Fresh catalysts needed to spur local bourse
PETALING JAYA: The market may remain listless for the time being in the absence of fresh catalysts, say analysts.
Compared with the markets in the United States and Europe, investors in the local market appeared to be more cautious amid continued suspense on the US trade talks front.
Stocks in the United States appeared to be on a risk-on mode – they reportedly churned out their best month in May with the Dow Jones Industrial Average jotting a 3.9% gain while the Nasdaq Composite was 9.6% higher.
Fund flow data for the previous week also indicated that foreign investors withdrew a net RM1.02bil from Malaysian equities.
The increase in net selling from the previous week was in line with what is happening in the region where foreign investors had been selling down their holdings amid growing anxieties over economic uncertainties.
iFast Capital's assistant research manager Kevin Khaw said the local market's direction would be determined by the developments and the eventual outcome of the US tariff negotiations.
'We think the possibility of an extension of deadline is unlikely despite the fact that we are approaching July, the end of the 90-days grace period,' Khaw told StarBiz.
He also expected foreign funds to maintain their neutral stance on risk and might not aggressively buy into the local market.
'They will possibly tilt towards a wait-and-see approach, given the current tariff uncertainties alongside elevated US treasury yields.
'Having said that, we are not expecting foreign funds to revisit Malaysia as long as there is no increased certainty on the US-tariff front,' Khaw said.
In terms of fundamentals, the medium to large capitalised stocks provided viable opportunities for investors.
'Valuation-wise, we are only approaching the pre-Liberation day levels, hence it is not considered as lofty.
'In a shorter term, we have revised the earnings estimate of Malaysian equities downwards due to the looming uncertainties, from the tariff impact and forthcoming subsidy removal,' Khaw added.
'On the other hand, we think the potentially stronger ringgit will encourage fund flows, under the assumption that the dollar to ringgit level is maintained at a stable RM4 to RM4.20, as a stronger ringgit often signals economic stability and sound macroeconomic management.'
Meanwhile, CIMB Research had revised its earnings forecasts for the FBM KLCI down by 5.6% for both 2025 and 2026 on widespread underperformance in the recent first quarter earnings season.
It had also lowered its end-2025 FBM KLCI target to 1,560 points from 1,657 points, based on an unchanged price-to-earnings (P/E) multiples of 14.7 times.
'The KLCI is trading at a 12-month forward P/E of 12.7 times with attractive dividend yields of circa 4.2%, but the upside may be capped by downside risks ahead,' it said.
They include a potential imposition of a default 10% US import tariffs with the end of the tariff reprieve on July 9, potential hike in the sales and service tax, petrol subsidy revamp and higher electricity tariffs that are expected in July, it added.
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