Macro issues weigh on Bursa Malaysia

PETALING JAYA: Whereas resilient exterior demand and powerful banking sector fundamentals present key help, the market will battle to seek out traction within the face of broadening progress and earnings stresses.

Maybank Funding Financial institution’s analysis arm mentioned this was as a result of destructive revisions stemming from an interrelated mixture of margin squeeze and weakening end-demand.

“Coverage flip-flops referring to subsidies have additionally raised market threat premium because the implied pressing fiscal scenario will increase considerations about additional earnings-sapping levies on the company sector akin to Cukai Makmur,” the analysis home informed purchasers in a report.

Within the report entitled “Malaysia 2H2022 Market Outlook Storm Warning”, it additionally mentioned hopes of an early common election that may enable a reset in delivering optimum and expedited coverage responses primarily based on long-term financial realities now appeared unlikely.

On thematics, it mentioned inflation and rates of interest will dominate market route.

Maybank famous nonetheless that the native market and different Asean benchmark indices as a complete had been relative outperformers on a year-to-date foundation.

Growth in 2023 earnings is anticipated to be pushed by the banking and transportation sectors

However macro challenges referring to surging inflation, sharply rising rates of interest and rising recession dangers which have weighed on developed markets are actually catching up with this area.

“As evidenced throughout the blended first-quarter 2022 reporting, working margin pressures have been rising throughout a broad vary of sectors, underpinned by rising labour and uncooked materials enter prices, whereas a harmful mixture of rising inflation and rates of interest are eroding disposable incomes, and therefore demand, into the second half of 2022,” it mentioned.

The tight fiscal scenario means considerations across the sustainability of present inflation-capping subsidies are a significant market overhang, the latter made worse by coverage inertia and extra U-turns by a fractious governing coalition that has but to sign readiness to go to the polls, it famous.

“We cut back our end-2022 FBM KLCI goal to 1,500 factors (from 1,710 factors) and retain a balanced positioning, by way of a mixture of worth and progress shares and persevering with yield focus,” Maybank mentioned.

In its report, TA Analysis was extra optimistic, noting that corrections within the US fairness markets had a destructive repercussion on native equities, however the draw back volatility was not anticipated to persist because the FBM KLCI had rebounded by solely 40.4% to a excessive of 1,695.96 factors submit the 2020 hunch of 1,207.80 factors and gave again 51.6% of the positive factors when it closed at 1,444.22 factors in June.

“Alternatively, the three main US indices had greater than doubled throughout the identical interval and are nonetheless about 70% increased on common than their pandemic lows,” it informed purchasers within the report.

It famous that valuation-wise, the FBM KLCI was “low-cost”, buying and selling at a consensus 2023 value earnings ratio of simply 12.5 occasions versus its final five-year ahead common of 18.9 occasions and comparable friends’ 13.8 occasions, and is backed by company earnings progress of two.2% and seven% in 2022 and 2023, respectively.

“Growth in 2023 earnings will probably be primarily pushed by the banking and transportation sectors, as restoration within the financial system and tourism actions enhance the providers sector.”