Foreign investors to ‘wait and see’ until GE15

KUALA LUMPUR – Foreign investors are expected to adopt a “wait and see” attitude from now until the 15th general election (GE15) is held.

Commenting on the dissolution of Parliament on Saturday as announced by caretaker prime minister Datuk Seri Ismail Sabri Yaakob, Rakuten Trade research head Kenny Yee said foreign investors disliked political uncertainties.

“If we have a strong government, they will be happy to come back,” said Yee after his presentation to the media titled A “Wow” Budget today.

Foreign shareholdings in the Malaysian equity market stood at 25% prior to 2020. But that number has since been halved. 

As of September 2022, foreign shareholdings in the equity market stood at 12.39%.

Pre-election rally

Yee was, however, hoping to see a pre-election uptrend. He also expects the FBM KLCI to touch 1,580 points by year-end, supported by more foreign fund inflows.

“Like I said, 1,580 points. I’m putting my head on the chopping block. Hopefully, there’ll be another 200 point jump. 

“I know it’s difficult, but for our market to have a 200 point jump…it’s not impossible. 

“My positivity stems from incoming foreign funds, balancing portfolio,” said Yee, adding that the GE15, coupled with an expected slower pace of interest rate hikes in the US, would help stabilise regional markets, including Bursa Malaysia.

“Premised on a reasonable 13 times calendar year (13 x CY2022) price to earnings ratio, we believe the banking and telecommunications sectors would support the momentum this year and into the next.

“This is also premised on the much improved corporate earnings growth for 2023, estimated at 6.8%,” Yee added.

Investors want clarity 

Commenting on Budget 2023, he said the record high allocation of RM95 billion for development will have a positive effect on people on the ground.

“The budget covers the whole spectrum of the population, and everyone has somewhat benefited from this latest budget.

“The biggest cheer was from the contractors, as the sector has got the highest multiplier effect in terms of economic growth, from the upstream right down to the downstream players across the sector,” Yee said.

On the financing of the biggest ever RM372.3 billion budget, Yee said it was difficult to comment on whether the Goods and Services Tax would be implemented or not. 

“I hope so. But whether the government can do it, I am not sure…certainly there have been arguments as to how we have to finance this huge budget. I feel something needs to be done whether you put the cart or the horse first. 

“With clarity and stability, foreign investors will make Malaysia their destination again,” said Yee when asked to comment on whether the lack of clarity on ways to finance the budget will impact investors’ confidence.

Ringgit to strengthen 

On the ringgit’s performance against the US dollar, Rakuten Trade believes the local currency will trade in the 4.50/60 range until the end of this year.

However, the brokerage expects it to strengthen in the second half of 2023 to around the 4.10/20 range.

“We also expect Bank Negara Malaysia to have another 25 basis points increase in the overnight policy rate. This is to safeguard the ringgit against the US dollar,” said Yee.

“We are less sensitive to changes in interest rates. Not saying that we are not affected, but we are less sensitive than the developed countries. Impact will be rather minimal. 

“If sentiments improve on the political side, the inflow of liquidity into the market will draw more participation from the retailers going forward.” – The Vibes, October 11, 2022