KUALA LUMPUR: As the market steps into the new year, several factors will continue to occupy investors’ minds for the near term.
Chief among these is the handover of the US presidency to Donald Trump on Jan 20.
The event is expected to influence many international markets, including Bursa Malaysia.
While there have been hints of how US policy direction would move following various comments by key planned appointees, this would only be much clearer in the real world once the new administration is installed in the United States.
Investors will also continue to keenly watch the gainers or losers of the US-China trade war that is expected to ratchet up with tariffs in the second Trump administration.
Closer to home, gains that were seen during the Christmas week on the benchmark FBM KLCI may support a stronger sentiment and spillover to the broader market, if sustained.
In the 2024 year; the FBM KLCI had recorded gains of 12.9%, the second best performer in the Asean region after Singapore’s Straits Times Index, which saw a 16.9% gain.
Other countries in the Asean region which saw gains last year include the Philippine Stock Exchange Index with a 1.22% addition and Vietnam’s VN-Index with a gain of 12.1%.
The region’s decliners were the Jakarta Composite Index that saw a 3.33% decline and the Stock Exchange of Thailand Index which experienced a 2.31% loss in 2024.
Seasoned investor and former investment banker Ian Yoong Kah Yin said Malaysia could see net gains economically should tariffs imposed here be less severe than initially expected.
“Malaysia will benefit from the proposed high tariff rates imposed on China (indicated 60%), Mexico (25%) and Canada (25%).
“Malaysian companies have significant exports to the United States. And Malaysia falls in the 10% tariff category,” Yoong told StarBiz.He noted the Bursa Malaysia has generally been quite undervalued and recent history and statistics had shown foreign investors and retailers being net sellers of Malaysian equities.
“Foreign investors have been net sellers of Malaysian equities for ten consecutive weeks until the end of 2024.
“Foreign funds went from net long in the first nine months of 2024 to net short by US$1.7bil in the fourth quarter of 2024.
“This has generally been the trend for emerging market fund flows in the second half of 2024 as funds flowed into the United States. President-elect Trump’s win in November accelerated these fund flows,” Yoong said.
“Retail investors too have been net sellers in Bursa Malaysia in the final quarter of 2024. Local institutions on the other hand have been net buyers in this time, and rightly so as Malaysian equities are generally undervalued.
“Many small and mid capitalised stocks are in the doldrums and this is a treasure trove for fundamental investors,” he added.
Yoong is upbeat on the prospects of small-to-mid cap shares on Bursa Malaysia.
Other factors that could support this is any continued surge of foreign direct investments into Malaysia that was seen in 2022 to 2024 and is expected to continue this year.
“This will translate into greater economic growth for Malaysia. This has been reflected in the outperformance of big and mega cap stocks and the FBM KLCI.
“The confluence of these factors present a golden opportunity for investment in Malaysian stocks, especially for the small and mid-cap stocks,” Yoong pointed out.
He advocates an investments of a portfolio of at least 10 to 15 Malaysian stocks to take advantage of the present investment sentiment and risk environment.
Meanwhile, SPI Asset Management’s managing partner Stephen Innes said the possible ramp-ups in trade tariffs by the United States and more stringent sanctions under the incoming US administration could reshape global supply lines for the oil sector.
In US stock markets, key research houses in the United States including JPMorgan Chase & Co, Morgan Stanley and Bank of America are projecting further gains for the S&P 500 this year.
Innes said market movements towards the year-end period, when many workers are on leave, is usually due to automated rebalancing rather than human strategising and this is indicative of seasonal adjustments rather than from keen financial insight.
“But there’s a palpable concern with the sharp increase in 10-year US Treasury yields, which are at their highest New Year starting point in nearly two decades, fuelled by a term premium-driven sell-off at the long end of the curve.
“Further upticks threaten to propel the US dollar higher, marking a forceful start to the year,” he said in his note.
“This confluence of factors sets a precarious stage for risk assets in 2025, challenging the optimistic sentiment surrounding the United States economic outlook fuelled by Trump’s tax and fiscal policies.
“Investors are poised to be on a tightrope, navigating a maze of fiscal uncertainties and market volatility, where every step could sway the balance of global financial stability,” Innes added.
Meanwhile, Principal Asset Management’s chief investment officer for Asia equities Christopher Leow said there is a significant forward valuation gap between US and Asian equities at 22 times versus 13 times respectively for 2025 and a very low positioning in Asian risk assets.
“This presents an opportunity because sentiment can change. The list of concerns is long but not new, for example higher trade tariffs, escalating geopolitical tensions and the potential of a stronger US dollar. Also, there could be less room for the US Federal Reserve (Fed) to cut rates as gross domestic product growth, business confidence, consumer spending and labour markets have been strong,” Leow told StarBiz.Leow noted the macro in China looks interesting because of the gap between perception and what is likely to happen.
He expects China’s government to likely shift policies towards boosting consumption and tackling the housing market problem in 2025.
“China’s economy has shown some signs of stabilisation recently, but stimulus policies so far have been perceived as insufficient.
While the policy pivot in September was welcomed and the headline figure of 10 trillion yuan for local government debt swap was important, markets expected more consumption-related measures,” Leow said.
He suggested portfolio investors to look for idiosyncratic ideas where the return drivers are not major macro factors.
“Our ideas include domestic consumption and cyclicals in China, beneficiaries of artificial intelligence in the tech space, strong consumer and banking franchises in South-East Asia and selective India-based companies that are reasonably valued with growth,” Leow said.
Back to US tariffs, Principal Asset Management’s head of Asia fixed income Howe Chung Wan said there will be winners and losers among Asian economies and this would depend on their exposure to the United States economy and a softer China.
He noted some countries could potentially even benefit from these tariffs such as India and Indonesia.
“Foreign exchange reserves buffers will allow central banks to decouple from the Fed as the central bank rate cut cycle flattens such as in India, South Korea and China and those which have greater domestic buffers such as Malaysia and Taiwan.
“We expect the weakness to be concentrated more in the earlier half of the year as Asia braces for tariff impacts and potentially recovering into the second half led by China as it steps up support for its economy,” Howe said.–THE STAR
