Leaving behind a weak market in 2QCY24, markets made a strong push in 3QCY24, with ASEAN markets amongst the best performers. This came as conviction grew stronger that the US Fed will finally make its first rate cut. However, the markets’ rise has not been all smooth as investors have become more sensitive to economic data than before.
The US economy continued to show resilience despite the high interest rates as the GDP grew stronger, backed by a sustained rise in consumer spending on the back of rising wages and easing inflation. Meanwhile, the US Fed has finally cut its fed funds rate with a -50bps reduction to 4.75-5.00% after the Sep-24 FOMC meeting, to support the economy as the labour market shows more signs of cooling.
In China, recent economic releases led to renewed concerns that the weak growth momentum will make it challenging for the economy to reach its ambitious +5.0% official growth target for 2024. In this aspect, MIDF said it expects more policy supports will be rolled out.
With inflation under control, the house also noted that BNM is expected to maintain OPR at 3.00% in 2024 and 2025.
While the OPR to be kept unchanged, the narrowing interest differentials will also be supportive of the ringgit, gaining from the
weakening of the US dollar. Accordingly, MIDF also revised its projection for the ringgit to close 2024 stronger at RM4.03 (end-2023: RM4.59) and average the year around RM4.56 (2023: RM4.56).
As for the equity market, it expects positive market momentum to continue in 4QCY24; 1) driven by the inflow of foreign funds, 2) underpinned by a healthy economy as well as corporate earnings outlook, and 3) supported by undemanding valuations. The preliminary 2025 targets: FBM KLCI at 1,850 points or PER25 of 15.6x, FBM Hijrah at 14,900 points
or PER25 of 21.4x and FBM70 at 19,900 points or PER25 of 16.8x.
However, it also advised to be mindful of potential externally driven downside risk to the outlook based on time-tested signals, namely (i) the US Leading Economic Index (US LEI), and (ii) the USTreasury (UST) yield curve.
In view of the still positive monetary (liquidity) and fundamental prospects, the house maintains its FBM KLCI, FBM Hijrah, and FBM70 targets for 2024 at 1,750 points or PER25 of 14.8x, 14,100 points or PER25 of 20.2x, and 18,900 points or PER25 of 16.0x, respectively.
Going into next year, MIDF expects Malaysia’s economy to remain healthy with a preliminary GDP growth forecast at 4.7% in 2025. Market consensus is forecasting the FBM KLCI to register a healthy +8.6%yoy earnings growth in 2025. Furthermore, the FBM Hijrah and FBM70 are projected to register quite robust +13.2%yoy and +10.0%yoy earnings growth next year, respectively.
