KUALA LUMPUR, July 29 (Bernama) -- Bursa Malaysia rebounded to close higher on Wednesday on selective buying of defensive stocks after a volatile trading session. IPPFA Sdn Bhd director of investment strategy and country economist Mohd Sedek Jantan said consumer products and services stocks lifted the key index higher, overcoming lingering geopolitical concerns. At 5 pm, the FTSE Bursa Malaysia KLCI (FBM KLCI) rose 3.08 points to 1,715.56 from yesterday’s close of 1,712.48. The benchmark index, which opened 1.91 points higher at 1,714.39, moved between 1,710.79 and 1,720.59 during the day’s trading. In the broader market, gainers outstripped decliners 550 to 476, while 612 counters were unchanged, 1,129 untraded, and 48 suspended. Turnover rose to 2.96 billion units valued at RM2.48 billion from 2.94 billion units valued at RM2.56 billion on Tuesday.
Bank Negara Malaysia (BNM) is expected to maintain the Overnight Policy Rate (OPR) at 3% by the end of 2025, even if the United States Federal Reserve proceeds with anticipated interest rate cuts. This projection comes amidst a strengthening Malaysian ringgit and prevailing economic conditions.
US Federal Reserve Outlook
Interest Rate Cuts Expected: The US Federal Reserve may begin reducing interest rates as early as September 2024 due to easing inflation and rising unemployment. Maybank Investment Bank Bhd (Maybank IB) anticipates a 50 basis points (bps) cut to the Fed Funds Rate (FFR) in 2024, followed by 100 bps cuts in 2025.
Current Rate Gap: There is a significant 250 bps gap between Malaysia's OPR of 3% and the current FFR range of 5.25% to 5.50%. Despite this gap, Maybank IB does not foresee domestic rate cuts due to potential upward risks to domestic inflation.
Impact on Malaysian Banking Sector
Bank Margins and Income: The expectation of stable interest rates in Malaysia is favorable for bank margins and non-interest income. Without rate cuts, the compression of net interest margins (NIM) is unlikely to worsen, and there may be potential for improvement in 2025.
CASA Balances: Growth in current account or savings account (CASA) balances has resumed, helping to alleviate margin pressures. This trend contributes positively to the banking sector's financial health.
Fixed Income and Currency Outlook
Malaysian Government Securities (MGS): Maybank’s fixed income research team maintains a mildly bullish outlook on MGS, forecasting a 10-year MGS yield of 3.60% by year-end, down from around 3.70% currently. This optimism is supported by a strengthening ringgit, which was traded at 4.493 against the US dollar on Monday.
Investment Portfolio Gains: Banks may continue to realize marked-to-market gains on investment portfolios, boosting non-interest income. Currency volatility is also expected to ensure robust forex income.
Economic and Sector Prospects
Foreign Inflows: With improved economic prospects and a strengthening ringgit, Maybank IB anticipates increased foreign inflows into the banking sector, driven by attractive valuations and yields.
Positive Outlook: Maybank IB views the current economic environment as conducive for further growth in the banking sector, both directly and indirectly. The stable OPR, coupled with a strengthening ringgit, provides a solid foundation for continued expansion and investment.
Conclusion
Maybank IB's analysis suggests that the Malaysian economy and banking sector are well-positioned to navigate the challenges posed by global economic shifts. The decision to maintain the OPR at 3% reflects a strategic approach to managing domestic inflation risks while capitalizing on favorable conditions for banks and investors. The overall stance is expected to support continued growth and stability in Malaysia's financial landscape.
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