• Growth is treading higher in 2020, recession risks minimal. We estimate a slight pick-up in global growth in 1H20 as easy financial conditions aid economic activities. The IMF expects 2020 global growth to rise to 3.4% versus 3.0% for 2019.
   
• Dovish stance diminishing, but Malaysia and EM have room to ease. We believe that the US rate cuts that drove global stocks higher in 2019 are largely over. However, we still do not rule out a possible OPR cut by BNM to 2.75% from 3% currently. This possibility could heighten in 1H20, given the prevalent state of uncertainty in the domestic economy.
   
• China in structural slowdown, but reinventing economy for long-term. China is gradually moving away from its credit-intensive growth model that has fuelled growth the past decade. Instead it is focusing private spending and private companies to fuel growth. This intended shift, though gradual and would see growth slows to around 6%, should pose lesser risks to markets in 2020.
   
• Risk assets to remain risk-on in 1H20. Global stocks saw a spectacular run in 2019, as US markets scaled new heights. Similarly, the MSCI EM Index clocked a 15% rise YTD. Precious metal, such as gold – and silver – also rose strongly and expected to remain favourable as real rates stay low. The US 10-year Treasury (UST) bond yields have risen since a low of 1.4% in August, as recession fears have abated for the moment, and steepening the yield curve. The UST 10-year yield is ending the year at 1.85%, well off its 2019 peak of 2.79%. 
   
• Moderate return for KLCI expected, mid-caps still place to be. The KLCI has shown signs of recovery in recent weeks as foreign funds limit their selling. The last 2 weeks of December saw net foreign inflow, after almost 2 months of substantial outflow. The KLCI has been caught in sideway trading range of 1,615-1,550 since mid-August. We introduce our KLCI year-end of 1,700 for 2020, implying a PE of 16.5x on 2020 EPS. We estimate KLCI companies’ aggregate earnings to grow by 6.6% yoy in 2020 versus a decline of 0.4% this year. Despite only a moderately higher KLCI, we expect smaller stocks to perform better in 2020, as they did in 2019.

Source: BIMB Securities Research - 31 Dec 2019