KUALA LUMPUR (July 17): The FBM KLCI, which gained 12.3% year-to-date to 1,633.54 points on Wednesday, is expected to see a upside potential in the second half this year amid expectation of easing US monetary policy and increased foreign interest, according to Standard Chartered Bank (StanChart) Malaysia.

‘For Malaysia, we expect it to perform in line with the regional market. As long as global equities continue to do well, Asia equities, including Malaysia, will continue to do well,” said its head of asset allocation and thematic strategy Audrey Goh Sze Chieh during a press briefing on global and Malaysia outlook for the second half of the year on Wednesday.

StanChart Malaysia is expecting the US Federal Reserve (US Fed) to cut interest rates up to twice for the remainder of the year.

StanChart Malaysia's head of investment strategy and advisory Ng Shin Seong believes the data centre-driven theme that has drawn attention from foreign investors will also buoy the local equity market.

“Many portfolio managers have their eyes on the recent announcements of investments from tech giants like Microsoft and Google [in Malaysia]. This, along with the structural reforms the government has embarked on, has brought more attention to the equity market,” he said.

As foreign participation only accounts for 20% of the local equity market, he expects to see more interest from foreign investors. This on the back of the draw of quality investments from a slew of structural reforms, including targeted subsidy rationalisation as well as the pursuit of sustainable growth under major plans such as New Industrial Master Plan 2030, National Energy Transition Roadmap and National Semiconductor Strategy.

StanChart Malaysia has maintained Malaysia's economic growth forecast at 4.8% this year, against Bank Negara Malaysia’s estimated growth of 4% to 5% this year following the encouraging 1Q expansion of 4.2%.

When asked about the RON95 subsidy rationalisation, Ng said the bank's economic forecast has yet to account for the outcome, pending announcements from the government.

"Fuel subsidy is a targeted approach and it will plug the leakage. Therefore, in the long run, it is a good measure. If the money is saved and gets redirected into more productive use for the country, in the long term, it will have a very good outcome for the country,” Ng said.

The government is expected to save RM4 billion a year from the implementation of the diesel subsidy rationalisation. Starting June 10, 2024, Malaysia set the new ceiling pump price of diesel in peninsular Malaysia at RM3. 35 per litre, up from RM2.15 per litre previously.

Meanwhile, the ringgit, which has climbed to its highest in six months against the greenback, is expected to see marginal improvement.

“We do expect one to two rate cuts from the US Fed, which would mean the interest rate differential between the US and Malaysia would narrow, therefore, we do expect Malaysia ringgit to marginally strengthen,” said Ng.

StanChart Malaysia has forecasted the ringgit to hit 4.66 against the greenback by the end of this year. The local currency climbed to as high as 4.6635 against the US dollar last Friday.

At the time of writing, the ringgit appreciated 0.07% and traded at 4.6705 against the US dollar. Note that the local currency has recovered 2.8% from a 26-year low of 4.8035 in February this year.

StanChart Malaysia is of view that Bank Negara Malaysia (BNM) will keep the interest rate steady at 3% for the remainder of this year, which could support the ringgit against the US dollar.

"Overall, Malaysia's economy is doing relatively okay because there are a lot of ongoing domestic infrastructure projects at the moment. We probably will see more businesses coming in from China. Our economy will be quite well supported. Hence, BNM is likely to keep interest rates steady until the end of this year," said Goh.

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