After 3 straight years (2021-2023) of negative returns, the KLCI has been on a tear over 1H24, gaining almost 10% to become the secondbest performing equity market benchmark in ASEAN after Vietnam.
A confluence of drivers has sparked the re-rating, chiefly i) progress in economic restructuring and fiscal reforms; ii) record high approved (and actual) direct investments (FDI/DDI); and iii) corporate earnings growth delivery – on the latter, Maybank IB sais it now estimates a higher +15.5% core earnings growth for our coverage universe in 2024E (previously +13.1%), while for 2025E, and now estimates +10.7% growth (previously +9.9%). This, in turn, is keeping market valuations grounded despite YTD gains, as reflected by end-2024 KLCI target of 1,680, which implies 15x fwd. PER, still -0.5 standard deviations below long-term mean of 16x. Validating the long-held view that the local market can move higher on (ample) domestic liquidity alone, the KLCI's gains were achieved despite foreign outflows totaling MYR0.83b over 1H24.
A good start, then...but what's next? US Presidential elections in Nov aside, the external environment remains supportive, with FDI/DDIboosting global supply chain shifts continuing apace and markets now pricing in a generous three 25bps (total 75bps) cuts in the Fed funds rate (FFR) between Sep and Dec 2024 (MIBG: two 25bps cuts), which will significantly alleviate regional FX pressures i.e. we forecast the USDMYR to end 2024 stronger, around the 4.60 level. Domestically, the most anticipated catalyst is formalisation of the Johor-Singapore Special Economic Zone (JSSEZ). Malaysia's Economy Minister has
indicated a possible deal announcement in Sept, which would be a huge stimulus for both countries via freer movement of people, goods and capital, and further invigorate other key thematics such as FDI, renewable energy (RE) and data centres (DCs). Successful execution of structural reforms such as the National Semiconductor Strategy (to move up the value chain vs. current largely back-end processes) and petrol subsidy rationalization would further lift market sentiment
Market positioning? Re sectors, the house recommends Overweighting Banks, Construction, RE, Aviation, Gaming-Casino, Oil & Gas, Gloves and Software/EMS; Underweight Petrochems, Media. Re stocks, the house adds CelcomDigi (preferred Telco), Eco World (top BUY in Property) and ATech (EMS). Other key BUYs are AMMB, followed by CIMB in Banks; SD Guthrie in Plantation which offers a fresh RE angle; and Solarvest in RE sector. For Consumer, picks MR D.I.Y. and AEON Co. also offer
consumer down-trading angles while Genting represents deep value.