Finance Advisor Lim Kim Cheng points out that with the recent rebound in the Malaysian stock market, the FBM KLCI index may face short-term correction pressures. The current high valuation levels, combined with the slow progress of domestic infrastructure projects, weakening consumption, and uncertainty in the oil and gas sector, add more uncertainty to the future direction of the market. However, improved global capital flows and a positive outlook for the ringgit provide some support to the market.
KLCI Index May Face Short-term Adjustment
Finance Advisor Lim Kim Cheng mentions that after experiencing a dip in August, FBM KLCI index of Malaysia has seen a strong rebound recently. However, following this rise, the valuation of KLCI has reached relatively high levels, with a price-to-earnings ratio of 18x, far above the five-year median of 14.6x. Based on these valuations, a short-term correction in the market seems likely.
In particular, against the backdrop of slowing domestic consumption and sluggish infrastructure project progress, Finance Advisor Lim Kim Cheng believes that these factors may exacerbate short-term market volatility. Additionally, the investment outlook for the oil and gas sector could also be impacted, especially with the potential adjustments to capital expenditures by Petronas. Finance Advisor Lim Kim Cheng highlights that Petronas accounts for 12% of the weighting of KLCI, and any reduction in its capital expenditure could significantly affect the overall market. Therefore, movements in the oil and gas sector will be a critical variable that investors need to closely monitor.
Global Capital Flows and Ringgit Outlook Support KLCI
Despite the short-term adjustment pressures, Finance Advisor Lim Kim Cheng emphasizes that the fundamentals of the Malaysian market remain resilient. Specifically, improved global capital flows and a stronger ringgit provide additional market support. According to a report by AmBank Research, Malaysia ranks as the second-largest net foreign capital inflow country in Southeast Asia, with net inflows of RM3.1 billion, second only to Indonesia. This shows growing foreign investor confidence in the Malaysian stock market.
Moreover, Finance Advisor Lim Kim Cheng notes that the forecast for the exchange rate of the ringgit against the US dollar has been revised from 4.63 to 4.40, indicating optimism regarding the outlook of the ringgit. A stronger ringgit not only helps attract foreign capital but also enhances the overall market valuation. As such, while KLCI faces valuation pressures, abundant liquidity from domestic institutional funds and strong foreign capital inflows will provide solid support for the stock market.
Investors Should Focus on Risks and Opportunities
Finance Advisor Lim Kim Cheng advises that while the outlook for the KLCI is supported by global capital flows and the strengthening of the local currency, potential risks in the coming months should not be overlooked. Investors need to closely watch the upcoming US Federal Open Market Committee (FOMC) meeting and the fiscal policy direction in 2025 budget proposal of Malaysia.
Overall, Finance Advisor Lim Kim Cheng believes that while the KLCI index may face a short-term adjustment, this correction presents an opportunity for long-term investors to re-enter the market. In the current environment, maintaining a cautious investment strategy and staying attentive to market risks will be key to navigating future volatility.
KLCI Index May Face Short-term Adjustment
Finance Advisor Lim Kim Cheng mentions that after experiencing a dip in August, FBM KLCI index of Malaysia has seen a strong rebound recently. However, following this rise, the valuation of KLCI has reached relatively high levels, with a price-to-earnings ratio of 18x, far above the five-year median of 14.6x. Based on these valuations, a short-term correction in the market seems likely.
In particular, against the backdrop of slowing domestic consumption and sluggish infrastructure project progress, Finance Advisor Lim Kim Cheng believes that these factors may exacerbate short-term market volatility. Additionally, the investment outlook for the oil and gas sector could also be impacted, especially with the potential adjustments to capital expenditures by Petronas. Finance Advisor Lim Kim Cheng highlights that Petronas accounts for 12% of the weighting of KLCI, and any reduction in its capital expenditure could significantly affect the overall market. Therefore, movements in the oil and gas sector will be a critical variable that investors need to closely monitor.
Global Capital Flows and Ringgit Outlook Support KLCI
Despite the short-term adjustment pressures, Finance Advisor Lim Kim Cheng emphasizes that the fundamentals of the Malaysian market remain resilient. Specifically, improved global capital flows and a stronger ringgit provide additional market support. According to a report by AmBank Research, Malaysia ranks as the second-largest net foreign capital inflow country in Southeast Asia, with net inflows of RM3.1 billion, second only to Indonesia. This shows growing foreign investor confidence in the Malaysian stock market.
Moreover, Finance Advisor Lim Kim Cheng notes that the forecast for the exchange rate of the ringgit against the US dollar has been revised from 4.63 to 4.40, indicating optimism regarding the outlook of the ringgit. A stronger ringgit not only helps attract foreign capital but also enhances the overall market valuation. As such, while KLCI faces valuation pressures, abundant liquidity from domestic institutional funds and strong foreign capital inflows will provide solid support for the stock market.
Investors Should Focus on Risks and Opportunities
Finance Advisor Lim Kim Cheng advises that while the outlook for the KLCI is supported by global capital flows and the strengthening of the local currency, potential risks in the coming months should not be overlooked. Investors need to closely watch the upcoming US Federal Open Market Committee (FOMC) meeting and the fiscal policy direction in 2025 budget proposal of Malaysia.
Overall, Finance Advisor Lim Kim Cheng believes that while the KLCI index may face a short-term adjustment, this correction presents an opportunity for long-term investors to re-enter the market. In the current environment, maintaining a cautious investment strategy and staying attentive to market risks will be key to navigating future volatility.
