Fears of a US recession may cool the momentum of fresh listings on Malaysia’s stock market, experts say, despite global markets recovering from Monday’s sharp losses following weak US manufacturing and employment data.
More than US$6 trillion was wiped out from stocks worldwide on Monday, as investors were burned by the combined weight of US recession fears, overextended tech stocks and Japan’s aggressive policy tightening.
Malaysian stocks were not spared the rout, with some triggering circuit-breakers to stop their value free-falling, raising concerns that it could crimp the pipeline of initial public offerings (IPO) that had promised to add billions of ringgit in value to Malaysia’s bourse.
“There is always the possibility [of IPOs getting derailed], as the nature of equities is very fluid,” said Mohd Afzanizam Abdul Rashid, chief economist at Bank Muamalat.
Malaysian IPOs have raised about US$674 million as of July this year, surging nearly 15 per cent from the same period in 2023, according to a Reuters report.
Minimart chain operator 99 Speed Mart is reportedly lining up a September market debut to raise US$509 million, potentially the biggest IPO in seven years. Meanwhile, mobile communications provider U-Mobile is also reportedly planning a US$500 million listing.
Investor sentiment has been lifted by the political stability provided by Prime Minister Anwar Ibrahim’s government, allowing for greater focus on policymaking and implementation, according to Raymond Chooi, regional head of equity capital markets at Maybank Investment Banking.
“We expect IPO volume for 2024 and 2025 to trend upwards from the 3.5 billion ringgit [US$740 million] completed in 2023,” Chooi said.
But analysts warn swifter-than-expected cuts to US interest rates – which typically lead to a weaker dollar – may divert investors away from emerging markets like Malaysia as they hunt for bargains in the US.
The heightened volatility and weak US data have moved markets to price in more aggressive cuts of 125 basis points to US interest rates this year, which would bring the Fed rate down to 4.25 per cent by year-end if realised, according to a Tuesday note from BMI, a unit of Fitch Solutions.
BMI said markets had priced in further cuts in 2025 that would bring the Fed’s key rate to 3.00 per cent.
“A more aggressive interest rate cut by the US Federal Reserve than currently anticipated could negatively impact Malaysia,” said Doris Liew, an economist with the Institute of Democracy and Economic Affairs (IDEAS) Malaysia.
Asian stocks quickly rebounded on Tuesday after the bloodbath from the previous day, but analysts say volatility is likely to persist as the world waits to see how the US Federal Reserve responds to the weak employment performance.
Malaysia’s ringgit currency has also seen a strong run against the dollar, clocking 11 days of gains up till Monday when it closed at 4.4653 – a far cry from its 26-year low of 4.7965 on February 20.
A strong ringgit would help keep inflation in check in Malaysia, which relies heavily on food imports to meet domestic demand, but also potentially eat into profits of exporters – major economic drivers who benefit from favourable returns afforded when the fiat currency is weaker.
The ringgit’s recent performance was its best since 2010, supported by high growth optimism, strong investment approvals and sustained foreign direct investment flows, said Julia Goh, senior economist at UOB Malaysia.
Goh, however, cautioned that the ringgit’s recent movements were “very sharp and choppy” and could be influenced by equity market volatility, geopolitical risks especially in the Middle East, China’s uneven recovery and economic and political developments in the United States.