KUALA LUMPUR, 6 January 2020 – De-escalating trade tension between the United States and China coupled with a strong government’s direction on future policies and political stability are expected to spur the FBM KLCI to overturn its extended downtrend this year.
This is despite the sluggish top-down earning growth outlook expected to remain a headwind.
Maybank IB Reseach in its note today said the necessary government’s direction in the recovery of private sector investment together with stable political succession would provide investors with the calming factor needed to attract foreign investment.
“This recovery potential is supported by dominating domestic funds, having retreated to the sidelines to sit out current uncertainties, being heavily cashed-up, while the bulk of foreign investors selling appears to have been completed, given the tapering monthly net foreign selling over 2019,” it said.
The research note also said that policy clarity is needed to resuscitate private investment as the latest 2019 third-quarter statistics had indicated that private investment has been slowing down to near stagnant level now since May 2018 General Elections.
“While approved foreign direct investment jumped 86.5 per cent year-on-year to RM49.5 billion, this is primarily manufacturing Capex (capital expenditure) by the US and China companies, potentially underscoring investment allocation gains from the US-China trade war.
“However, from the figure, domestic direct investment has continued to decline and at a worsening rate of -20.9 per cent in the first half of 2019 versus -15 per cent in 2018,” it said.
For broad equity investors it added, banks need to sustain recovery in loan growth as it would act as a stimulus of broader economic activities, which would generate a multiplier effect in sectors like consumer and construction.
The note also mentioned that direct government spending on infrastructure products would have a higher multiplier effect on the economy.
“This is notwithstanding is relatively high foreign labour cost content, due to its broad linkages to other sectors of the economy,” it said.