Domestic market sentiment has remained encouraging from the onset of 2H 2024, with the FBM KLCI tacking on another 40 points (~2.5%) to hover at the 1,630-point level (until recently). This has also been reinforced by the release of advanced estimates for the country’s 2Q 2024 GDP reading, with a better-thanexpected +5.8% YoY growth.

For the first time in a while, foreign investor buying has seen some consistency – every day in the first three weeks of July. This has been somewhat anticipated on the back of eventual US interest rate cuts which should see capital repatriated back into emerging markets, though a sooner-than-expected occurrence nonetheless. While we are seeing some growing traction from the relative undervaluation of the Ringgit, the full scenario has not played out as yet. We expect to see further gains reaped in the market from this particular standpoint.

In our 2H 2024 market outlook piece dated 26 June 2024, we presented a consideration of the FBM KLCI (and by the extension, the local bourse) being relatively undervalued from a forward price-earnings perspective, relative to its historical averages. Incidentally, the local bourse is also currently undervalued from a market capitalization-to-GDP standpoint, suggesting that investors are not giving full value (yet) to Malaysia’s relatively healthy economic output.

Based on Figure 2, it would not be unreasonable to suggest that the FBM KLCI could hit 1,800 to 1,900 points over the longer term, which is also in line with the market capitalization-to-GDP multiple hitting a relatively undervalued 1.2x (+11% upside from current multiple of 1.08), in line with long-term trends.

We continue to flag for heightened risk premiums in 2H 2024 however, with the risk-reward balanced skewed slightly to the downside now. That said, there are still sufficient reasons to maintain exposures in the local bourse, as we suggest investors to continue “Push(ing) the Limits”, albeit buying on weakness with the market still being a very trading-oriented one. Our year-end 2024 closing remains unchanged at 1,680 points based on ~15x (-1SD to the FBM KLCI’s short-term average) multiple to CY24 earnings.

We favour names with multi-year growth stories to capture upsides from relatively steady global and domestic economic conditions – Kawan Food, QES Group, CIMB Group, Dayang Enterprise, Inari Amertron, Uzma, D&O Green Technologies and Mega First Corporation. Separately. We see Gamuda, IJM Corporation, Telekom Malaysia and Tenaga Nasional as key players in the data centre space over the coming years (please refer to our thematic piece dated 19 July 2024.

Source: PublicInvest Research - 31 Jul 2024