• Global growth to reach potential in 2025 – a feel-good-factor for investors

• US central bank to reach the end of interest rate downcycle by then

• There could be intermittent volatility amid US’s inflation that has yet to settle-in

It was great start for Bursa Malaysia on the 1st trading week of 2024, thanks to foreign investors that accumulated a total of RM525mn of the local market. This was however offset by a nervous second week, no thanks to the release of US’s December inflation. The hotter-than-expected December CPI print jolted the market which pushed foreign investors to sell a net of RM93mn of local market. YTD accumulated net buy by foreign investors reached a cool RM432mn however (2nd – 12th January) which we think impressive as we expect the inflow to gain in traction only in 2Q24 and in full throttle in 2H24.

Having said that, US’s December CPI that jumped by 3.4% YoY instead of the street’s projection of 3.2% and November figure of 3.1% came in only a tad above expectation. This is nothing to be alarmed however given the stronger-thanexpected consumption activity on health related (in line with the rising COVID-19 trend) and shelter (due to winter season). This is not however due to the sharp increase in non-discretionary spending which would have triggered a big alarm bell to global equity market. Having said that, US’s central bank is likely to keep the FFR steady in its first policy meeting of the year in February (policy meeting: 1st February; Thursday) after having last adjust the rate in July 2023 (+25 bps to 5.50%). After tightening the FFR by a total of 525bps since March 2022, it is time to engage a wait-and-see strategy as it usually takes 5-6 quarters before an economy can see an impact on policy rate adjustment. We see no compelling reason for the FFR not to be cut in line with our expectation that the central bank will normalize the FFR by 100bps starting July. This will be followed by a maximum 50 bps cut in 2025 though this will be spread throughout the 2025 given the still sizzling US labour market. Investors will remain driven by the prosect in 2H24 and consequently into 2025 though there will be intermittent period of volatility which is the nature of equity market anyway. Malaysia will release its 4Q23 GDP this Friday (19th January; Friday) and all indicators point to a steady 4th quarter momentum for the country. Consensus project 4Q23 GDP to expand by 4.0%, pushing a full year GDP to average at close to 4.0%, in line with the authorities forecast (MoF 2023E GDP: 4.0%). We hope to see an upside risk to this especially with the rapid recovery in services sector which received an extra kick from the government’s visa free entrance for countries like China, India, Middle East not to mention ASEAN which already enjoyed the perks for so many years. Visa free initiative has started since December 1st and will last until December 30th, 2024. Betterthan-expected GDP numbers will add to market excitement which already beaming from various catalysts like better growth prospects in 2024, political stability and the fast-approaching installation of our 17th YDPA which will take place on 31st of January. Sentiment will get boosted by the expected turnaround in manufacturing sector which will gain from electronic and electrical (E&E) cyclical rebound this year.

Source: BIMB Securities Research - 15 Jan 2024