THE local stock exchange is headed for some headwinds, primarily with what is expected to emanate from the US as President-elect Donald J Trump prepares to lead the world’s largest economy.
In a strategy report released yesterday, Hong Leong Investment Bank Bhd (HLIB Research) noted that the FTSE Bursa Malaysia KLCI (FBM KLCI) has slipped 3.3% in the fourth quarter of 2024 (4Q24) (up till end-November).
Coupled with the ringgit’s 7.3% depreciation, it said its currency adjusted returns declined by a larger quantum of minus 10.3% — underperforming the ASEAN-5 index at minus 5.2%.
“While we still envision the Federal Reserve (Fed) to continue with its rate down-cycle — blowing tailwinds for the ringgit and KLCI — we are cognisant of the risks stemming from Trump’s second presidency (inauguration on Jan 20), which creates upside bias to inflation given his tariff and deportation plans.
“Given such, we expect the local bourse to remain choppy, at least into 1Q25. Despite the external woes, we believe that fundamentally, Malaysia is on a sturdy ship, supported by healthy subsidy reforms, influx of approved investments and a steadier political climate.
“Our investment themes on tourism recovery, energy transition, Johor’s developmental reinvigoration and disposable income boosters should be fairly insulated from the US election outcome — while trade war beneficiaries could see revived interest. We also note the possibility for the traditional December ‘window dressing’ effect, which has had a 93% positive hit rate since the Global Financial Crisis (last 15 years),” it said.
Its forecast for calendar year 2024 (CY24) and CY25 KLCI earnings growth forecast stood at 7.2% and 5.7%, respectively.
In view of the external headwinds that may emanate from “Trump 2.0” — namely, tariff tantrums and fewer Fed cuts — it said it had lowered its ascribed price-to-earnings ratio (PE) target to 15 times, resulting to a KLCI target of 1,620/1,720 for 2024/2025, down from 1,700/1,810. The KLCI closed at 1,607 points yesterday (Dec 3).
HLIB Research’s top picks were YTL Power International Bhd, RHB Bank Bhd, Sunway Bhd, Gamuda Bhd, Dialog Bhd, Capital A Bhd, ITMAX System Bhd, Aeon Co (M) Bhd, Notion Vtec bhd, SMRT Holdings Bhd, MN Holdings Bhd and Focus Point Holdings Bhd. — TMR