US Fed Slashes Rate: Here's How It Will Reshape Malaysia Stock Market

Few hours ago, US Federal Reserve has decided to cut interest rate by 50 basis points. What is the impact to Malaysia stock market? Let’s find out.

A 50 basis point (bps) interest rate cut by the U.S. Federal Reserve can have several potential effects on the Malaysian stock market, both directly and indirectly:

1. Capital Flows and Exchange Rate

Weaker USD: A Fed rate cut tends to weaken the U.S. dollar, which could result in an appreciation of the Malaysian ringgit (MYR). A stronger MYR might reduce export competitiveness for Malaysian companies, especially those in manufacturing and commodities.

Increased Foreign Capital Inflows: Lower U.S. interest rates may prompt investors to seek higher returns in emerging markets like Malaysia, potentially increasing foreign capital inflows into the Malaysian stock market.

Stocks that will benefit: CIMB and other banking stock, especially index-linked one. Read the full story about CIMB below.

2. Commodity Prices

Higher Commodity Prices: A weaker USD often boosts commodity prices, which could benefit Malaysia's commodity-based sectors, such as palm oil and energy. This could positively impact companies listed on Bursa Malaysia that operate in these sectors. However, the impact may be limited by Ringgit strength.

3. Sentiment Boost

Improved Global Sentiment: A U.S. rate cut can signal the Fed’s effort to stimulate the economy, which may improve global investor sentiment. As a result, this could lead to increased buying activity across emerging markets, including Malaysia. This could push up valuation for companies listed in Bursa Malaysia, including KPJ which is a defensive play in uncertain times.

4. Interest Rate Differential

Impact on Bank Negara Malaysia (BNM): The Fed’s actions might influence Bank Negara Malaysia’s monetary policy. If BNM maintains higher rates relative to the Fed, it could attract capital inflows, potentially boosting the MYR and the stock market.

Possible Pressure for Local Rate Cuts: To remain competitive and prevent MYR from appreciating too much, BNM may also feel pressure to lower domestic interest rates, which would benefit interest-sensitive sectors such as property and consumer discretionary.

Stocks that will benefit: KLCC, IGBREIT, CLMT and other liquid, high yield REITs.

Details about CIMB, KLCC, IGBREIT, KPJ as below.

CIMB: Will This Stock Keep Climbing? - KingKKK’s Substack

KLCC - A Deep Dive Into the Chart's Next Move (substack.com)

IGBREIT: An Uptrend REIT To Weather The Storm (substack.com)

KPJ: Breakout Stock with Crossover and Uptrend Pattern (substack.com)