Where 2022 was roundly challenging in terms of macro, earnings and politics, 2023 promises fairer weather.

GDP growth will decelerate but to a still-robust +4% (2022E: +8%), with the worst of inflation and interest rate headwinds now past.

KLCI earnings growth is conversely set to accelerate to the mid-to-high teens as the market moves beyond 2022’s twin drags of the one-off Cukai Makmur (CM) tax and Gloves sector earnings collapse.

Further, the general elections (GE15) ultimately yielded a ruling coalition with a solid majority in Parliament, led by a progressive Prime Minister Anwar Ibrahim, boding well for improved governance and expedited policymaking.

Crucially, strong GDP growth and rejuvenated national oil company (NOC) PETRONAS are providing the new government the fiscal breathing room required to build the consensus necessary to tackle disruptive issues such as subsidy rollbacks and higher taxes.

In sum, we see market risk premium declining in 2023, and introduce our end-2023 KLCI target of 1,660 (+12% upside). We retain a balanced positioning, via a mix of value and growth stocks, and continuing yield focus.