KUALA LUMPUR: Corporate earnings are expected to continue its upward trajectory, driven by a positive macroeconomic outlook and substantial progress in domestic reforms, according to RHB Research.

The firm said these developments are expected to attract new foreign direct investments (FDIs) and maintain a stream of positive news, signalling enhanced business and investor sentiment.

Despite the ongoing uncertainty surrounding US monetary policy and potential short-term catalysts, the market remains well-supported by robust domestic liquidity, especially as the ringgit finds its bottom, paving the way for the return of foreign portfolio funds.

"We have a positive outlook on several sectors, including property, construction, technology, healthcare, transport, oil and gas (O&G), utilities and rubber products.

"Our target for the FBM KLCI by the end of 2024 is 1,720 points, based on a forward FY25F EPS with a target P/E of 16x, representing a premium over the 15.3x mean.

"We are optimistic about several sectors, including property, construction, technology, healthcare, transport, O&G, utilities, and rubber products," RHB Research said.

On the local front, markets were positively surprised by the recent progress on diesel subsidy rationalisation, given the scepticism on the amount of political will available to make unpopular decisions. 

"The focus is now on how the government manages the fallout from the recent diesel price hike, and the implications of RON95 subsidy adjustments that may now be pushed back until end-2024," it said in a note.

Careful execution of economic initiatives including the recently-announced National Semiconductor Strategy, economic cooperation with China and Johor-Singapore Special Economic Zone (JSSEZ) are key priorities to position the unity coalition strongly as it prepares to enter the latter half of its five-year mandate.

On the global front, RHB Research expects both the US and China to achieve above-consensus year-over year gross domestic growth rates of 2.5 per cent and 5.0 per cent this year, which should boost the climate for global trade, tourism and investment. 

However, inflation remains sticky and risks are rising that the US Fed may maintain the Federal Funds Rate (FFR) in 2024, given the tight US labour market and resilient consumer. 

"While the macroeconomic picture offers the market broad positive support, the risk of the US Fed not cutting rates this year is for the greenback to remain robust in the near term, although the research house view for the ringgit to strengthen further out by RM4.65 end 2024 and RM4.40 end-2025.

"A second coming for Donald Trump in the US election will mean significant policy risks, and could further raise geopolitical tensions," said RHB Research.

https://www.nst.com.my/business/corporate/2024/07/1072513/malaysia-incs-earnings-continue-momentum-rhb-research