KUALA LUMPUR: As Malaysia ushers in 2025, optimism is growing regarding its economic outlook, equity market prospects, and the performance of the ringgit.
This positive sentiment is driven by a combination of favorable economic fundamentals, strengthened political stability, and a series of pragmatic reform initiatives.
Analysts and economists are encouraged by the progress made in 2024, which has laid a solid foundation for continued growth in the year 2025.
Bursa Malaysia concluded 2024 with modest gains on the final trading day, marking its best annual performance since 2010.
The FBM KLCI began the year at 1,453.10 points and experienced a 12.90 per cent year-to-date (YTD) increase, closing at 1,642.33 points on the final trading day of the year.
Currency performance adds another layer of optimism, with the ringgit demonstrating resilience and the potential for further appreciation.
The ringgit closed higher against the US dollar on the final trading day of 2024, at 4.4710, compared to the 4.5975 it was tradig at against the US dollar at the start of the year.
Bank Muamalat Malaysia Bhd chief economist Dr Mohd Afzanizam Abdul Rashid described the performance of both the FBM KLCI and the ringgit in 2024 as "quite decent".
He said key sectors such as banking, construction, technology, plantation, and power were the main drivers of local equities this year.
"We also saw Pemodalan Nasional Bhd (PNB) announce a respectable dividend for Amanah Saham Bumiputera (ASB) unitholders, and the Employees Provident Fund (EPF) delivered a 20 per cent gain in gross investment income on a year-to-date basis, with equities being the main driver. "Additionally, the ringgit performed well, with the dollar-ringgit touching RM4.1235 on Sept 30, the highest since June 2021. "So, I think the country has done well this year," he added.
Meanwhile, UOB Kay Hian Wealth Advisors head of investment research Mohd Sedek Jantan considered the performance of the market and the ringgit as "above average", attributing it to solid fundamentals.
"Despite a sluggish Chinese economy and a strong US dollar, the domestic market has remained resilient. "The strength of the US stock market has not prevented us from achieving positive results, thanks to domestic support," he said.
Combined with strong corporate earnings in sectors less vulnerable to exchange rate fluctuations, the outlook for the ringgit in 2025 appears positive, with potential for steady appreciation as Malaysia's economic fundamentals continue to strengthen.
Bursa Malaysia set for stronger growth in 2025
The equity market is looking particularly promising in 2025, with the FBM KLCI index trading at attractive valuations, well below its historical average.
This positions the market as an appealing opportunity for both domestic and international investors.
Mohd Sedek forecasts that Bursa Malaysia will reach 1,800 by the end of 2025.
He said key trends to watch are the construction and technology sectors, both of which are expected to show significant growth, driven by the expanding data centre supply chain.
"Additionally, the economic developments in Johor, particularly the growing demand for electric vehicles (EVs), will play a key role in shaping the region's future economic landscape," he told Business Times.
Meanwhile, Afzanizam is bullish about Malaysia's equities market in 2025, primarily due to its undemanding valuation and growth prospects.
He said the FBM KLCI is currently trading at price-to-earnings (P/E) multiples of 15 times, which is well below the long-term average of 17.1 times.
He added that, to a large degree, Malaysia has achieved political stability, which would allow economic reforms to be implemented.
"The government is also pragmatic in its approach, which would avoid self-inflicted shocks by introducing reform measures gradually. "Yes, there are areas to improve, such as communication and clarity in the mechanisms, but generally, the reform agenda is ongoing. "This would mean government resources are slowly being rearranged to ensure that only those who are qualified will receive financial aid," he said.
Similarly, SPI Asset Management managing partner Stephen Innes is optimistic about Malaysia's market prospects in 2025, buoyed by robust foreign direct investment, dynamic advancements in the tech sector, and strong corporate earnings.
However, he has maintained a cautiously optimistic stance due to potential risks for the KLCI, such as a slowdown in foreign inflows stemming from tariffs and a strengthening US dollar under Trump's administration.
"The key question that will shape our outlook is whether Trump will reprise his role as the 'Deal Maker in Chief' or revert to being 'Tariff Man'. "If it's the latter, we expect the local bourse might face challenges in the first half of the year but could regain its stride in the latter half by capitalising on any slack in the supply chain diverted from China," he said.
According to Innes, the primary concern lies within the commodity sector and a trade war scenario could cast a deflationary shadow across Asian markets. Nonetheless, he said his somewhat less bearish view on Malaysia's stocks hinges significantly on innovations within the tech sector and, to a lesser extent, on China's ability to reignite consumer demand.
"While I think China may struggle to boost its consumer market, I'm hopeful that conditions will not deteriorate further, which in itself would be a positive outcome," he added.
Ringgit to see cautious trading in 2025
On the currency front, the ringgit is expected to experience cautious trading and exhibit softness in the first week of 2025 amid global economic uncertainties.
Mohd Sedek anticipates a weakening trend in the first half of 2025, with US dollar versus ringgit exchange rates projected as follows: 4.53 in the first quarter (Q1), 4.60 in Q2, 4.65 in Q3, and 4.55 in Q4.
According to him, the projected trend for the ringgit in 2025 is based on several key assumptions, including the expectation that the US Federal Open Market Committee (FOMC) will implement only two rate cuts in 2025.
He does not expect Bank Negara Malaysia (BNM) to cut its overnight policy rate (OPR), which is expected to remain at 3.00 per cent throughout the year.
"The European Central Bank (ECB) is expected to continue its rate cuts in 2025, though these cuts are likely to have a lesser impact on the Malaysian ringgit but will remain significant for the US dollar. "The Bank of Japan (BOJ) is forecasted to maintain its current interest rate throughout 2025," he said.
Meanwhile, Innes is bullish on the US dollar, expecting Trump's assertive trade policies to drive the dollar higher, potentially leading to market drama.
He expects Trump to embrace significant tariff increases and tax cuts to provide substantial support to the dollar throughout the coming year.
Innes added that this scenario could put the ringgit on a collision course with the 4.75 mark and potentially higher if the People's Bank of China allows the yuan to weaken— a move that could trigger further implications.
Afzanizam noted that Malaysia's export-oriented companies have seen their earnings negatively affected when the ringgit appreciated against the greenback during the third quarter.
"So, with currencies there are always two sides of the coin. What matters is whether the currency truly reflects the country's fundamentals. "My sense is that the ringgit is still undervalued, with the US dollar versus ringgit averaging RM3.7974 since the government removed the currency peg in July 2005. "I believe there is room for the ringgit to appreciate, provided that the country is able to demonstrate a strong appetite for reforms with tangible results," he noted.