External turmoil keeps markets on edge

THE FBM KLCI saw positive performance last month, despite another RM2.2bil in net foreign outflows.

However, it would have done much better if not for some disappointing results from the recently concluded quarterly earnings season.

As most listed companies share a common December year-end, one would have thought that the fourth quarter of 2024 (4Q24) reporting season would have been much more accurate, given that the actual cumulative nine months’ performance had already been locked in.

However, it turned out that the 4Q24 reporting period again proved to be disappointing, mainly dragged by impairments and foreign-exchange (forex) losses as the ringgit dropped 8.6% in the quarter.

Major forex losses were posted by Capital A Bhd, with a forex loss of RM1.48bil from its discontinued operations, reversing almost two-thirds of the preceding quarter’s forex gain of RM2.27bil.

Tenaga Nasional Bhd (TNB) also recorded more than RM604mil in forex losses (against a forex gain of RM1.11bil), while Axiata Group Bhd reported a forex loss of RM489mil compared with a forex loss of RM1.03bil in the preceding quarter.

Meanwhile, Petronas Chemicals Group Bhd reversed its forex loss of RM1.11bil from the previous quarter, posting a RM748mil gain in the 4Q24.

Slower momentum

Excluding the one-off items mentioned above, the 4Q24 earnings momentum slowed further.

Year-on-year (y-o-y) earnings growth during the quarter came in at 6.9%, while on a quarter-to-quarter basis, negative earnings momentum decelerated further, recording a decline of 5.6% compared with a decline of 2.8% in the preceding quarter.

The 2024 earnings growth estimates fell marginally short of expectations, registering a growth of 13.1% from the 13.3% expected by the market prior to the results season.

Although the number of companies reporting earnings surprises increased to 21.7% during the quarter, up from 18.2% in the preceding quarter, the disappointing results still overwhelmed the market with some 28% of companies missing market forecasts, compared with 30.7% in the previous quarter.

The increase in the number of companies beating estimates and the reduction in the number of companies missing forecasts suggested an improvement in the disappointing ratio, which dropped to 1.29 times from 1.68 times in the 3Q24 results season.

Lower fair value of 1,747 points

Post-4Q24 earnings, brokers polled showed that earnings forecast were marginally lowered, with corporate Malaysia now expected to see slower earnings momentum of 7.7%, down from the 8.8% previously estimated.

Broking firms have also slashed market valuation multiples from 15.9 times to 15.6 times financial year 2025 earnings, resulting in a revised fair value for the FBM KLCI at 1,747 – some 53 points or 2.9% lower than the previous estimate of 1,800 points.

Except for two broking firms, which kept their FBM KLCI target unchanged, those that lowered their targets for the 30-stock index saw it slashed by between 40 points and 110 points.

Planters lead surprises

Driven by firm crude palm oil prices, the plantation sector surpassed market expectations, with strong performances from com panies like United Plantations Bhd, Sarawak Oil Palm Bhd, Sime Darby Guthrie Bhd, Genting Plantations Bhd and Hap Seng Plantations Holdings Bhd.

Banking stocks were star performers too, led by better-than-expected showing by RHB Bank Bhd and Malayan Banking Bhd, mainly due to lower loan provisions and a reduction in overheads.

Among utilities, TNB and Telekom Malaysia Bhd outshined the rest, driven by strong earnings momentum, mainly due to one-off items.

However, selected companies in the oil and gas sector were clear disappointments.

The gaming sector, weighed down by losses at both Genting Bhd and Genting Malaysia Bhd, along with the tech sector, also dampened performance this time.

Gloves stocks did relatively better, but the outlook painted by Hartalega Holdings Bhd sent jitters across the sector.

The company warned of weak demand ahead, Chinese manufacturers’ aggressive expansion plans and overall weak average selling prices.

The construction sector was mixed, but Sunway Construction Bhd outperformed expectations with a stellar 4Q24 showing, as earnings jumped 56.4% y-o-y.

The consumer sector was a surprise disappointment, led by Nestle (M) Bhd’s 72.2% drop in 4Q24 earnings, while its net earnings for the year slumped 37% y-o-y.

Nestle also slashed its dividend for the year by a third to just RM1.79 per share from RM2.68 per share in FY23.

Other disappointments among consumer names came from MR DIY Group (M) Bhd, as earnings fell y-o-y during the quarter, with full-year growth slowing to just 1.5% while 7-Eleven Malaysia Holdings Bhd turned red.

Automakers too saw weaker earnings momentum, while the healthcare sector was mixed.

IHH Healthcare Bhd’s earnings missed estimates, but KPJ Healthcare Bhd posted a strong performance, with net earnings jumping more than 34% y-o-y.

The property sector was also a mixed bag, though a select few, including Sime Darby Property Bhd and UEM Sunrise Bhd, saw earnings beating expectations.

Tough quarters ahead

As the market absorbs news of the tariffs imposed by the United States, the escalation of the trade war between nations cannot be ruled out.

China has already implemented countermeasures, imposing new tariffs on agricultural imports.

At the time of writing, Canada announced a retaliatory move against the United States, which will either see Donald Trump upping the ante with even higher tariffs or back off with a delayed timeline for the new tariffs to kick-in.

The US president is also likely to impose tariffs on other nations, potentially leading to a global trade war.

Beyond trade, the United States has failed to stop the war in Ukraine, while the ceasefire in Gaza seems to have ended a week ago as the exchange of war captives was halted.

Whether it’s a trade war or a real war, wars are never market-friendly – they’re typically a lose-lose situation.

Bracing for higher prices

The RON95 fuel rationalisation incentive is set to begin mid-year, while the finalisation of the sales and service tax scope and rate review is expected to be gazetted soon.

With that, the 5% and 10% rates will apply to non-essential, processed, high-value and imported goods, while the 6% and 8% service tax will affect certain service sectors, effective May 1.

Additionally, with the increase in the minimum wage and a new 2% Employees Provident Fund contribution by employers for foreign workers, business costs are expected to rise, likely leading to higher prices for goods and services.

This aligns with expectations that inflation, which came in at just 1.7% in January 2025, is set to increase significantly, especially in the 3Q24 and 4Q24.

Portfolio outflows

Net foreign outflows from the local equity market have been relentless since the start of the year.

After a net sale of RM4.21bil last year, foreign portfolio outflows have continued, reaching RM5.91bil year-to-date as of Thursday’s close.

A lacklustre 4Q24 earnings season, marked by disappointment from large consumer names and a cut in earnings and valuations, will likely keep foreign selling pressure high.

In conclusion, while the fundamentals of the market have weakened post-4Q24 results, external uncertainties and weaker earnings growth momentum ahead are dictating market sentiment for now.