KUALA LUMPUR (July 12): The first half of 2024 (1H2024) was not short of media headlines highlighting stocks hitting their historical highs, as sentiment was propped up by a myriad of drivers, from rate cut expectations, artificial intelligence (AI) or data centre-driven interest to Putrajaya-led efforts to coordinate government-linked entities in repatriating their foreign earnings and higher domestic investments.

The FBM KLCI breached the 1,600-point psychological level in May, before paring gains to settle at 1,590.09 points by end-June, recording a 9.4% gain in the first six months of the year.

The FBM KLCI kick-started the year at 1,453.10 points on Jan 2, 2024 — the lowest so far this year — before trending higher and hitting its highest at 1,629.18 points on May 23, 2024, marking its highest since October 2021. The benchmark index closed at 1,623.12 points, up 11.6% year to date (YTD).

A total of 144 stocks (excluding the recent initial public offering stocks in the past one year) out of the over 980 stocks listed in Main and ACE boards soared to their historical highs in 1H2024, according to Bloomberg data.

The rallies of some of these stocks gather steam, hitting new record highs in July.

Among companies with market capitalisation of RM10 billion or above, 21 counters climbed to new peaks in the first six months of this year.

A total of 55 companies with market values of between RM1 billion and RM10 billion hit fresh record highs in 1H2024, while the remaining 68 companies are those with market caps of below RM1 billion.

Heads of equity research commented that the rally in Bursa Malaysia for 1H2024 was fuelled by a combination of factors, with news flow on data centre investments and rising expectations of US interest rate cuts being among the tailwinds.

“The expectations of eventual US rate cuts improved valuations and turned investors to a risk-on mode. This led to a return of foreign funds which have been boosting our local equity market,” MIDF Research head of research Imran Yassin Md Yusof told The Edge.

A healthy corporate earnings outlook and attractive valuations with the FBM KLCI being a laggard in recent years also contributed to the market's bullishness, he added.

Apex Securities Bhd head of research Kenneth Leong said the local bourse has been relatively muted in recent years, hence the stock rally in the first half of this year is “beyond expectations”.

“The rally was largely driven by AI-related developments, particularly YTL Corp Bhd (KL:YTL) and YTL Power International Bhd (KL:YTLPOWR) alongside supply chain players such as Tenaga Nasional Bhd (KL:TENAGA) and Telekom Malaysia Bhd (KL:TM),” Leong added.

YTL Corp's share price has almost doubled YTD when it settled at RM3.81 on July 11. YTL Power, in which YTL Corp holds a 55.57% stake, has doubled its share price to RM5.15, from RM2.57 at the beginning of the year.

Tenaga's share price has gained 46% YTD to RM14.60, while Telekom Malaysia has risen 25%.

Bullish sentiment to persist in 2H2024

Investment analysts, generally, anticipated the positive market trend to persist in 2H2024. Their optimism stems from several key factors, expected monetary easing policy from the US, resilient macro and corporate earnings growth, potential ringgit appreciation against the US dollar and execution of national blueprints.

MIDF’s Imran said the prospect of a stronger ringgit would attract an inflow of foreign funds, a catalyst to the local bourse.

Notably, despite the rally since the start of the year, the local stock market is still trading at a discount to its historical valuation, suggesting further potential upside.

“At present, the FBM KLCI is trading at price-earnings (P/E) multiple of 15.2 times, which we deem is slightly undervalued against the five-year historical mean average of 17 times. Our in-house year-end target for the FBM KLCI is at 1,680,” said Apex’s Leong.

AHAM Asset Management believes the positive sentiment would continue in 2H2024, driven by healthy economic growth. This, coupled with ongoing fiscal reforms, will provide a clearer roadmap for growth, instilling greater confidence in investors.

“If the growth and reform story takes hold, coupled with strong execution, the market may exceed mean valuations presenting ample opportunities for investors,” the asset management firm commented.

Sector-wise, sectors that outperformed in 2H2024 are data centre supply chain, construction, property, renewable energy, transportation, and oil and gas.

Apex’s Leong said data centre supply chain players that are leveraging the AI and cloud computing boom are expected to continue benefiting from the positive sentiments.

“The transportation and logistics sector is capitalising on trade diversion and most players embarking onto expansionary plans, while the renewable energy sector is riding onto a slew of incentives outlined by policy makers,” Leong added.

Leong expects the share price rally in the property sector to have more legs, to be driven by development on public infrastructure works in Johor, Penang and Klang Valley.

MIDF’s Imran has a positive call on the construction sector, premised on a strong pipeline of jobs moving forward, coming from logistics warehouses, data centres and semiconductor plants.

“However, we are scaling back our optimism on the sector slightly, taking a more cautious stance due to the strong run-up of the construction sector this year,” Imran noted.

Imran is optimistic about the prospect of the oil and gas sector supported by robust upstream activities, which will benefit local oil and gas players.

“We expect Brent price will be supported by concerns on the geopolitical front and by Opec+,” he added.

Petroliam Nasional Bhd’s capital expenditure allocation of RM50 billion to RM60 billion for the current financial year ending Dec 31, 2024 (FY2024) is expected to be the main fuel driving the activities in the domestic oil and gas industry.