KUALA LUMPUR: HSBC Global Research, which upgraded its rating on Malaysian equities to “neutral”, says the domestic market is in a sweet spot amid lower US bond yield and a stronger ringgit.
The research house also raised its end-2024 target for FBM KLCI to 1,740 points. As for 2025, it is projecting 1,920 points by year-end.
“The Malaysia market has done exceptionally well so far this year:
“FTSE Malaysia is up 23% year-to-date in US dollar terms and 15% in local currency terms, a strong outperformance relative to the region
“We believe the market is in a sweet spot – lower bond yields in the US and a stronger ringgit should boost earnings for domestic companies, enhance liquidity, and drive overall market performance.
“The economy also benefits from strong foreign investment,” it said in a note today.
HSBC Global Research also believes that Malaysia is well positioned to benefit from the increase in data centres amid increased demand for cloud and artificial intelligence services, with large technology giants are already investing heavily in the market.
“We believe utilities and industrials are best placed to benefit from this trend.”
It further highlighted that market consensus forecasts earnings to grow 20% in 2024 and 10% in 2025.
In terms of valuations, FTSE Malaysia trades at a 12-month forward price-to-earnings (PE) multiple of 14 times, which is largely on par with the five-year median PE multiple.
“Investor positioning is still not crowded and foreign buying has ticked up in recent months.
“Malaysia equities have enjoyed strong foreign flows to the tune of US$1.1bil in the last three months.
“Lower global bond yields have played a role in improving market liquidity: daily turnover for FTSE Bursa Malaysia KLCI Index is up 3 times in the last 12 months,” it added.
On the macroeconomic front, Malaysia’s outlook also looks encouraging.
HSBC Global Research’s Asean economist Yun Liu recently raised her gross domestic product growth estimate for 2024 from 4.5% to 5%.
“The manufacturing sector is riding the global tech upturn, construction sector is benefitting from the rising interest in foreign direct investment-related large-scale projects, such as data centres, and the tourism revival is on track as well,” stated the research house.
