Shares in the property and construction sectors rallied last week on speculation major infrastructure development and policy tweaks could benefit these sectors, supported further by the firm regional tone on hopes China’s measures to stimulate the domestic stock market and economy will spill-over into the region. While investors reduced trading commitments ahead of the Merdeka Day holiday break, the technology, property and construction sectors stayed resilient to outperform the broader market, even as the market awaits the closely watched monthly U.S. jobs data for clues on the health of the US economy.

For the week, the local blue-chip benchmark FTSE Bursa Malaysia Kuala Lumpur Composite Index (FBM KLCI) rose 19.02 points, or 1.32 percent, to 1,463.43, as gains on Public Bank (+16sen), CIMB (+13sen), Maybank (+13sen), Petronas Chemicals (+22sen) and Petronas Dagangan (+RM1.36) overcame falls on Axiata (-9sen) and IHH Healthcare (-9sen). Average daily traded volume last week surged to 4.51 billion shares, compared to 3.42 billion shares the previous week, while average daily traded value rose to RM3.38 billion, against the RM2.14 billion average the previous week.

Last Friday’s rally has pushed up the FBMKLCI slightly above the pre-state election closing of 1,457.16 but still 2.9% below the end 2022’s 1,495.49. Apart from domestic issues, mainly politics and initial concerns about the lack of economic direction, uncertainties created by the aggressive monetary tightening in the US and the softer-than-expected economic growth in China also contributed to the weaker market sentiment. The huge interest rate differential between the US and Malaysia (5.50% vs. 3.00% currently) and the stronger outlook for USD versus Ringgit have also contributed to the exodus of foreign funds from the Malaysian shores.

With the conclusion of Malaysia’s six state elections in August, market expectations are rising for the government to pay more focus on economic matters, and introduce plans and roadmaps to achieve targets set under the Madani Economy Framework. Initiatives announced so far were encouraging with the various long-term plans such as National Energy Transition Roadmap and New Industrial Master Plan (NIMP) expounding precise measures and targets to increase the nation’s competitiveness and living standards. In fact, the launch of NIMP last Friday was a key factor for the FBMKLCI’s strong performance ahead of the weekend. The NIMP aims to transform the industrial sector by 2030 with an estimated investments of RM95 billion and to increase the median monthly salary in the manufacturing sector to RM4,510 from RM1,976. Measures taken to achieve these longterm targets will benefit various economic sectors and bodes well for corporate Malaysia that can seize various opportunities created by the increased investments and consumptions.

This is crucial as corporate earnings of companies listed on Bursa Malaysia failed to excite for many quarters. In the recently concluded second quarter results reporting season, core earnings of 107 stocks under coverage contracted by 3.6% YoY versus +0.5% YoY in 1Q23, due to weaker demand, higher operating cost and lower average selling prices. Commodity and exports related sectors like plantations, oil & gas, gloves and technology underperformed but cushioned by improved performance from banks, transportation, power & utilities and gaming sectors. Nonetheless, CY23 and CY24 earnings of these stocks have been cut by 4.8% and 0.2% respectively, which is the sixth consecutive quarters of downgrade. As a revival in the global economy is vital to shore up demand for exports and stronger commodity prices, development in the US and China will be watched closely due to their great influence on global trade. (Please refer to our 2QCY23 Results Review report today for details.)

Based on the CME FedWatch Tool, the US Federal Reserve is expected to hold the federal funds rate steady in September meeting after inflation came within market expectations in July, which raised expectations for it to cool in the coming months in tandem with moderation in jobs growth and wages that came within expectations in August. The personal consumption expenditure (PCE) and core PCE rose by 3.3% YoY and 4.2% YoY respectively in July while the nonfarm payroll data for August showed an unexpected rise in unemployment rate to 3.8% as labour participation rate rose to 62.8% and jobs data for June and July was revised lower. The number of new jobs and wage increased by 187,000 and 4.3% versus forecast 170,000 and 4.4% respectively. Nonetheless, the June and July nonfarm payrolls was revised lower by 110,000. These signs of loosening in the labour market could induce the Fed to hold rates steady in September. Locally, this expectation along with the tame inflation should influence Bank Negara Malaysia to maintain its Overnight Policy Rate at 3.0% in this Thursday’s meeting.

Meanwhile, there is a growing consensus that China may miss its 5% economic growth target this year due to property sector woes, soft domestic demand and weak exports. China’s economy grew by 5.5% YoY in the 1H23 but growth decelerated rapidly on QoQ basis in the 2Q23 as it expanded by 0.8% only versus 2.2% in 1Q23. Thus, all eyes will be on its trade data this week after its recent official PMI data disappointed.

Source: TA Research - 4 Sept 2023