As Steady As She Goes
RHB Investment Bank (RHB) reiterated their positive stance on the outlook for equity markets. This comes on the back of a resilient U.S. economy, gradual recovery in China’s macroeconomic fundamentals, the prospect for easing interest rates from peaking inflationary pressures, better domestic political stability and a gradual roll out of economic and fiscal reform initiatives.
The MYR has also bottomed, raising the prospect for a pick-up in foreign flows.
Key risks include geopolitical eruptions, stubborn inflation leading to fewer and later U.S. rate cuts.
Investment themes include accumulating on weakness, geographical growth drivers and trading opportunities in the small-mid cap space, RHB said in its Market Strategy note today (Apr 9).
Global growth on track
RHB Economics expects U.S. growth momentum to accelerate in 2Q24 (2024F GDP growth: 2.5%) on resilient labour markets, consumer spending and externally facing industries.
RHB sees continued signs of China’s economic recovery and forecast above-consensus GDP growth of 5.0% in 2024 (Bloomberg: 4.6%) that will be a fillip for ASEAN economies from the trade and tourism angle.
RHB Economics believes the US Federal Funds Rate (FFR) has peaked at 5.25-5.50% and observe consensus moving closer to their view for just two rate cuts in 2024 (in September and December) as inflation remains sticky.
Accordingly, the anticipated pivot toward a softer USD may well be delayed. The MYR/USD for end-2024F is at 4.63.
Trump v2.0 will see significant policy uncertainty and elevate geo-political tensions.
Essential reforms
Various economic and fiscal reforms are vital, is not in question. What is uncertain is the supply of political will to make tough decisions that will inevitably be unpopular and heavily politicised in what will be a narrow window of opportunity before the 16th General Elections (GE16).
RHB sees progress on economic reform, although fiscal reform remains painfully slow from divergent opinions within the unity coalition.
Strategy
RHB remains optimistic on the outlook for equities on brighter macroeconomic prospects, with corporate earnings having turned the corner as much of the bad news in the price. Domestic economic reform initiatives are headed in the right direction and will be an important catalyst to attract and develop new sources of FDIs.
The Johor-Singapore Special Economic Zone (JS-SEZ) holds great long-term promise.
News flow remains positive with the MYR having already bottomed out, setting the stage for stronger foreign portfolio flows.
Key risks include macroeconomic reversals, geopolitical curve balls, corporate earnings fragility and slow implementation of the reform agenda.
Focus on beneficiaries of the key growth hubs in Johor, Penang and Sarawak with ample trading opportunities (including laggards) as the market adapts to the positive paradigm.
RHB has OVERWEIGHT calls on the property, construction, technology, healthcare, transport, oil & gas (O&G), utilities and rubber products sectors.
There is no change to their end-2024 FBMKLCI target of 1,600pts (15x target P/E on forward FY25F EPS).
