The local blue-chip benchmark FTSE Bursa Malaysia Kuala Lumpur Composite Index (FBM KLCI) was on an uptrend for most of last week spurred by interest in construction, property and utility stocks. The index also reflected the market’s optimism over strong US jobs data and dwindling concern over the ongoing conflict in the Middle East. Meantime, regional sentiment was buoyed by hopes for more meaningful stimulus measures from the Chinese authorities.
Week-on-week, the FBM KLCI gained 3.58 points, or 0.22 percent to 1,633.55, as gains on Mr. DIY (+14sen), Sunway Berhad (+20sen), CIMB (+30sen) and YTL Power (+9sen) offset falls in Public Bank (-22sen), Petronas Chemicals (-17sen) and SD Guthrie (-8sen). The average daily traded volume last week declined to 2.83 billion shares versus 3.73 billion shares the previous week, and the average daily traded value dwindled further to RM2.57 billion, against the RM2.71 billion average the previous week.
Foreign net buying interest returned last week after a cumulative net outflow of RM1.6bn in the previous two weeks. It can be a prelude to stronger buying activities ahead of the tabling of Budget 2025 this Friday, taking cue from the strong US equity market performance last week. Historical records since 1997 revealed that the probability of FBMKLCI advancing in the 1-month and two-week periods before the budget was 53.6% and 64.3%, and the total average return was 0.6% and 1.1%, respectively. This was mostly followed by immediateterm corrections where the benchmark index eased 64.3% of the time in two weeks post budget and giving back all if not most of the gains. The probabilities and average return in the 1-month and 2-week pre-budget period used to be higher at 61.9% and 81.0%, and 1.1% and 3.2%, respectively, if the 6-year period between 2018 and 2023 when the country faced political uncertainty was excluded as the execution of budget measures hinged on a stable government.
Contrary to the historical trend, the last three weeks’ performance was not encouraging as investors took profit after a strong rally from 6 August low of 1,529 to a high of 1,684 on 29 August. This was following an escalation in the Middle East tension after Iran fired a salvo of missiles on Israel and investors flocked to the China market after its central bank announced strong monetary measures to lift its economy and the government committed to follow through with expansionary fiscal initiatives. However, the announcement from
China’s Minister of Finance Lan Fo’an last Saturday failed to create excitement and underwhelmed market expectations. While announcing the Chinese government has room to increase debt and the deficit, he fell short of announcing any fiscal support. Instead, he only noted such policies are still under discussion. More information could be forthcoming when its parliament meets later this month, after China releases its third quarter GDP this Friday, which could have grown by 4.9% YoY (versus 5.0% YoY in 2Q24) based on Bloomberg consensus forecast.
China will also announce this week many other important economic data such as trade data, industrial production, retail sales, residential property sales, fixed asset investment, etc. that should influence fiscal policy decision later this month. Its consumer price index (CPI) and producer price index (PPI) for September that were announced yesterday increased concerns about deflationary pressure and the need for the government to intervene faster with bold measures. The CPI rose 0.4% YoY, the slowest in three months, versus 0.6% rise in August. The PPI fell at the fastest pace in six months, down 2.8% YoY versus a 1.8% decline the previous month and below an expected 2.5% decline.
Against this backdrop, investors may find comfort from Malaysia’s stronger economic data and the expansionary fiscal measures and structural reforms in Budget 2025. Malaysia’s 3Q24 GDP that will be announced this Friday is forecast to grow by 5.2% based on Bloomberg consensus forecast, weaker than 5.9% in 2Q24 but the full year growth could come closer to the upper end of the government’s official forecast of 4% to 5% and surpass our 4.7%. Meanwhile, Budget 2025 is expected to continue emphasizing on measures to improve the nation’s competitiveness to attract investments; fast tracking fiscal reforms that emphasize higher revenue collection, prudent spending, fewer subsidies and reduction in the annual net borrowings; enhancing governance and public delivery mechanism; uplifting the quality of lives and equitable distribution of the wealth; and continuing the sustainability agenda for the better future. These actions are expected to be consistent with its aspiration to achieve seven key performance targets over the next 10 years, which was announced last year, and will be underpinned by three key thrusts. The first thrust aims to restructure the economy and boost national competitiveness to make Malaysia a formidable economy in this region. The second thrust aims to improve the quality of life of all Malaysians and the final thrust aims to enhance the public sector’s transparency, efficiency and accountability. The details on likely budget measures and beneficiaries can be found in our “Preview of Budget 2025: A Visionary Blueprint for Better Tomorrow” report released on 27 September 2024.
Source: TA Research - 14 Oct 2024
Created by sectoranalyst | Nov 08, 2024