Kenanga has laid out its projection for KLCI to touch 1,605 pts for 2024, this is after most analysts getting it wrong for 2023 of hitting 1500, as of today (15/12) market is at 1462.
The broking house said it believes the key driver for global markets in CY24 is policy easing by central banks in advanced economies, particularly the Fed which will firstly make EM assets attractive again given a lower risk-free return of DM assets, and secondly set in motion a synchronised recovery in advanced economies, fuelling an export boom in the largely still export-dependent EM economies.
During the Federal Open Market Committee (FOMC) meeting in Dec 2023, the Fed kept the target range of its funds rate at 5.25%-5.50% and forecast the Fed funds rate to end CY24 at 4.6% (vs. 5.1% estimated three months ago), effectively signaling three rate cuts in CY24. The market takes an even more dovish view, predicting six rate cuts in CY24 based on the latest Fed Funds futures.
With the Fed poised to start cutting rates from as early as Mar 2024 based on the latest Fed Funds futures again, the house sees a strong case for investors to return to EM equities in a more decisive manner, assuming China’s economy and the conflict in the Middle East would gradually stabilise.
Kenanga expects the local market to lift off in a way likened to a rocket propelled by three booster engines in succession. Looking beneficiaries of public spending, gradually also gravitating towards the tech and EMS sectors. The house expects consumer spending to get softer before it gets stronger as it takes time for consumers to “internalise” subsidy rationalisation.
Accordingly, it picks banks for a proxy to a healthier economy over the long term with stronger fiscal sustainability backed by subsidy rationalisation. We are upbeat on contractors given the imminent roll-out of MRT3 (RM45b), Bayan Lepas LRT (RM9.5b) and six flood mitigation projects reportedly to be worth RM13b.
The house also likes consumer staples players and automotive makers/distributors focusing on the affordable segment, given spending power of their target customers, i.e. the B40 group, will remain intact as the group will still fully enjoy various subsidies and cash handouts.
The lingering lack of clarity over subsidy rationalisation, especially in relation to RON95, will cast a cloud over consumer sentiment and spending. However, it believes once it is finally put in place, consumers will gradually “come to terms” with
it, which could happen in 2HCY24 when the local economy and job market start to pick up in-line with the recovery in the global economy.
EMS players are being monitored with INARI. on the radar it said. As for top conventional picks they are CIMB, AMBANK, GAMUDA, INARI, F&N, IJM, KPJ, ABMB, SUNCON and MBMR. Top Shariah picks are IHH, CDB, MRDIY, GAMUDA, INARI, F&N, IJM, KPJ, SUNCON and MBMR.
Top small-cap picks are PIE, MKH, TGUAN, OCK, ULICORP and UZMA.
