With the business environment returning to normalcy, Malaysia’s gross domestic product grew at 8.7% in 2022 and Malacca Securities expects the gross domestic product will continue to expand at a 4-5% rate in 2023 premised on the reopening of China borders since January.
“Also, we believe the pent-up demand in the local services and consumer spending which will be able to support the above mentioned growth. Since Apr-22, international arrivals are increasing, almost back to the pre-Covid level around 1.8-2.0 million per month,” said Malacca Securities in a recent report.
Hence, with the reopening of China borders starting 2023, it is likely to boost the overall tourists’ arrival in 2023. Besides, healthcare tourism is expecting a surge following Covid-19 pandemic and could see stronger numbers for hospitals as well.
In quarter two 2023, Malacca Securities observed that the year-to-date average daily trading volume has declined to RM1.78 billion versus RM2.14 billion in quarter one 2023. Meanwhile, foreign funds are net sellers, valued at –RM4.2 billion for on the year-to-date basis.
Three of the major indices, namely the FBM KLCI, FBM Small Cap and FBM ACE were down by 3.2%, 2.7% and 3.1%, respectively.
Sectoral wise, Industrial products (-8.3%), Energy (-7.5%) and Healthcare (-6.2%), were amongst the losing sectors, while the Utilities (+8.1%), Construction (+1.4%) and Transportation (+0.8%) gained momentum for quarter two 2023.
“After the GE15, currently we are heading into the state elections that will be held within the next 60 days. We believe it may dampen the sentiment on the local front, while the upside of the FBM KLCI may be capped for the near term,” said Malacca Securities.
In Mar-23, Malaysia and China may have signed several memorandum of understandings valued at RM170 billion investments to enhance trade and economic cooperation. Besides, the research house believes more construction projects could emerge as things stabilised after the state elections.
Higher development expenditure in the Budget 2023, potential RM170 billion investments from China and rolling out of construction projects going forward could benefit the construction sector. In the meantime, building materials companies such as the metal and cement sectors should benefit under these scenarios.
“Under our Budget 2023, we believe the developments within solar and EVs to emerge as the government focuses on green initiatives. Also, we opine that higher automation, AI content and digital technology will benefit these sectors such as semiconductor, automotive and solar related,” said Malacca Securities.
Cash will be an important factor. Malacca Securities anticipated that the high interest rate environment will be a norm in the future, and they think investors should opt for companies with high net cash, low gearing or stable dividend track record to weather through the challenging environment.
