KUALA LUMPUR: The Bursa Malaysia rally will likely continue, driven by a string of positive news and the attractiveness of "undervalued" Malaysian equities and ringgit, say an analyst.
Bank Muamalat Malaysia Bhd chief economist Dr Mohd Afzanizam Abdul Rashid said the FTSE Bursa Malaysia's (FBM KLCI) price-earnings (PE) multiple was around 16 times compared to the long-term average of 17 times.
"The upside potential is visible considering that Malaysian equities are generally undervalued.
"Additionally, the ringgit is also undervalued, which may motivate foreign funds to buy Malaysian equities," he said.
"Foreign investors were net buyers from May 2 to May 8 with an inflow totalling RM1.3 billion, almost reversing the net outflow of RM1.3 billion in April," he added.
Affin Hwang Investment Bank Bhd research head Loong Chee Wei said the market might consolidate in the short term, pending an evaluation of upcoming corporate result announcements.
"The year-to-date 10 per cent increase in the FBM KLCI has outperformed the MSCI ex-Japan, which rose just five per cent. Some drivers to sustain the positive sentiment in the Malaysian market are the sustained push towards energy transition, structural reform of the economy including fuel subsidy rationalisation, and the re-industrialisation of Malaysia, including data centre expansion, that is supported by sustained strong foreign direct investment inflows.
"A key factor to drive market performance is the expected strong rebound in corporate earnings growth to 14.4 per cent year-on-year in 2024, following a contraction of 4.7 per cent in 2023 based on our coverage of 105 listed companies," he said.
The market capitalisation of Bursa Malaysia stocks hit an all-time high of more than RM2 trillion on May 7.
The FBM KLCI has stayed above 1,600 points this week. Among the supporting factors are a string of positive news on foreign direct investments, notably the US$2.2 billion investment by Microsoft for a cloud computing and artificial intelligence hub.
This was followed by the appointment of Vstecs Bhd as the first Amazon Web Services distributor in Malaysia, further strengthening Malaysia's position in cloud and data centre segments.
Bursa Malaysia saw an increase in foreigners opening central depository system (CDS) accounts.
Loong said the timing and quantum of the expected rate cut by the United States Federal Reserve (Fed) and the strong US dollar remained the key for the ringgit weakness.
"We expect the ringgit to strengthen in the second half of 2024 as the Fed starts to cut rates, which could provide further upside for the Malaysian market, supported by the foreign fund inflow."
However, Afzanizam said the potential monetary policy easing by the Fed, based on recent US job data, might shift its focus from inflation to resuscitating growth.
He noted the US jobless claims went up to 231,000 last week from 209,000 in the prior week.
"If such narratives hold, I believe that the FBM KLCI has more legs to go," he added.