As we transition into the new year, leaving behind a period marked by record-breaking achievements and memorable milestones—at least for fund managers—it is an opportune moment to reflect on past performance and consider the potential outlook for the year ahead. In this report, we present a collection of charts that we think that deserves a long thoughtful pause, a stare into the distance, and a serious moment of reflection.
Cryptocurrency emerged as the clear outperformer amongst all asset classes in 2024, with Bitcoin more than doubling in value. Gold posted a solid 26.2% increase, marking its strongest yearly performance since 2010. The shiny metal benefitted from heightened safehaven demand, interest rate cuts, and central banks' increased accumulation. Global equities, in USD terms, saw a 11% gain, slightly trailing the 13% return posted in 2023. Meanwhile, commodities and bonds showed more modest gains of just 2-3%, hardly beating inflation.
Meanwhile, for key global indices in 2024, NASDAQ led the pack, delivering the strongest returns, followed closely by Taiwan and Japan. Malaysia's KLCI posted a commendable 12.9% return, outperforming the global average and positioning itself as a notable performer in the broader market landscape. Indonesia and Thailand both saw negative returns in the JCI and SET indices.
The performance of key indices in USD terms tells a different tune, which we believe provides a more accurate, like-for-like comparison by neutralizing the impact of foreign exchange fluctuations. As expected, technology-heavy indices such as the NASDAQ, S&P 500, and Taiwan’s Taiex remain at the podium, but the story shifts significantly beyond these leaders.
Malaysia’s KLCI stands out with a remarkable 15.5% return, making it the top performer in the Southeast Asia region, surpassing the likes of Singapore, China, Japan, India, and Europe. On the flip side, Indonesia faced a challenging year with a steep 8.5% decline, followed by the Philippines at - 3.5%, and even Australia saw a dip of 1.4%.
We expanded this analysis to compare the total returns of Malaysia's equities market with those of the U.S. and the total World equities market. Malaysia's equities in USD terms delivered an impressive average return of 19.2% YoY in 2024, marking its strongest yearly performance since 2017. This figure significantly outpaces the KLCI's performance (+12.9% local currency, +15.5% in USD) because the KLCI only account the performances of 30 key stocks and excludes the strong performing construction and property sectors, alongside mid-cap stocks.
Chart 3 overleaf shows the YoY performance of Malaysian, the U.S. and World’s equity performance stretching back to 2004. The World’s equity return was at 10.9% in 2024, of which Malaysia surpasses convincingly. More surprising, Malaysia’s returns is not far off the U.S. returns of 22.8%. Given these strong dynamics, it is rather surprising that Malaysia has not received more recognition from the global financial medias. The narrative for Asian equities in 2024 has largely focused on Japan, China, and India, and hardly anything on Malaysia.
There has been an increase in foreigners’ participation in Malaysia (see Chart 4); in December 2024 foreigners made up 39% of total transaction, up from 26% in Jan 2024. However, the aggregate fund flows for foreigners are in negative territory (see Chart 5) in 2024. Therefore, the lack of global media recognition is concurrent with the lack on inflows of foreigners into Malaysian equities.
Malaysia’s total equity value since 2004 saw its peak value of USD547bn on 27 August 2014. Fast forward to the end of 2024, and that figure has plummeted to USD445bn—an eye-watering 18.7% drop over the past decade. This underscores a broader trend might explain why Malaysia has not garnered the attention it deserves, despite its strong performance in 2024.
The term "Lost Decade(s)" is often associated with Japan’s asset price bubble in the 1990s and the U.S. equity market stagnation from 1999 to 2009. However, this term has never been applied to Malaysia, as the country experienced steady economic growth throughout this period, with an average annual GDP growth of 5.2% in local currency terms. In USD terms, however, the growth was more modest at just 2.6% per year.
Judging purely in terms of equity market performance, however, it could be termed a "lost decade" for Malaysia. Following the market crash in 2015, triggered by the fallout from the 1MDB scandal and domestic political disturbances, the Malaysian market remained range-bound in a roller coaster to nowhere and failed to exhibit an uptrend or structural recovery.
Our FBMKLCI target of 1839 by the end of 2025 represents a 12% YoY gain. Assuming this target is achieved, the total MCAP of Malaysian equities is unlikely to surpass its 27 August 2014 peak, unless the MYR appreciates by more than 7% against the USD.
Fund managers have long recognized the defensive qualities of Malaysia’s equity market, but foreign fund managers have often dismissed it for its perceived 'boring' nature and unexciting earnings growth outlook, which they argue is unworthy of its emerging market label. However, in a volatile year like 2024, 'boring' might not be such a bad thing. In fact, stability has become a highly soughtafter trait, as discerning investors look for reliable performance amid market uncertainty, which helps explain why Malaysia equities performed so well in 2024.
Looking ahead to 2025, Malaysia has a lot going for it. Consumer demand is forecasted to remain strong, supported by rising disposable income driven by salary hikes (government employee salary hike, and minimum wage to RM1,700), a low and improving unemployment rate, and healthy levels of household debt. Government initiatives are pro-growth and focused on enhancing productivity and take the nation even further into the digital age. Politics will be colourful as always, but compared to many other parts of the world, Malaysia is practically a model of stability.
All said, we believe Malaysia will pull out another below the radar outperformance against the global markets in 2025.
Source: BIMB Securities Research - 3 Jan 2025
Created by kltrader | Jan 02, 2025