KUALA LUMPUR: The FTSE Bursa Malaysia KLCI (FBM KLCI) is poised to regain momentum as the year-end approaches, fueled by renewed optimism in the local market as institutional and foreign investors prepare for 2025.
Tradeview Capital fund manager Neoh Jia Man observed that while market sentiment has been dampened by various factors in recent months, a potential reversal in the U.S. dollar's strength and a sustained economic recovery in China could attract greater foreign inflows.
Neoh noted that consolidation periods have been a consistent trend for the FBM KLCI over the past decade, with some extending for several years.
He said that recoveries from these phases are often driven by key catalysts, such as resolving political uncertainties, establishing clearer policy directions, and improving economic growth prospects.
"For instance, post-election clarity and pro-growth government measures have historically acted as catalysts for market breakthroughs," he said.
Neoh said the FBM KLCI's consolidation reflects multiple challenges, including disappointing third quarter (3Q24) earnings, a slower-than-expected pace of Federal Reserve rate cuts, and a lukewarm recovery in China's economy.
"These are vital for the FBM KLCI to rerate. Additional catalysts include a rebound in commodity prices, particularly for palm oil and crude oil, and signs of stabilisation in the semiconductor industry cycle," he added.
Neoh expects the plantation, technology, and utilities sectors to continue to do well.
He said that the utilities sector has been a notable drag on the FBM KLCI recently, primarily due to weakness in YTL Power International Bhd.
"Despite this, utilities remain one of the best-performing sectors year-to-date. Looking forward, the plantation sector could emerge as a leader, supported by the sharp rally in crude palm oil prices since September.
"Additionally, the technology sector may stage a comeback, benefiting from trade diversion under Trump's trade policy, although its impact on the FBM KLCI is limited due to the sector's relatively small index weightage," Neoh said.
TA Securities, meanwhile, expects local funds to continue absorbing the selling pressure from foreign funds and keep the benchmark above the 1,600 level ahead of the year-end closing while investors await key inflation data from China and the US, besides trade numbers from the former.
"Local funds support aside, we need to see strong growth in corporate earnings and profitability to draw investors apart from good governance, sustainable development, and good government policies.
"Recall that business efficiency was the weakest link for Malaysia in the IMD World Competitiveness Ranking, where Thailand and Indonesia improved significantly and forged ahead," it said.
TA Securities said a point to note is that, with the upcoming constituent changes to the FBM KLCI on 23 December, its projected earnings for the index components will drop by 1.1 per cent and 0.6 per cent to RM71.2 billion and RM76.9 billion in calendar year 2024 (CY24) and calendar year 2025 (CY25), respectively.
"Thus, there is a need to close the earnings gap left by Genting Bhd and Genting Malaysia Bhd by stepping up productivity, efficiency, innovation, and upskilling employees," it added.
TA Securities said continued weakness in China's producer and consumer price indices will paint a bleak picture about the nation's ability to address the deflationary pressure after the recent policy manoeuvres.
The research house said the threat to external trade is another near-term risk with Donald Trump officially assuming the US presidency on 20 January.
"Thus, both the inflation and trade data today and tomorrow, respectively, will set the tone for China's annual economic work conference later this week, which will set the economic agenda for 2025.
"While no major announcements will be made until the National People's Congress meets next March, investors will be hoping for some hints from this conference, especially on how the government will boost consumption and revive the property market amidst high local government debts.
"Besides, people are also curious to find out how China will continue its technological advancement and address the rising threat from the West," it added.