Stronger USD versus ringgit to reverse tech firm's forex losses: JP Morgan

KUALA LUMPUR: The strengthening of the US dollar against the ringgit will reverse foreign exchange losses in the technology sector, said JP Morgan in a report.

However, the firm said the US Department of Commerce's interim final rule of "Framework of Artificial Intelligence Diffusion" indicates downside risks to earnings and valuations of data centre companies and their supply chains.

"Malaysia banks should deliver resilient results, despite December deposit competition. The JP Morgan Asean banks team highlights trends of return on assets expansion, consistent payout, solid asset quality and re-rating from domestic capital for the sector," it said in a note.

On the Asean region, JP Morgan said news flows in the near term could turn positive supported by a more measured delivery on tariffs which could provide some relief to the regional equities.

It noted that the decline in the US dollar's strength, policy pivots towards domestic demand/consumption to bolster growth and ultra-light investors' positioning after the recent sell-off are also drivers to positive news flows.

"However, US exceptionalism, universal tariff uncertainty and dollar strength are likely to be around with us for the foreseeable future; hence, we believe investors should continue to build on quality and domestic demand plays," it said. 

JP Morgan added that earnings will be the key driver of performance in 2025 as elevated interest rates will keep up the pressure on equity valuations.

The firm expects Asean to record about five per cent earnings growth in 2025, versus the consensus of seven per cent.

"The uncertainties around tariffs remain an overhang risk, as disruption could be a drag on business activities, leading to a wave of earnings downgrades similar to the 2018-2019 period.

"That said, domestic demand could play a critical role as an earnings offset in such a scenario. It will be important to watch and position for policy pivots in Asean economies, in our view," said JP Morgan.

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