Can bullish sentiment on Bursa Malaysia continue?

PETALING JAYA: Sustained inflow of foreign funds and investments by local investors is leading Bursa Malaysia closer to a bull market phase.

May was meant to be a month when equity markets see some selling pressure going by the old adage of “sell in May and go away” but it has been anything but that. Major indices such as the Dow and Nasdaq are at historic highs.

The swift 100-point rise in the benchmark FBM KLCI in a little over a month has seen it close at 1,622 points yesterday, underpinned by persistent accumulation of blue chips.

Despite the key market index edging up 11.5% year-to-date to a three-year high, analysts believe buying interest can sustain as most of the blue chips are still reasonably valued as the broader index is within the 15 times price earnings (PE) multiple which is lower than its historical of 16 to 16.5 times.

Many investors have their eyes on the current first quarter of financial year 2024 (1Q24) earnings reporting period for further leads to take fresh positions.

“So far, not many results have been released, making it harder for the market to move higher.

“Additionally, the valuation of FBM KLCI remains reasonable. With continuous inflows of foreign funds, the FBM KLCI may still be supported.

“However, the upside potential may be limited in the near term due to the swift rally over the past two weeks, with the main determining factor being the companies’ reports towards the end of this month,” said Nixon Wong, chief investment officer at Tradeview Capital.

Any disappointment may trigger selling pressure for active portfolio rebalancing, he added.

However, Wong expects investors may see potential buying opportunities in certain sectors like technology, industrial production, consumer, and logistics, where lacklustre 1Q24 earnings are expected due to the seasonality impact.

CGS International (CGSI) Research managing director, head and strategist for Malaysia Research, Chehan Perera, said the 1Q24 earnings performance could be key in the short term as investor expectations leading into the period have been high.

“We believe this is a very important reporting season as expectations built into share prices are higher and market expectations (including ours) are for double digit earnings growth in 2024 from a slight decline in profits last year.

Hence, it is important that the results come in line or exceed these expectations in order to drive further share prices upside,” he warned.

Apart from the earnings season, Wong said local reforms such as the subsidy rationalisation exercise and new policies will continue to attract fund flows and be viewed positively by investors.

The strong gross domestic product (GDP) growth of 4.2% for 1Q24 is a tailwind and macro events such as news of a pivot by the Federal Reserve (Fed) and fiscal support in China to its troubled property sector will continue influencing the market direction after the May reporting season.

The underlying economic outlook for Malaysia is also brighter. CGSI Research noted macroeconomic indicators are improving as the local economy enjoys a pick up in growth momentum.

Indicators such as loan growth, retail sales and trade numbers may get a further boost along with consumer expenditure following the implementation of the Employees Provident Fund’s (EPF) Flexi Account which could see an estimated RM25bil go to the hands of EPF contributors.

The research house added investment activity is on the up with ongoing advancement of multi-year infrastructure projects and execution of catalyst projects in accordance with the national masterplans supporting the domestic economy.

“We think with the domestic economy is in a healthy position, the government’s policy reform initiatives (i.e. on subsidy rationalisation) would likely proceed as planned,” CGSI Research noted.

More importantly, the moderating inflationary pressures in the United States has seen global investors take a risk-on approach and buy into emerging markets like Bursa Malaysia, which saw net inflows of RM4.9mil year-to-date at the end of last week after net selling of RM4.25bil in March and April.

If these investors continue to add on to their exposure, the local market could enjoy a further leg-up.

Investor Ian Yoong Kah Yin said foreign fund holdings of Malaysian equities was at a multi-year low at the beginning of 2Q24 as with many regional bourses.

These funds were spooked by the possibility of the ringgit weakening further.

“Foreign funds have become net-buyers over the past couple of weeks. Foreign shareholding of Malaysian equities was 14% at the end of April 2024. If indeed it normalises to 20% over the next few months, this would be a catalyst for a bull market,” he told StarBiz.