KUALA LUMPUR (Dec 14): Affin Hwang Investment Bank has upgraded its call on the local market to “overweight” from “neutral”, with an FBM KLCI target of 1,600 points by end-2024.

In a strategy note on Thursday, the research house said there could be external headwinds in the first half of 2024 (1H2024) leading to market volatility, but expects a rebound in 2H2024.

“Our positive view is on expectations of an accelerating real gross domestic product (GDP) growth, a stronger ringgit, rising foreign direct investment (FDI) inflows on the back of improving foreign investors’ confidence, and a rebound in corporate earnings growth in 2024,” it said.

Affin Hwang upgraded the banking, plantation and property sectors to "overweight", and rubber products to "neutral".

Meanwhile, it downgraded building materials to "underweight".

“We add CIMB Group Holdings Bhd, Kelington Group Bhd, Hong Leong Bank Bhd (replacing Public Bank Bhd), and Malaysia Airports Holdings Bhd as top market buys,” it said.

Ringgit to strengthen in 2H2024

Affin Hwang expects advanced economies to start cutting interest rates in 2H2024.

It said the US Federal Reserve could start easing in the fourth quarter of 2024, leading to dollar weakness.

“Coupled with high FDI inflows and potential portfolio net inflows, we expect a stronger ringgit in 2H2024.

“We expect US dollar-ringgit rates of 4.45-4.55 at end-2024, strengthening from 4.70 at end-2023. We believe this will be a key catalyst to improve sentiment in the Malaysian equity market, and support a KLCI rebound in 2H2024,” it said.

Strong earnings rebound in 2024

The research house expects KLCI core earnings to rebound to a growth of 10.5% year-on-year (y-o-y) in 2024, from a contraction of 0.7% y-o-y estimated for 2023.

Affin Hwang said the broader market is expected to see a stronger earnings rebound (based on the 102 stocks under its coverage) to a growth of 13.2% y-o-y in 2024, from a decline of 5.1% y-o-y estimated for 2023, mainly due to a surge in plantation (+24% y-o-y), oil and gas (+23% y-o-y) and utilities (+25% y-o-y) earnings.

The research house expects foreign investors to shift their attention to emerging markets like Malaysia with relatively strong corporate earnings and real GDP growth, and attractive valuations in 2H2024.

“On a 12-month view, we upgrade the market to 'overweight', and introduce our 2024 KLCI target of 1,600, based on a price-earnings ratio (PER) of 15.6 times (-0.5 standard deviation of the five-year historical mean PER),” it said.