Consensus estimates are for the FBM KLCI to rise to 1,600 points by the end of 2024.
PETALING JAYA: Malaysian equities are the favoured asset class for 2024 on expectation of improvement in corporate earnings, backed by a resilient and diversified economy and policy outcomes.
Analysts said the end of the downcycle in corporate earnings in the United States and a soft landing of the economy would lead to a pivot in the interest rate policy by the Federal Reserve (Fed) and help boost investors sentiment globally more so if China’s economic health improves.
“We envisage 2024 will be the year of ‘implementation’ after multiple major announcements, including economic master plans and Fiscal Responsibility Act in 2023.
“The resilience of the Malaysian economy, coupled with ongoing strategic initiatives and promising investment inflows, could help to inspire confidence,” said Kevin Khaw, research analyst at iFAST Capital.
He said the country’s economic fundamentals, coupled with prudent fiscal measures, position the country favourably and resulting fund inflows would help subsequently narrow the price-to-earnings divergence for the local market to the 10 year historical average of 15.36 times in 2024.
He advised investors to keep an eye on how execution of the fiscal disciplinary programme by Putrajaya could impact market sentiment while details about supportive measures or blueprints to the key focus areas could buoy the sector growth, subsequently reflected in the share prices.
With a few trading days left for the year, price action on Bursa Malaysia, however, suggested there would not be a Santa Claus rally or window dressing activity this year with the FBM KLCI likely closing lower for the third year running – down some 2.8% year-to-date at 1,450 points at close yesterday.
Nevertheless, consensus estimates are for the FBM KLCI to rise to 1,600 points by the end of 2024, given a valuation mean reversion, potential returns of foreign fund flows and a more favourable earnings growth profile compared to the projected soft-landing in the United States and some developed markets.
The weaker ringgit was a negative for funds inflows in 2023 but Nixon Wong, chief investment officer at Tradeview Capital said a potential Fed rate cut cycle next year is likely to exert pressure on the mighty US dollar, making emerging market currencies such as the ringgit more attractive.
Consequently, he said this could trigger a return of foreign funds into Malaysia and further boost the ringgit in 2024.
According to Khaw, 2024 could be a pivotal moment in the global semiconductor industry.
“Our assumption is for global chip sales to grow rapidly in the next two years, owing to the structural increase in demand from increasing digitalisation.
“Hence, Malaysia’s balance of payment could continue to be supported by the higher exports of electrical and electronics and with commodity prices staying elevated, subsequently driving the appreciation of the ringgit,” he said.
Thus, a pick up in corporate earnings of companies in the digital economy and semiconductor industries is anticipated.
Wong said the themes for 2024 would encompass the resurgence of long-overdue mega infrastructure projects, the establishment of data centres, a reset in water tariffs, advancements in renewable energy aligning with the national energy transition roadmap, impact of targeted subsidy rollouts, tourism recovery and rebound in the technology and industrial manufacturing sector.
He pointed out that a pivot by the Fed would provide leeway for other central banks to adopt a more flexible monetary policy, helping navigate potential economic hiccups and thereby favouring growth stocks.
Real asset investment, gold and high-yielding instruments like bonds as well as high-yield stocks will also remain in favour among investors, according to Wong.
