Kenanga Research & Investment

1QCY24 Investment Strategy - A Rising Tide Lifts All Boats

Publish date: Fri, 15 Dec 2023, 10:08 AM

Executive Summary

  • We project an end-CY24 FBM KLCI target of 1,605 pts based on 15x CY24F earnings (+14.4%), which is consistent with its historical PER range of between 14x and 16x post the economy reopening.
  • We believe the key driver for global markets in CY24 is policy easing by central banks in advanced economies, particularly the Fed which will firstly make EM assets attractive again given a lower risk-free return of DM assets, and secondly set in motion a synchronised recovery in advanced economies, fuelling an export boom in the largely still export-dependent EM economies.
  • During the Federal Open Market Committee (FOMC) meeting in Dec 2023, the Fed kept the target range of its funds rate at 5.25%-5.50% and forecast the Fed funds rate to end CY24 at 4.6% (vs. 5.1% estimated three months ago), effectively signaling three rate cuts in CY24. The market takes an even more dovish view, predicting six rate cuts in CY24 based on the latest Fed Funds futures.
  • With the Fed poised to start cutting rates from as early as Mar 2024 based on the latest Fed Funds futures again, we see a strong case for investors to return to EM equities in a more decisive manner, assuming China’s economy and the conflict in the Middle East would gradually stabilise.
  • We expect the local market to lift off in a way likened to a rocket propelled by three booster engines in succession. We will tactically first position ourselves in beneficiariesof public spending, gradually also gravitating towards the tech and EMS sectors. We expect consumer spending to get softer before it gets stronger as it takes time for consumers to “internalise” subsidy rationalisation.
  • We pick banks for a proxy to a healthier economy over the long term with stronger fiscal sustainability backed by subsidy rationalisation. We are upbeat on contractors given the imminent roll-out of MRT3 (RM45b), Bayan Lepas LRT (RM9.5b) and six flood mitigation projects reportedly to be worth RM13b.
  • We like consumer staples players and automotive makers/distributors focusing on the affordable segment, given spending power of their target customers, i.e. the B40 group, will remain intact as the group will still fully enjoy various subsidies and cash handouts.
  • The lingering lack of clarity over subsidy rationalisation, especially in relation to RON95, will cast a cloud over consumer sentiment and spending. However, we believe once it is finally put in place, consumers will gradually “come to terms” with it, which could happen in 2HCY24 when the local economy and job market start to pick up in-line with the recovery in the global economy.
  • We are keeping a close eye on the earnings inflection point of tech and EMS players. For now, we nibble on a large-cap and liquid names, i.e. INARI.
  • Our top conventional picks are CIMB, AMBANK, GAMUDA, INARI, F&N, IJM, KPJ, ABMB, SUNCON and MBMR.
  • Our top Shariah picks are IHH, CDB, MRDIY, GAMUDA, INARI, F&N, IJM, KPJ, SUNCON and MBMR.
  • Our top small-cap picks are PIE, MKH, TGUAN, OCK, ULICORP and UZMA.

Source: Kenanga Research - 15 Dec 2023

Related Stocks
Market Buzz
Be the first to like this. Showing 0 of 0 comments

Post a Comment