KUALA LUMPUR: Malaysia's stock market, once written off as one of the region's worst performers but has seen a considerable revival, is expected to move sideways as investors trade cautiously until the national budget tabling on Friday.

Until Monday, Bursa Malaysia's benchmark index climbed as much as 17 per cent over the past year, buoyed by the country's robust post-pandemic economic growth and a surge in foreign investments by US tech giants.

"The FTSE Bursa Malaysia KLCI (FBM KLCI) is expected to move sideways leading up to the 2025 Budget announcement on Oct 18," Hong Leong Investment Bank Bhd (HLIB) said.

The index is likely to fluctuate with key support levels around 1,606 to 1,625 and resistance levels between 1,660 and 1,684, according to HLIB head of retail research Ng Jun Sheng said.

Ng added that cautious sentiment and weak buying momentum are likely to prevail as investors navigate the ongoing United States' third quarter 2024 (3Q24) earnings results.

He said the risk of a long-feared regional war in the Middle East, as the US is sending an advanced missile defence system and associated troops to Israel, and the effectiveness of China's outsized stimulus measures to address its economic malaise, could contribute to the weak buying momentum and cautious sentiment.

Kenanga Investment Bank Bhd said the FBM KLCI edged up 0.22 per cent, to 1,633.55 last week, amid cautious trading ahead of the budget tabling.

The firm said all sub-sector indices saw weekly increase, except for the energy and financial sector, which dropped 1.2 per cent and 0.1 per cent respectively.

Meanwhile, the construction, healthcare and property sectors led the gain, increasing 3.4 per cent, 2.7 per cent, 2.5 per cent week-on-week respectively.

"Looking ahead, all eyes will be on Malaysia's 2025 Budget announcement, which could influence foreign investment and local equities. Key economic data from China, including 3Q gross domestic product (GDP) and September's consumer price index (CPI), will be critical for assessing regional economic conditions.

"We expect cautious trading with potential volatility as markets react to these significant events," it said.

Tradeview Capital fund manager Neoh Jia Man told Business Times that the index had remained mostly flat over the past week, which reflects a lack of buying interest across both large-cap and small-cap names.

"Based on our observations, investors are not particularly anxious about the upcoming 2025 Budget. Instead, they seem interested in seeing what the budget holds.

"However, most investors appear to be adopting a wait-and-see approach, avoiding active positioning on potential budget plays, especially as the market has already performed well year-to-date," he added.

Excluding pandemic years, Neoh said there is a pattern where the market typically rallies a few days to a week before budget announcements.

"For example, ahead of 2023 Budget, the FBM KLCI saw a 1.8 per cent re-rating. However, this year, we have yet to observe similar momentum building in the lead-up to 2025 Budget."

He added that investors could be hesitating as currently the unity government is in midterm election window with reduced electoral pressure and firmer grip on power. Hence, the 2025 Budget presents the government with an opportunity to enact deep fiscal reforms that require significant political capital, particularly subsidy rationalisation and broadening of tax bases.

"These reforms could negatively impact certain sectors or higher-income populations, which in turn might weigh on equity market sentiment. On the flip side, better fiscal discipline could support the ringgit and Malaysian government bonds," he said.

Neoh also pointed out that anticipated policy changes, such as subsidy rationalisation for RON95 gasoline, chicken eggs, and sugar, could negatively affect the transportation, automotive, egg farming, beverages and sugar milling sectors.

However, he noted that lifting price controls could help offset some of the impact on earnings for these industries.

"Should there be any minimum wage review, it might also negatively impact a wide range of industries including services, manufacturing, and plantation. Lastly, we are expecting potential reforms in public healthcare financing, which could have adverse effects on private hospital operators."

Neoh maintained the year-end target for the FBM KLCI at 1,650 points. "However, we are taking a more cautious view on the market performance after the budget."

The FBM KLCI ended 0.33 per cent or 5.43 points higher to 1,641.97 on Tuesday.

https://www.nst.com.my/business/corporate/2024/10/1120355/cautious-mode-until-b-day