PETALING JAYA: With a new year on the horizon, the market has turned more positive on the FBM KLCI as analysts foresee the benchmark stock index to cross the psychological mark of 1,600 points in 2024.
The FBM KLCI has been trading range-bound for the past one and a half years, largely between 1,400 and 1,500 points, amid foreign fund outflow driven by global monetary tightening and concerns of economic slowdown.
However, the expectations of a less hostile monetary environment in 2024 and the continued recovery in both economic growth and corporate earnings could likely push the FBM KLCI further north.
MIDF Research has set a year-end target of 1,665 points for 2024. For comparison, the FBM KLCI closed at 1,446.39 points yesterday.
“Empirically, for as long as the underlying economic performance remains favourable, the period following the end of aggressive US Federal Reserve rate hikes could prove attractive for the equity market.“This is principally due to the unwinding or subsiding pressure on equity required return as the upside risk diminishes with the end of the rate tightening cycle.
“However, it foresees a limited upside to equity valuation due to the limiting factors, particularly the risk of US recession,” it said.
MIDF Research also noted that the prospect of a stronger ringgit against the US dollar would attract inflow of foreign funds, hence providing an additional fillip to the local equity market.
On the FBM KLCI’s earnings, the research house projected a growth of 12.3% year-on-year (y-o-y) in 2024.
“Going forward, earnings headwinds will ebb due to more anchored price expectation, cessation in policy rate hike, and improvement in external trades,” it said.
UOB Kay Hian (UOBKH) Research also forecast a better core corporate earnings outlook next year.
It said the FBM KLCI’s earnings may grow by 11.2% y-o-y in 2024 from 0.4% in 2023.
“Market mood swings should also narrow, as we do not foresee new events from the ongoing global geopolitical instability.
“Malaysian equities offer moderate prospective gains in the first half of 2024 (1H24), as expectations of a globally falling interest cycle override the possibility of the US economy slipping into recession,” it said.
Looking ahead into 1H24, the investment themes would capitalise on several key events, including the recovery of global semiconductor sales, China’s economy gaining steam and unveiling of details for the National Energy Transition Roadmap.
Iskandar 2.0 developments that entail Malaysia-Singapore special economic zone and the loosening of the Malaysia My Second Home scheme would also provide further push.
UOBKH Research foresees the FBM KLCI’s year-end target at 1,605 points.
“Our bottom-up FBM KLCI target is 1,690 points.
“Our FBM KLCI target has incorporated a conservative valuation buffer against external and domestic structural challenges, while allowing for the risk of earnings downgrades.
“While the house view is for gross domestic product growth to pick up to 4.6% in 2024, various tax hikes (particularly the hiking of sales tax to 8% from 6%) and planned subsidy reductions could create potential downsides to domestic consumption,” it said.
In an optimistic scenario, UOBKH Research said the FBM KLCI would even reach 1,700-point level should its 2024 earnings forecast and valuation assumption be met.
With less than three weeks into 2024, Maybank IB Research said the FBM KLCI’s valuations remain attractive.
“We look forward to execution of macro blueprints and stronger earnings delivery to lift the FBM KLCI’s levels.
“A re-rating is possible as economic and institutional reforms are instituted to facilitate new growth drivers, leading to improved risk-reward profile,” it said.
Maybank IB Research opined that the benchmark stock index could reach 1,610 points by end-2024, from its target of 1,520 points at the end of this year.
“The tail-end of US monetary policy tightening is a ‘tail-wind’ while stable domestic policies, economic transformation and rising foreign direct investments momentum are the three key catalysts.
“We also look forward to better corporate earnings growth.
“For 2024, we estimate 15.6% core earnings growth for our universe and 11.2% for the FBM KLCI,” it added.
