KUALA LUMPUR: The anticipation of a reduction in the United States (US) federal funds rate (FFR) bodes well for the ringgit and serves as a catalyst for the Malaysia's equity market, according to CGS International Securities Sdn Bhd.

The firm said in a note that it believed the possible FFR reduction in the upcoming Federal Reserve (Fed) meeting will consequently narrow down the gap between FFR and Malaysia’s Overnight Policy Rate (OPR)

"This hypothesis is best exemplified by the ringgit surging 11.3 per cent in the third quarter (3Q) of 2024 - running up to the Fed’s first post-pandemic rate cut in September 2024 - with the FBM KLCI following suit (+7.3 per cent from its low in that period).

"In addition, we argue that narrowing interest rate differentials is also positive for the Malaysian stock market given the -41 per cent inverse correlation between the FBM KLCI and FFR-OPR spread," it said.

Meanwhile, CGS International has upgraded its year-end target for the FBM KLCI to 1,690 points from 1,670 earlier after recalibrating the FBM KLCI’s five-year mean and rolling forward valuation horizon (from end-2025 to mid-2026).

"Post 2Q 2025 results season, we now project FBM KLCI earnings growth of 4.0 per cent/7.2 per cent for 2025/2026 from previous 5.4 per cent/7.3 per cent," it added. - Bernama