KUALA LUMPUR: Bursa Malaysia has emerged as one of the best-performing bourses in Sourtheast Asia in the first three months of 2024 and the outperformance may continue going into the second quarter.
Economists noted that the benchmark FBM KLCI had so far risen 5.7 per cent as of March 25. The sentiment is expected to become even more positive, buoyed by expectations of the US Federal Reserve's rate cuts.
Additionally, MIDF Research said a few of the catalysts for the construction sector have yet to manifest, while the fundamentals for the property sector will continue to improve.
While the Fed might have disappointed some with no early rate cuts, the firm believes that the market is still buoyed by expectations of rate cuts, with more regional indices showing positive returns.
"As for the oil and gas sector, the stable Brent oil price may entail more capital expenditure, which would be supportive for the sector," MIDF Research said today.
The firm kept its FBM KLCI 2024 target at 1,665 points, pegged at price earnings (PE) ratio of 14.6 times.
Echoing the views, Tradeview Capital Sdn Bhd vice president Tan Cheng Wen expects a continued upswing into the second quarter of 2024.
Tan attributed this to anticipated clarity on government reforms and blueprints, as well as the imminent rollout of major infrastructure projects like the Penang light rail transit and Mass Rapid Transit 3.
"Externally, we anticipate that the prospect of a rate cut by the Fed in the second half of 2024 will drive foreign inflows into emerging markets, including Malaysia. Furthermore, the stabilisation of the Chinese economy and electronics demand augur well for our market's performance," he told Business Times.
Bank Muamalat Malaysia Bhd chief economist Mohd Afzanizam Abdul Rashid said from the valuation standpoint, the PE multiples for FBM KLCI stands at 15.1 times which is still below its mean level of 17.1 times.
On that note, Afzanizam said there is further upside to the flagship index.
"Plus, the foreign ownership in Bursa Malaysia is still low by historical standards. In that sense, should the foreign funds come in on a sustained basis, it might push up the index into a higher trajectory.
"For now, I think the market is watching for the Fed's next move and in the meantime, investors will be observing the incoming data in order to gauge whether the Fed will cut the rates in the second half of 2024," he said.
SPI Asset Management managing director Stephen Innes highlighted that while this phenomenon is more global in nature, policy efforts in China have also contributed to pulling Asia stocks off their lows.
He pointed out to the asymmetry in the G10 central banks' decision calculus, where the threshold for rate cuts is modest while the bar for rate hikes is high.
"This dynamic suggests that central banks are more inclined to provide monetary stimulus in response to economic challenges," he said.
Meanwhile, Innes said the sturdy US consumer allows the Fed to buy time for inflation to ease.
"I think the rally has further to go as we are still three or four months away from when the Fed cuts which should be a boon to global markets," he added.