Global economic conditions have, by and large, proven most naysayers wrong with its resilience this year however – the US has not sunken into a recession despite the rapid rate hikes, China continues to weather the property-induced financial storm but refuses to be beaten. While Europe is on the verge of sliding into a recession, it is expected to be shallow as contributory factors are more situational than structural.

For 2H 2023, our view was for investors to “Keep The Faith” on expectations that conditions would be better, which had indeed proven to be, though not fully reflected in domestic market conditions. With sentiment now appearing to be decidedly better, we suggest investors “Stay the Course”.

Economic Outlook: Looking ahead to 2024, the outlook appears promising as the global economy braces for potential uncertainties, likely mitigated by Malaysia's implementation of strategic initiatives such as the slightly expansionary Budget 2024, National Energy Transition Roadmap (NETR), New Industrial Masterplan 2030 (NIMP 2030), and the Mid-Term Review of 12th Malaysian Plan (12MP MTR), all aligned with the MADANI Economic Framework. This alignment is expected to elevate Malaysia's real GDP growth to +4.7% in 2024, a revision from our earlier projection of +4.5%, as well as supported by robust domestic demand, continued Foreign Direct Investment (FDI) inflows, sustained and prospective investments, and a resurgence in electronics exports amid tech cycle recuperation. [pages 2 – 14].

Market outlook. We expect market conditions to be better, underpinned by healthier economic growth domestically, a steadier earnings growth picture and traction from the various growth frameworks unveiled this year, amongst others. Expected monetary loosening in the United States (and possible weakening of the Dollar), in particular, may see capital repatriated back into emerging markets. Though the FBM KLCI (and the broader market) continues to struggle to break out of its range-bound trading band, we suggest four considerations for greater exposure in the market. [page 15 – 20]

Our assessment suggests that the USD/MYR exchange (post-unpegging in 2005) is currently undervalued by about 30sen, relative to its fair value. While the Ringgit has seen two notable periods of depreciation (2014/2015 and 2021/2022), our point of interest is the divergence from its estimated fair value. Why are these occurrences important? [page 16]

With the market still a very trading-oriented one amid possible monetary policy “confusion” and limited fiscal assistance, we continue to suggest accumulation on market weakness to ride on the recovery going into 2024. While optimism cannot yet be considered full-blown, conditions do appear to be better from what they were just six months ago. [page 22]

While it was just the relative undervaluation of the market and a reversion-tomean being the only key macro play for 2H 2023, stronger economic growth (domestically) and its resultant effects on financial and capital markets will be an added positive for 2024. This will be in addition to the relative undervaluation of the Ringgit, the continued undervaluation of the market, the relatively steady corporate earnings picture amid relatively robust market expectations. Our yearend 2024 closing for the FBM KLCI is 1,630pts based on ~15x (-1SD to the FBM KLCI’s short-term average) multiple to CY24 earnings. [page 22 – 23]

We continue to favor names with multi-year growth stories to capture upsides from improving global and domestic economic conditions. Going into 1H 2024, we continue to believe in the prospects of CCK Consolidated, CIMB Group, Dayang Enterprise, Genting, Inari Amertron, IJM Corporation and Uzma. D&O Green Technologies’, Mega First Corporation and QL Resources’ improved outlooks see both included as suggested picks for 2024.

Source: PublicInvest Research - 15 Dec 2023