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Potential tailwinds for equity markets in 2024
Published on: Friday, January 05, 2024
By: Bernama
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Potential tailwinds for equity markets in 2024
Domestic political stability is crucial for implementing effective policies and fostering long-term growth and competitiveness, says RHB Research. (Bernama pic)
PETALING JAYA: Corporate earnings and investor sentiment in Malaysia’s equity markets in 2024 will depend on both external and domestic factors, said RHB Research.

In a statement, the research house said that as investors refocus on fundamentals, these external and domestic factors will guide market direction.

RHB viewed that the US economy has proven to be more resilient, confounding expectations.

“However, this is a double-edged sword, keeping inflationary pressures up and forcing the US Federal Reserve (Fed) to adopt a hawkish tone.

“We view a ‘no-landing’ scenario for the US economy, helped by a robust labour market,” it said.

RHB also stated that a positive flow of China’s economic, foreign exchange, or corporate news will improve the outlook for trade and tourism, and lift local investor sentiment.

It said that China’s economy is showing early signs of recovery as the government is considering introducing measures such as bank support for eligible firms and extending unsecured loans to the property sector.

“Meanwhile, some signs of easing of tensions in the Middle East are positive, but we note the fragility of the situation and there are still risks of the conflict escalating,” it added.

Back home, RHB said Malaysia’s growth momentum is expected to gather pace into 2024, underpinned by the revival in the external sectors, including manufacturing and exports.

The rebound in the global technology cycle and improved regional economic landscape are expected to support the export-oriented segments.

Domestic demand would be bolstered by robust consumer and investment spending and corporate earnings have historically displayed a higher degree of fragility.

“The lack of pricing power and susceptibility to foreign exchange risks, availability of labour, and other material cost pressures can betray corporate Malaysia’s relatively modest position on the value chain,” RHB said.

RHB noted that the domestic political stability factor or the stability of the ruling unity government is essential to provide a solid framework within which effective policies can be implemented to facilitate long-term growth and competitiveness.

‘Persistent efforts by the opposition to destabilise the government will be negative for financial markets and impede economic growth if new investments are diverted elsewhere as a result, it said.

On the ringgit, RHB said that as the Fed nears the end of its rate-hiking cycle, markets will gradually adjust to the ringgit’s recovery, pricing in the expected reduction of nominal interest rate differentials.

Nominally, it said importers will benefit from the lower landed cost of imports as well as companies with US dollar-denominated debt.

“Those disadvantaged by a stronger ringgit include exporters and companies with significant overseas earnings,” RHB added.

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