In last week’s trading, the local blue-chip benchmark FTSE Bursa Malaysia Kuala Lumpur Composite Index (FBM KLCI) bounced back from the previous week’s profit-taking correction, beginning in an uptrend driven by bargain hunting interest in banking, plantation and telco stocks. Market sentiment was upbeat following Donald Trump’s win in the US presidential election as his pro-business leanings led to buying interest in the technology, construction and health care sectors. The FBM KLCI then entered profit-taking correction mode ahead of the weekend, amid growing fears among regional investors over the likely potential for higher tariffs on goods imported into the US following Trump’s re-election.

In the first week of November, the FBM KLCI climbed 17.26 points, or 1.08 percent to 1,621.24, as gains on Sunway Berhad (+27sen), MISC (+33sen), Tenaga (+50sen), CIMB (+27sen) and YTL Corp offset losses in Petronas Chemicals (-44sen) and Mr. DIY (-7sen). Average daily traded volume last week increased to 2.97 billion shares versus 2.41 billion shares the previous week, while average daily traded value improved slightly to RM2.57 billion, against the RM2.47 billion average the previous week.

Sustained net foreign selling limited the FBMKLCI’s gain last week. Cautious trading could persist this week as investors continue to speculate on the US’ policy direction next year after Donald Trump is sworn in as the new president, look to China for more growth measures due to persistent deflationary pressures, and await the release of Malaysia’s 3Q24 gross domestic product (GDP). Confidence on Malaysia’s improving economic outlook could ignite selective buying interest on banking, healthcare, technology and utility players following recent sharp profit-taking corrections in these sectors.

As the new president elect only needs five more seats in the House of Representative to secure a trifecta of the executive and two branches of the legislature, a clean sweep will provide Trump strong political power to implement his election manifestos. Market jitteriness over how he will handle trade and foreign relations could sustain pending further clarity as he trains his sight on countries that the US has huge trade deficits with. His views on Ukraine and commitment towards NATO will be watched closely as Russia, China and North Korea displayed high levels of cooperation to thwart any onslaught from the West. His expansionary fiscal policies could come in the way of Fed’s guidance for four quarterpoint rate cuts next year after the 25 basis points cut to between 4.50% and 4.75% last week. Data on consumer price index (CPI), producer price index (PPI) and retail sales this week could shed more light on whether it will stick to previous guidance for another 25 basis points cut in December.

In China, continued weakness in its October CPI and PPI is a cause for concern although its industrial production and retail sales this week are expected to be stronger than September. Thus, the additional support measures from Beijing last Friday after a week-long meeting by the National People’s Congress Standing Committee were not a big surprise. The latest move involves a 4tn yuan debt swap over next five years, as well as an increase in local special bonds by 6tn yuan over the next three years. More aggressive measures could be rolled out next year to boost consumption, if another round of trade war with the US erupts.

Locally, the final GDP figures for July to September period will be revealed this Friday. Consensus expectations are for it to be in line with the advanced estimate of 5.3% and our forecast of 5.2% does not deviate much, pointing to a full year growth that will be in-line with the government’s forecast of 4.8% to 5.3%. With a strong labour market, pick up in domestic activities, greater domestic and foreign direct investments, and thriving tourism activities, the outlook for next year remains bright despite concerns about a trade war. Being a key trading nation, Malaysia will be affected as well if the new US president imposes a blanket tariff on all US imports, but the damage can be mitigated by larger shipments due to the “China plus one strategy”, especially if China is hit with a much larger tariff than the rest. Malaysia is preferred by multinational corporations for its strategic location as a shipping and logistics hub due to its proximity to China, boasts a diversified economy with a variety of products and markets, provides political stability and good governance, and has a business-friendly environment supported by a skilled workforce and well-developed infrastructure.

Source: TA Research - 11 Nov 2024