HOUSEHOLD income stability and a firmer ringgit will improve business and consumer sentiment further, leading to stronger spending, say analysts.
They also said the stock market, which was a key factor to better business and consumer sentiment, could be improving as foreign fund outflows were “overdone” and bargain-hunting activities emerged.
This, they added, could offer strong investment returns to big funds, such the Employees Provident Fund (EPF) and Permodalan Nasional Bhd.
Hong Leong Investment Bank Bhd (HLIB) expects consumer sentiment to improve further.
“Businesses that are consumer-oriented and defensive in nature with decent fundamentals may bode well throughout the fourth quarter,” it added.
HLIB said the ringgit would likely strengthen further in the fourth quarter with a projected range of RM4.10 to RM4.25 against the US dollar.
Strong export growth had led to higher export proceeds conversion and low foreign holdings of Malaysian bonds, it added.
“Investors should focus on the currency direction and commodity prices in the fourth quarter, which may provide trading opportunities.”
The investment bank believed the selling pressure by the foreign funds could be “overdone” and the FTSE Bursa Malaysia KLCI (FBM KLCI) rebounding above the support level of 1,750 would likely spur bargain-hunting activities.
It also felt that positive spillover from overseas markets should be seen in the local bourse in the quarter.
Historically, the fourth quarter tended to perform positively over the past 20 years with a 70 per cent chance of higher close, HLIB said.
“From the technical indicators, the FBM KLCI may chart a mild recovery towards year-end within a projected range of 1,740 to 1,800. We have an unchanged fundamental-driven year-end target of 1,760,” it added.
Bank Islam Malaysia Bhd chief economist Dr Mohd Afzanizam Abdul Rashid believes business and consumer sentiment was gradually improving given the stability in the household income, a firmer ringgit and stronger stock market performance.
Nonetheless, he said, consumers would remain mindful in their spending habit as the cost of living remained high.
“Already, the inflation rate hovered at four per cent in the first eight months and this is high compared to the long-term historical average of 2.8 per cent.
“This can have a significant impact on disposable income, especially for the middle- and low- income earners,” he said.
Afzanizam said the increase in the FBM KLCI by more 100 points year-to-date would mean better investment returns for the big funds, such as EPF.
“This would imply improving wealth for EPF contributors and unit trust investors,” he added.