KUALA LUMPUR: The weaker ringgit has made Malaysian stocks more attractive to foreign investors, says Rakuten Trade Sdn Bhd equity research vice-president Thong Pak Leng.
Thong said that the outlook for initial public offerings (IPOs) this year appears more promising due to the improved performance of the market compared to the previous year, coupled with the rise in daily market volume.
According to the IPO Performance Report by Bursa Digital Research, seven of the nine IPOs in the first quarter of 2024 (1Q24) ended with a premium at close.
Thong opined that the IPOs closing at a premium can be attributed primarily to their strong fundamentals and listing valuations.
"This principle applies to all forthcoming IPOs. Ultimately, their success will hinge on solid fundamentals and reasonable valuations," he told Business Times.
The nine IPOs collectively raised RM1.31 billion by issuing fresh shares to the market and making offers for sale. The combined market capitalisation (market cap) of the nine companies stood at RM4 billion.
The new listings in 1Q24 included one business trust (Prolintas Infra Business Trust) on the Main Market and eight companies on the ACE Market.
In terms of net fund flow, the report noted that local institutions and foreign investors were net buyers of IPOs in 1Q24, with local institutions purchasing up to RM45.7 million.
Foreign investors were also net buyers, buying RM58.9 million of newly listed shares in the same period.
They mainly added KJTS Group Bhd (local institution +RM39.1 million; foreign +RM40.1 million) and HE Group Bhd (local institutions +RM17.7 million; foreign +RM 7.1 million) to their portfolios.
At the end of the quarter, KJTS commanded a 37 per cent premium on its price, while power distribution system provider HE Group's price rose 57.5 per cent for the same period.
According to Ernst and Young's (EY) Global IPO Trends 2023 report, Malaysia has emerged as a burgeoning hub for IPOs, outstripping established IPO leaders, with upsurges in both transaction volume and proceeds.
Last year, Malaysia witnessed a substantial spike in IPO numbers, surpassing the five-year average by 21 per cent, accompanied by a 25 per cent rise in IPO proceeds compared to the five-year average,
For 2024, EY stated that the year ahead hinges broadly on improving macroeconomic conditions for an IPO revival.
Companies are eagerly awaiting more favourable market conditions to widen the IPO window.
"Globally, moderating inflation and potential 2024 interest rate cuts could attract investors back to IPOs by improving liquidity and return outlooks.
"However, sustained geopolitical instability may undermine confidence," it noted.
Bank Muamalat Malaysia Bhd chief economist Mohd Afzanizam Abdul Rashid said, "I see a sign that value investing is always a key strategy adopted by the fund managers, be it local or foreign institutions.
"Yes, the macroeconomic environment, such as uncertainties over the cost of doing business, shortages of labour and increasing regulatory oversight, will continue to present an immediate challenge to the business operating environment.
"But if the management of these companies remains steadfast in their business plans and stays nimble in their strategy execution in order to deliver value to their shareholders, clients, vendors, and all the relevant stakeholders, it will be rewarded by way of higher stock prices."
Mohd Afzanizam said that although share prices may fluctuate periodically, the tendencies shown in 1Q24 may continue into the later half of the year.
According to him, the main worry right now is whether or not the Fed would actually lower interest rates this year.
He said such a development can have a big impact on company working environments and currency markets.
Mohd Afzanizam also mentioned the possibility of economic interruptions resulting from the current military crises in the Middle East and Eastern Europe.
He said that investors would have to continue being cautious when making their selections.