A possible Rebound Post Trump’s Swearing-In Ceremony

The local blue-chip benchmark FTSE Bursa Malaysia Kuala Lumpur Composite Index (FBM KLCI) extended losses last week as worries regarding the US inflationary outlook and its impact on the Federal Reserve’s interest rate trajectory dampened investor sentiment. Additionally, the Biden administration’s decision to impose new restrictions on the number of AI chips exported by the US triggered a heavy selloff in key local construction and property heavyweights later in the week, sparked by fears of their exposure to data centre projects.

Week-on-week, the FBM KLCI lost 35.69 points, or 2.23 percent to 1,566.72, as falls on Gamuda (-76sen), YTL Corp (-30sen), Sunway Bhd (-42sen), YTL Power (-35sen), and MR DIY (-7sen) outweighed gains on Press Metal Aluminium Holdings (+17sen) and Petronas Dagangan (+50sen). Average daily traded volume last week declined to 3.29 billion shares versus 3.4 billion shares the previous week, while average daily traded value rose to RM2.92 billion, against the RM2.87 billion average the previous week.

No doubt, the FBMKLCI is in a grossly oversold condition now as net foreign selling intensified last week after news about Biden administration releasing new export controls on January 13, 2025 to restrict AI chip exports provided a good reason to lock in profits in last year’s top performing sectors, Construction (+60.7% in 2024). Utilities (38.3%) and Property (31.5%). To recap, the US classified the countries into three tiers where Tier 1 nations, like the UK and Japan, have unrestricted access to AI chips, Tier 2 nations, including Malaysia and Singapore, face certain limitations, while Tier 3 nations, like China and Russia, are entirely barred from accessing US chip technology. US-based companies can apply for blanket permission to ship chips to data centres worldwide, as long as no more than 25% per cent of their total computing power is located outside of Tier 1 countries and no more than 7.0% per cent in any single Tier 2 country.

While it is not expected to affect the already announced data centre projects in Malaysia, which involved mainly US companies like Amazon, Equinix, Google, Microsoft, Nidia, etc., future projects could face limitation if the 7% rule is enforced strictly. The is because the 7% cap of the projected 60GW global DC capacity by 2027 translates to an allocation of 4.2GW only per Tier-2 country. Nonetheless, the selling in some stocks that have less significant exposure to data centre business appeared to be overdone. For instance, Gamuda’s (Buy, TP:RM 6.30) exposure to data centres is less than 7% of its huge RM37bn orderbook but the share price plunged 21% last week from a high of RM5.38, providing an opportunity to buy on current weakness. Moreover, it is yet to be seen whether the new US president will reverse this rule, which will affect the US companies’ competitiveness and erode their ability to sell computing systems overseas, potentially losing market share to competitors.

Thus, investors will be watching closely President-elect Donald Trump’s policy speech after swearing-in ceremony today to gain more insights on his “America First” agenda, immigration, external trade, foreign policy, etc. that will have bearing on the rest of the world, especially China. China outperformed market expectations after it released a stronger than expected 4Q24 GDP of 5.4% YoY on stronger industrial sector that led to a full year growth of 5.0%. Its manufacturing sector may have difficulty in repeating this feat this year, if the US forge ahead with its higher tariff and various restrictions on China.

Locally, the advanced estimate of Malaysia’s 4Q24 GDP by the Department of Statistics came in at 4.8% YoY, slightly better than our 4.7% YoY, which led to a full year growth of 5.1% versus our 5.0%. Nonetheless, it was below market expectations of 5.2% YoY respectively. It showed 4Q growth to be driven by the services sector while full year expansion to be supported by strong domestic demand and a recovery in external sector, alongside strategic investments in areas like renewable energy and digital infrastructure. Actual data will be released next month. With that, focus this week will be on today’s trade data, and this Wednesday’s consumer inflation data for December and Bank Negara’s Overnight Policy Rate. With inflation expected to remain tame at 1.8% and the current interest rate supportive of economic growth, the central bank is expected to stay pat in its policy rate, pending more clues from the US front.

Source: TA Research - 20 Jan 2025