A better 2024 expected. RHB Investment Bank (RHB IB) sees more reasons to be optimistic on the outlook for 2024 with much of the bad news already in the price.
In its Malaysia Strategy release today (Dec 15), the bank said their house view on the US monetary policy has turned more dovish, coupled with a more bullish opinion on China’s macroeconomic recovery and a “no landing” scenario for the US.
A more stable domestic political environment and the promise of much-needed economic reform will support the MYR. Key risks are sticky inflation and higher-for-longer rates. BUY on weakness, focusing on laggards and small-mid caps.
Light at the end of the tunnel? RHB Economics expects global growth to accelerate in 2024 with above-consensus GDP growth forecasts for the US and China.
RHB IB sees peak Federal Funds Rate (FFR) at 5.50-5.75% that is broadly within the range of consensus estimates although no rate cuts are expected until 2H24. While there are early signs of an economic recovery in China, we highlight some inflation risks in 1H24 from demand-pull drivers and higher commodity prices.
Sticky inflation data suggests a more persistent higher-for-longer monetary policy environment and a delay in the pivot toward a softer USD. A pick up in China’s economy will be a fillip for ASEAN from the improvement in trade and tourism.
Narrow window of opportunity for reform. While the improvement in the bigger picture bodes well for corporate Malaysia’s earnings outlook, the recent track record in this regard is weak and betrays corporate Malaysia’s old economy underpinnings.
Market confidence on the quantum of political will available for tough decisions on economic and fiscal reform remains in short supply, with a limited window of opportunity before the 16th General Election (GE16) comes into view on the political horizon.
Meaningful improvements in the state of public finances appear limited in the foreseeable future, given the negative political climate and high propensity for reforms to be politicised.
They should continue to enjoy some political stability for now although persistent efforts to destabilise the Government will be negative for sentiment and new investments.
Strategy. RHB IB’s relatively benign global macroeconomic prognosis, China’s expected comeback, easier monetary policy narrative, expected pivot in the MYR/USD and progress on the fiscal reform agenda will have implications for investor sentiment and corporate earnings prospects in 2024.
Investment themes centre on opportunities to accumulate on weakness, a focus on laggards (as investors hunt for value and opportunity), China recovery plays, beneficiaries of a stronger MYR and opportunities in the small-mid cap space.
Investor outperformance will invariably depend on astute stock picking.
RHB IB have OVERWEIGHT calls on the property, construction, healthcare, transport, oil & gas (O&G), utilities, basic materials and non-bank financial institutions (NBFIs) sectors.
RHB IB’s its end 2024 FBM KLCI target of 1,600pts, based on 15x target P/E on forward FY25F EPS.
