The market, which was closed for the Thaipusam holiday yesterday, has also not reached its bottom after falling six per cent so far this week, said Gan Kim Khoon, head of equity capital markets for OSK Investment Bank Bhd.
"I would think the Kuala Lumpur market will catch on and rebound largely because the selldown can be deemed excessive and the Fed cut is what the market expected," he told Business Times.
The Federal Reserve slashed interest rates by 0.75 per cent to 3.5 per cent, in an emergency meeting on Tuesday. It was the biggest cut in 23 years.
The Fed is due to have its regular policy meeting on January 29 and there are expectations that another rate cut may happen.
Other Asian markets which were open for business cheered the move, seen as heading off a possible recession in the US economy.
Hong Kong shares jumped six per cent in early trade and closed up 10.7 per cent. Japan's Nikkei Index closed up 2 per cent while Korea ended 1.2 per cent higher.
Although the Fed's rate cut has produced an immediate positive reaction, the timing and the size of the cut could also signal that the US economy is in worse condition, said Azam Yahya, research head of the Employees Provident Fund.
"It's quite a mixed indication right now so you can't be overly bullish," he said.
Retail investors should stay out of the stock market for now, OSK's Gan said.
"I would say sit it out. I would rather miss out on buying shares at the bottom than buy now and lose money," he said.
Deputy Finance Minister Datuk Dr Ng Yen Yen said it is too soon to know if the Fed's rate cut was enough to soothe Asian stock markets.
"We have to wait and see. What's important is the Malaysian economy. What happens around the world will surely affect us, but commodity prices are strong and that is also supporting the economy. We should be able to hold ourselves against the US economic slowdown," she told reporters after launching a mall project in Kuala Lumpur yesterday.
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