit. This was a major pain following USD that rose steadily against major currencies, a bane for emerging economies (EMEs), with Ringgit and Yen emerged as the biggest casualties. Hampered by a series of negative developments that triggered systemic risk and higher risk aversion, namely the US banking crisis (March 2023) and US debt ceiling impasse (May 2023), was a perfect storm that stymied sentiment against EMEs, not only equity but also currency. It was an easy foresight, nonetheless, given investors penchant for safe haven asset during stress market condition, and in this situation, the USD and US Treasury emerged triumphant. China’s slower-than-expected economic recovery also soured sentiment, not to mention a series of key general elections in EMEs that stoked cautious trading sentiment. Among others, Turkey, Thailand, Indonesia, Argentina and Poland are all due to hold their general election in less than a year. This underpinned foreign investors cautious stance against EMEs. Foreign investors aversion against a country’s political condition is well documented and this is expected to be repeated.
Our view on the market as a whole remains unchanged as we expect the market to rebound in 2H. This will be driven foremost by US policy pivot amid its central bank that could cut the FFR, as early as 4Q23 or 1Q24, courtesy of an expected pullback in US inflation. For perspective, the FFR is over 100 basis points (bps) above its neutral rate and this will be the driver that will push the FFR lower. US inflation is also expected to moderate convincingly, courtesy of high base effect and lagged impact of cumulative increases in FFR. The expected moderation in US inflation in 2H and the punitive level of FFR could push the US central bank to make amend on FFR, to the cheer of equity market. On that score, US FFR could be cut by as much as 100 basis points, if not more.
We foresee cautious trading sentiment prior to August no thanks to six (6) states mid-term elections. This will be a litmus test to gauge the support for the Unity Government (UG). Coupled with US’s policy pivot, expected in 4Q23 or 1Q24, a narrative we have been propagating since January 2023, will be a combination of catalyst that will push the market higher. Foreign investors will also warm up to the reform initiatives by the UG. On that score, the government is expected to announce holistic reform initiatives during the tabling of Budget 2024, part of a grand plan to boost our fundamentals. Against this backdrop, we derive our year-end 2023 FBMKLCI target of 1,550 based on PER of 15.0x. Upside potential of FBMKLCI could be capped however by weak broader market sentiment against EMEs, on the back of China’s slower-thanexpected economic recovery, existential crises from US, including but not limited to US banking crisis (still), elevated political risks and prolong global supply-demand imbalance for key commodities.
Source: BIMB Securities Research - 5 Jul 2023
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TMCreated by kltrader | Aug 12, 2024
Created by kltrader | Aug 12, 2024
Created by kltrader | Aug 09, 2024
Created by kltrader | Aug 09, 2024