Malaysian companies exporting to and investing in China look set to reap some spillover benefit from the stimulus measures announced in late September that jump-started market interest there, sending Shanghai Stock Exchange index to shoot up 8.06%, and Shenzhen Stock Exchange index 10.93% higher on the eve of the week-long holiday.
Kenanga Investment Bank Bhd has highlighted that local publicly-listed firms with Chinese connection could benefit from the boost, among them, Press Metal Aluminium Holdings whose aluminium extrusion is solely exported to China, amounting to 12% of the group’s revenue.
Specific to China demand, PPB Group through its 18.8%-owned Wilmar International has access to Chinese edible oil market with an estimated 45% market share, contributing about 50% of Wilmar’s revenue in 2023. On the other hand, Kuala Lumpur Kepong operates an oleochemical complex in China, and has recently established a new high-purity fatty acids and glycerin plant in Suzhou with 500,000 tonnes capacity.
On the home front, Malaysian share market is still assessing the immediate impact of the stimulus package in terms of equity flows as these measures can have partial yet direct impact on the regional stock markets.
Following China’s move to support mainland’s stock market, FBM KLCI was largely on a downward trend since Sept 24. Within 10 days, FBM KLCI lost 40.4 points from Sept 24’s settlement of 1670.37 to 1629.97 on Oct 4, as indicated by Bursa’s weekly data.
In terms of foreign investment flow, on a year-to-date (YTD) basis, the sell-off has been more pronounced in the Malaysian stock market than the Indonesian market so far. This is likely due to the fact that the FBM KLCI has held the edge as the better performer with a 12% YTD return versus the 3% improvement in the Jakarta Composite Index. Both Malaysia and Indonesia have been net foreign fund inflow beneficiaries in 2024.
In the near-term, this is not surprising given that the ringgit’s quick strengthening could have offered some reason to take profit.
According to analysts’ estimates, that there were US$125 million outflows in October from the Malaysian market, which is equivalent to 15.5% of YTD (up to September) foreign inflows of US$806 million. By comparison, Indonesia’s outflow was a smaller US$114 million against the YTD inflows of US$3,249 million.
The outflow from Malaysia has been more aggressive so far, second to Thailand which has continued to see outflows throughout year 2024, recording a YTD outflow of US$2581 million and month-to-date (Oct1-7) outflow of US$330 million.
To recap, the Chinese authority on Sept 24 unveiled the most aggressive stimulus package since the pandemic that included the reduction in mortgage rates, lowering of the down payment ratio from 25% to 15% for second home purchases, slashing of the reserve requirement ratio (RRR) by 50 bps, allowing securities firms, funds and insurers to pledge assets with the central bank for added liquidity, with the speculated intention of lifting the stock markets.
All of these measures are in addition to the 20 bps cut to the main policy rate announced by the People’s Bank of China.
China’s benchmark CSI 300 is still about 25% below its 5-year peak, unsurprisingly, creating a bigger space for the market to react strongly to the stimulus measures.
