• We remain upbeat on Malaysia’s market in 2025, driven by sustained FDI, a stronger Ringgit, robust domestic liquidity, positive economic trend, corporate earnings growth, and the realization of MNC investment commitments

• Risks to the KLCI include potential foreign inflow slowdown due to tariffs and a stronger US dollar under Trump. Small-mid-cap stocks offer a better risk-reward, bolstered by strong thematic growth drivers

• Our year-end 2025E FBMKLCI target is 1,750. Top small-mid cap BUYs include AGX, Armada, Binastra, BM Greentech, Critical, Dayang, HE Group, MN Holding, OCK and Pekat. Top large-cap BUYs are CIMB, Frontken, Gamuda, Hartalega, and NationGate

Economy set for continued growth

Malaysia’s economy has experienced its strongest growth since 2018. This momentum is expected to continue, fuelled by substantial FDI inflows, which also generate positive spillovers of domestic direct investment (DDI). Malaysia has achieved a record level of approved investments in 2023, with strong investment activity projected to persist into 2024. Private investment is anticipated to remain a key driver of economic growth in the coming years with the further realisation of the approved investment. We forecast GDP growth of 5.1% in 2025, following an estimated 5.3% in 2024, marking the first time since 2014 that the economy has expanded by over 5% for two consecutive years. This commendable economic performance is likely to support the country’s equity market.

Ringgit strength to drive market return

We expect the US Fed to maintain its monetary policy rate steady in 1H25, with monetary easing resuming in 2H25. The anticipated rate cuts have been revised to 50bps in 2025, down from the previous projection of a 100bps cut, as indicated in the latest dot plot. We project the Ringgit to hover around the range of RM4.30/US$ by end25, supported by strong FDI growth and favorable government policies.

Focus on corporates with thematic-driven earnings

Consensus projects KLCI EPS to grow 8% YoY in 2025E, following a 12% YoY growth in 2024E. Banks, Construction, Technology and Gloves are expected to be key earnings growth drivers within our coverage universe. Several themes are likely to drive stronger market performance in 2025, including 1) sustained FDI growth, 2) acceleration of infrastructure spending, 3) rapid AI adoption, 4) rising focus on local green energy, 5) expanding DCs infrastructure, and 6) glove sector recovery on the back of China tariffs.

Maintain Neutral. End-2025 KLCI target at 1,750

We remain positive on Malaysia’s market outlook for 2025E, bolstered by sustained FDI, a stronger Ringgit, robust domestic liquidity, positive economic trend, corporate earnings growth, and the realization of MNC investment commitments—our year-end 2025E FBMKLCI target at 1,750. OVERWEIGHT sectors include Banking (new), Construction, EMS, Gaming, Healthcare, Industrial (represented by data centres names), O&G, Renewable, Rubber Glove, Technology, Telco, and Transport (new). For 2025, top small-mid cap BUYs include AGX, Armada, Binastra, BM Greentech, Critical Holdings, Dayang, HE Group, MN Holding, OCK and Pekat. Top large-cap BUYs are CIMB, Frontken, Gamuda, Hartalega, and NationGate.

Source: Philip Capital Research - 24 Dec 2024