Photo by Zahid Izzani/The Edge

KUALA LUMPUR (Aug 19): The FBM KLCI hit a new 52-week high on Monday propelled by strong gains in banking stocks, as investors racked up shares in index heavyweights while awaiting earnings announcements in the next two weeks.

Investors are likely betting that stronger-than-expected gross domestic product (GDP) growth in the second quarter of 5.9% would translate into better showings for banks as the proxy to economic growth, Areca Capital chief executive officer Danny Wong Teck Meng told The Edge.

“With better growth, banks should perform better too, in areas like fee income and loan growth,” he said.

The Bursa Malaysia Financial Services Index heavily weighted towards banks touched new record high levels on Monday. The index — which also tracks stockbrokers, investment banks, and credit companies — was up 505.51 points or 2.74% to 18,925.23. All 10 listed banks gained on Monday.

The rally lifted market capitalisations of Malaysia’s top two banks in terms of assets, Malayan Banking Bhd (KL:MAYBANK) and CIMB Group Holdings Bhd (KL:CIMB), to new record highs.

Recent upgrades help

Institutional investors, particularly foreign fund managers, have also been buying Malaysian stocks following recent upgrades by JPMorgan and Goldman Sachs.

Fund managers also bought into banks as the sector accounts for the largest weightage of the country’s benchmark index at over 30%, said Vincent Lau, the head of equity sales at Rakuten Trade.

Maybank, CIMB, as well as Public Bank Bhd (KL:PBBANK), the country’s third-largest bank, together also make up more than one-third of the weightage of the MSCI Malaysia Index used by global institutional investors to benchmark their funds.

Foreigners were the top buyers of Malaysian stocks last week, buying a net RM300 million worth of stocks, according to fund flow data. Last Friday alone, foreign investors bought a net RM288 million following the release of second-quarter GDP data that came in stronger than expected.

Malaysia’s GDP expanded 5.9% year-on-year in the April-June quarter, higher than the median estimate of 5.8% growth in a Bloomberg survey, as well as the official flash estimate of 5.8% expansion. On a seasonally adjusted basis, GDP rose 2.9% quarter-on-quarter.

“With the strong performance in the first half, we are of the view that growth for the full year of 2024 could be closer to the upper end of the 4% to 5% range,” Bank Negara Malaysia governor Datuk Seri Abdul Rasheed Ghaffour said following the release of the GDP data.

Ringgit charges higher

The ringgit continued to outperform Asian currencies and climbed further to 4.3748 versus the US dollar. Analysts meanwhile have scrambled to adjust their forecasts as the currency has racked up some 5.0% year-to-date amid the inflow.

On Monday, BIMB Securities, Apex Securities and Kenanga Investment Bank pointed to the US Federal Reserve’s anticipated rate cut later this year which will benefit the ringgit, said Kenanga Investment Bank.

Malaysia’s fiscal consolidation and debt reduction efforts may also boost investor confidence and attract capital inflows, Kenanga said, predicting the ringgit to end 2024 at 4.42.

The median forecast now is for the ringgit to hit 4.57 by September and 4.61 by December, according to Bloomberg’s survey.