Financial services weigh on Bursa Malaysia's performance

[MALAYSIA] Bursa Malaysia, the stock exchange of Malaysia, has been facing considerable fluctuations in recent weeks, largely due to the performance of key financial services stocks. The FTSE Bursa Malaysia KLCI (FBM KLCI) index, which is a major indicator of market health, has been notably affected by the declines in the share prices of financial services heavyweights such as CIMB Group Holdings Bhd, Hong Leong Bank Bhd, and Public Bank Bhd. These declines have had a significant impact on the overall market sentiment, contributing to a downward trend in the Malaysian stock market.

Financial services weigh on Bursa Malaysia's performance

On March 7, 2025, Bursa Malaysia saw a notable pullback in its benchmark index, with the FBM KLCI closing lower by 5.51 points or 0.35%, settling at 1,558.91 points. The decline was largely attributed to the heavyweights in the financial sector, whose performances weighed heavily on the overall market movement. CIMB Group, Hong Leong Bank, and Public Bank, three of Malaysia’s largest and most influential financial institutions, all experienced a drop in their share prices, which contributed to the negative sentiment across the market.

CIMB’s stock fell by 30 sen, reaching a price of RM7.50. Meanwhile, Hong Leong Bank dropped by 40 sen, closing at RM20.90, and Public Bank saw a slight decrease of four sen to RM4.59. These declines in stock prices were significant, considering the role these banks play in driving the overall performance of the Malaysian economy and the stock market.

These movements are critical for investors and market analysts to track, as financial services companies often serve as bellwethers for the health of the broader economy. The performance of these institutions is closely linked to overall investor sentiment, particularly in markets that are highly dependent on financial services for economic growth, such as Malaysia.

Impact on the Broader Market

The negative performance of these financial stocks did not only affect the financial sector but also reverberated throughout the broader market. As one of the largest and most influential sectors on Bursa Malaysia, the performance of the financial services industry has a significant impact on other sectors and the market as a whole. The slump in financial stocks led to the inability of the FBM KLCI to maintain earlier positive momentum, leading to a retreat in the market.

UOB Kay Hian Wealth Advisors Sdn Bhd’s head of investment research, Mohd Sedek Jantan, commented on the situation, explaining that the pressure on financial stocks was the primary reason the index was unable to hold onto its earlier gains. “The financial sector’s performance has a direct impact on the broader market, and the recent declines in the prices of key financial stocks have been a significant factor in the FBM KLCI’s recent downturn,” Jantan stated.

Despite the overall pullback in the market, Jantan expressed a degree of optimism, noting that the declines in financial stocks were likely temporary. He pointed out that the financial sector in Malaysia continues to have strong fundamentals. “While the market may be experiencing short-term volatility, the underlying strength of the financial sector remains intact, and we expect the sector to perform well in the long term,” he added.

A Look at Financial Sector Fundamentals

Jantan’s optimism about the financial sector is supported by a closer look at the fundamentals of the industry. The financial services sector in Malaysia, particularly the banking industry, has been witnessing stable loan growth, a key indicator of economic activity. According to Jantan, Malaysia’s banks have shown solid loan growth of mid-single digits as of January 2025. This growth trajectory is expected to continue in the coming months, especially with significant government initiatives aimed at spurring economic development.

Notably, developments such as the Johor-Singapore Special Economic Zone and various government-driven infrastructure projects are expected to boost business activity and, by extension, financial services. “The financial sector is poised to benefit from a recovering economy, and we anticipate that loan growth will continue to pick up pace throughout 2025,” Jantan noted.

In addition to loan growth, the Malaysian banking sector also showed strong performance in terms of deposits. Bank deposits grew by 3.1% year-on-year in January 2025, demonstrating healthy consumer and business confidence. This increase in deposits is a positive sign for the stability of the financial services industry in Malaysia.

The Broader Market Outlook: Consolidation or Growth?

Despite the recent dip in financial services stocks, the broader market has displayed resilience. On the day the financial sector struggled, market breadth was relatively positive, with advancers leading decliners by 584 to 393. Furthermore, 452 stocks were unchanged, indicating that many investors were holding their positions amidst the volatility. Although the volume of trading saw a slight decrease, with 2.98 billion units valued at RM2.67 billion traded, compared to the previous day’s higher figures, there was still notable investor activity.

It is worth noting that the broader market is still in a phase of consolidation. After a period of robust gains, the market is experiencing some pullback, and investors are reassessing their positions. This is a natural part of any market cycle, and many analysts expect the market to stabilize and potentially grow in the coming months. The strength of Malaysia's financial institutions, coupled with government initiatives to boost the economy, will likely support the market’s recovery.

Analysts believe that despite the short-term setbacks in the financial sector, the overall outlook for Bursa Malaysia remains positive. As the economy continues to recover, and as businesses and consumers regain confidence, the financial sector is expected to benefit. Investors are advised to focus on long-term opportunities, particularly in the banking and financial services sectors, which have demonstrated resilience over the years.

Broader Implications for Investors

For investors in Malaysia, the recent volatility in financial stocks serves as a reminder of the risks involved in the market. However, it also highlights the importance of long-term investment strategies. While short-term market movements can be unsettling, focusing on the fundamentals of the companies and sectors in which they invest is crucial for navigating periods of volatility.

The financial services sector, despite the recent pullback, remains a critical part of the Malaysian economy. With stable loan growth and increasing deposits, the sector is well-positioned for future growth. Furthermore, as Malaysia’s economic outlook improves and government initiatives begin to take effect, the financial sector will likely see renewed strength.

Market Analysis from Other Sectors

While the financial services sector has been under pressure, other sectors on Bursa Malaysia have shown mixed performance. For instance, Gamuda Bhd, a key player in the construction sector, saw its share price fall by 11 sen to RM4.13. Similarly, CelcomDigi Bhd, a major telecommunications company, lost four sen, closing at RM3.55. However, some stocks in other sectors performed positively, with Maxis Bhd increasing by 14 sen to RM3.50, and Sime Darby Bhd gaining nine sen to RM2.14.

These movements highlight the broader diversity of Bursa Malaysia, where various sectors contribute to the overall performance of the market. Even when one sector faces challenges, other industries may experience growth, providing opportunities for investors to diversify their portfolios.

Bursa Malaysia’s recent struggles, particularly with financial services heavyweights, reflect the challenges that come with market volatility. However, this volatility is not necessarily indicative of a long-term downturn. As noted by experts like Mohd Sedek Jantan, the Malaysian financial sector remains strong, with steady loan growth and a positive outlook for 2025. Furthermore, government initiatives aimed at boosting the economy will likely help the market stabilize in the coming months.

Investors should view the current market conditions as a temporary setback, focusing on the long-term potential of Malaysia’s financial services sector and the broader economy. By understanding the fundamentals and keeping an eye on government initiatives, investors can position themselves for growth as Malaysia’s economy continues to recover and expand.

While financial services heavyweights have recently weighed on Bursa Malaysia, the market's fundamentals remain strong, and the outlook for the future is positive. Investors who take a long-term view and focus on sectors with solid growth potential, such as financial services, are likely to see rewarding returns as the economy stabilizes and grows.