KUALA LUMPUR, Jan 5 — Corporate earnings and investor sentiment in Malaysia’s equity markets in 2024 will depend on both external and domestic factors, according to RHB Research.

In a note today, the research house said that as investors refocus on fundamentals, these external and domestic factors will guide market direction.

RHB Research viewed that the United States (US) economy has proven to be more resilient, confounding expectations.

“However, this is a double-edged sword, keeping inflationary pressures up and forcing the US Federal Reserve (Fed) to adopt a hawkish tone.

“We view for a ‘no-landing’ scenario for the US economy, helped by a robust labour market,” the note said.

RHB Research also stated that a positive flow of China’s economic, foreign exchange, or corporate news will improve the outlook for trade and tourism, and lift local investor sentiment.

It said that China’s economy is showing early signs of recovery as the government is considering introducing measures such as bank support for eligible firms and extending unsecured loans to the property sector.

“Meanwhile, some signs of easing of tensions in the Middle East are positive, but we note the fragility of the situation and there are still risks of the conflict escalating,” said the note.

Back home, Malaysia’s growth momentum is expected to gather pace into 2024, underpinned by the revival in the external sector, including manufacturing and exports.

The rebound in the global technology cycle and improved regional economic landscape are expected to support the export-oriented segments.

Domestic demand would be bolstered by robust consumer and investment spending and corporate earnings have historically displayed a higher degree of fragility.

“The lack of pricing power and susceptibility to foreign exchange risks, availability of labour, and other material cost pressures betray corporate Malaysia’s relatively lowly position on the value chain,” RHB Research said.

Domestic political stability factor or the stability of the ruling unity government is essential to provide a solid framework within which effective policies can be implemented to facilitate long-term growth and competitiveness.

Persistent efforts by the opposition to destabilise the government will be negative for financial markets and impede economic growth if new investments are diverted elsewhere as a result, it said.

About the ringgit, RHB Research said that as the Fed nears the end of its rate-hiking cycle, markets will gradually adjust to the ringgit’s recovery, pricing in the expected reduction of nominal interest rate differentials.

Nominally, importers will benefit from the lower landed cost of imports as will companies with US dollar-denominated debt.

“Those disadvantaged by a stronger ringgit include exporters and companies with significant overseas earnings,” RHB Research added. — Bernama