Bursa Malaysia Soars to Near Two-Year Peak, What's Next?

1. Stabilizing Market Sentiment: After Israeli security officials confirmed an attack on Iran, Iranian state television indicated that there were no immediate plans to retaliate against Israel, leading to a relaxation of safe-haven sentiment and easing market anxieties. Kenneth Leong, head of research at Apex Securities, stated, "Looking ahead, we expect further economic recovery as market conditions stabilize."

2. Government Project Incentives: On April 22, the Chief Minister of Johor stated that a joint agreement with Singapore on the JS-SEZ will be signed by the end of the year, including a series of incentives expected to create 100,000 high-paying jobs. Earlier, the state government's "Johor Vision 2030" agenda, which has been implemented over the past two years, has already introduced 55 strategies and 209 initiatives, bringing in investments of RM113.7 billion and creating 35,000 jobs.

Additionally, in the first half of 2024, a series of construction contracts will be awarded, including the Penang Light Rail Transit, phase one of the Pan-Borneo Highway, the MRT3 project, major flood mitigation constructions, and the Sarawak Link Road, presenting opportunities for both upstream and downstream construction industry enterprises.

3. Corporate Earnings Are Stable and Improving: According to analysts at Kenanga, corporate earnings in the fourth quarter of last year showed a stable and improving trend compared to the third quarter. Among the constituent stocks, 78% performed better than or in line with expectations, compared to 72% the previous year. Kenanga analysts expect corporate earnings in the Malaysian stock market to grow slightly to 16.3% in the 2024 fiscal year, higher than the previous forecast of 14.4%.

4. Robust Macroeconomic Performance: According to the latest data released by the Malaysian Statistics Department, Malaysia's import and export trade volume reached a historic high in the first quarter of this year, with a year-on-year increase of 7.1% to MYR 690.59 billion, achieving a trade surplus of MYR 34.22 billion. The Statistics Department believes that the first quarter's economic performance in Malaysia was driven by the services sector, and with growth achieved in all major sectors, it forecasts GDP growth of 3.9%, higher than 3% in the fourth quarter of last year.

RHB Bank analysts maintain an optimistic outlook for the Malaysian stock market, indicating that most of the negative news, including geopolitical conflict and delayed expectations of a US Federal Reserve rate cut, has already been priced in. They note that the market has been oversold and that corporate earnings are expected to improve. The analysts are positive about global economic growth. However, they note that if the United States does not relax its monetary policy in the second half of the year, a comprehensive reevaluation of Malaysian stocks may be required.

Malacca Securities Research has noted buying interest in the Malaysian stock market post KL20 Summit and expects the momentum to sustain at least for the near term within the technology sectors. This is due to Malaysia's aim to become the chip powerhouse in the Southeast Asia (SEA) region, with attention potentially spilling over towards the construction, property, utilities, and building materials segment.

Tang Pak Lim, Vice President of Equity Research at Lotte Trading, suggests that strong earnings forecasts are likely to offset concerns over the US Federal Reserve's (FED) interest rate plans, ahead of the US releasing key economic growth and inflation data. He believes that the Malaysian Composite Index (KLCI) is poised for further gains, with fluctuations expected within the 1550 to 1570 points range throughout the week.