Domestic stocks to propel forward in 2024

KUALA LUMPUR: Post reporting season, analysts are affirming bullish outlooks on the domestic stock market as they expect economic expansion to pick up the pace and stocks to shrug off the sluggishness of the past year.

In a market strategy note, CGS International Research, encouraged by year-to-date gains in the FBM KLCI, said it maintained its year-end target of 1,755 points for the Malaysian benchmark.

The research firm said it anticipates that key headwinds that affected the market between May 2018 and July 2023 could turn into tailwinds lifting the market in 2024.

“These are policy inconsistencies turning into ‘clarity and continuity’; ringgit weakness turning into strength and anemic earnings trends turning into double-digit profit growth.

“Overall, it seems the earnings tailwind is underway (supported by the February reporting season), while policy momentum should pick up in the next few months,” it said.

However, ringgit appreciation remains elusive although the research firm said it expects US inflation to come off sharply by mid-year.

CGS said it maintains its conviction on stocks that have performed strongly such YTL, Sunway, Dayang, Wasco, Sime Darby Property, HSS and Malayan Cement, but also recommended investors to focus on relative laggards where prices have yet to catch up to emergent catalysts.

The research firm recommended Telekom, Tenaga, Genting Malaysia, Gamuda, Hong Leong Bank, Axiata, Muhibbah, Genetec and Malakoff as candidates for investor attention.

Kenanga Research anticipates emerging market (EM) assets to turn more attractive following the expected reduction in interest rates by central banks in advanced economies this year.

“Policy easing in advanced economies will also set in motion a more synchronised global economic recovery, fuelling an export boom in the largely still export-dependent EM economies,” it said in a note.

“We now project FBM KLCI earnings to grow at 16.3% in 2024F (vs 14.4% previously largely due to low-base effect as FY23 actual earnings came in slightly lower than our forecast), followed by a 6.2% growth in 2025F.

“We maintain our end-2024F FBM KLCI target of 1,605 points based on an unchanged 15x 2024F price-earnings ratio (PER), which is in line with its historical PER range of 14x-16x post the economy reopening in 2021-2022.”

The research firm, which expects the local market to be propelled by “three booster engines” in succession, said its first tactical pick would be beneficiaries of public spending with a gravitation towards the technology and electronics manufacturing services sectors.

“We expect consumer spending to get softer before it gets stronger as it takes time for consumers to “internalise” subsidy rationalisation,” it said.

Kenanga picks banks as a proxy for the return of foreign investors, and is upbeat on contractors benefiting from the roll-out of the Mass Rapid Transit 3, Bayan Lepas Light Rail Transit and six flood mitigation projects worth a reported RM13bil.

Meanwhile, TA Securities Research said the Malaysian equity market is due for a rerating as it forecasts the economy to grow at a stronger pace of 4% versus 3.7% last year and corporate earnings to surge 17.6% in 2024 versus a contraction of 0.9% in 2023 (based on stocks under TA universe).

“The FBM KLCI is trading at an undemanding level at consensus 2025 PER multiple of 12.8x versus its long-term average of 16x,” it said in its market outlook.

TA reiterated its end-2024 FBM KLCI target of 1,620, based on 2025 PER of 12.5x.

It maintained an upside bias as it said the cheap ringgit was drawing in greater foreign participation ahead of possible US monetary loosening.

On the domestic front, the research firm said pro-growth policies and reforms are gaining momentum with greater political stability, adding lustre to government’s commitment to reduce fiscal deficit and government debts.

Meanwhile, stronger corporate earnings in 2024 make valuations attractive vis-à-vis its long-term average of 16x.

In anticipation of China’s 14th National People’s Congress this week, TA added that there was also a high possibility of greater intervention from China to revive its economy, which will support Malaysia’s narrative for a stronger economy as exports recover.

The research firm reiterated its six key investment themes for 2024 and recommended continued exposure to Telekom Malaysia (digital economy), Aeon, IJM, Sime Darby Property, Sunway and Westports (domestic spending), CIMB, Hong Leong Bank and MISC (foreign buying of undervalued blue chips), Malakoff and Tenaga Nasional (green investment), Duopharma and Inari Amertron (recovery stocks) and TunePro and Focus Point (tourism plays).