Investors may hit pause on FBM KLCI rally until 4Q, says HLIB
KUALA LUMPUR: The rally on the FBM KLCI may be put on hold for the time-being as investors await more concrete evidence that the US Federal Reserve will begin lowering the lending rate towards the year-end, says Hong Leong Investment Bank (HLIB) Research.

"Given its strong outperformance year-to-date, we expect the FBM KLCI to take a temporary breather and resume its upward trajectory closer to 4Q24 – when it becomes more apparent that a Fed pivot is happening," it said in its market strategy report.

The research firm, which is betting the Fed will make its first rate cut closer to the year-end, said Malaysia's benchmark stock index has done pretty well so far this year with 5M24 returns of 9.8%, which beats the Asean-5 markets' 3.3% decline.

In the event of a Fed cut, HLIB said the FBM KLCI stands to benefit given its negative-51% inverse correlation to the Federal Fund Rate-overnight policy rate spread as well as the boost to the ringgit's recovery.

HLIB has an end-2024 US$-RM target of 4.60.

On the domestic front, the research firm is positive on the continued tourism recovery, energy transition under the National Energy Transition Roadmap (NETR) and Johor's developmental reinvigoration.

It is also bullish on the EPF's Account 3 initiative and the pay hike in the civil service, which are disposable income boosters that could have a positive impact on discretionary spending plays.

For 2024/25, HLIB forecasts FBM KLCI earnings growth of 7.1%/4.7%.

The research firm has an FBM KLCI target of 1,700 as it raised its price-earnings target to 15.7x from 15.1x 2024 earnings per share.

"After three prior years of underperformance, we believe the traditionally laggard KLCI still has legs to go back of positive domestic fundamentals – growth recovery with 1Q24 GDP surprising on the upside, record approved investments in 202 3 and subsidy reforms in motion – and externally, from the Fed’s eventual pivot," it said.

Its top picks are Public Bank, YTL Power, Sunway, Gamuda, Dialog, Sime Darby Property , Bumi Armada , OSK, ITMAX, Aeon, SMRT and Focus Point.

In the recently concluded 1Q24 corporate results period, HLIB said 50% of stocks under its coverage came within its expectations.

Compared against the preceding quarter, there was an increase in results disappointments to 28% from 25% while companies that suprised on the upside declined from 25% to 22%.

However, aggregate core earnings in 1Q24 for companies under HLIB's coverage rose 14% quarter-on-quarter and 20.9% year-on-year, with growth driven primarily by banks, gaming and utilities.

By sector, the most results shortfalls were seen in construction, plantations, technology and telcos, while sectors that surprised on the upside were building materials, gaming and property.
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KUALA LUMPUR: The rally on the FBM KLCI may be put on hold for the time-being as investors await more concrete evidence that the US Federal Reserve will begin lowering the lending rate towards the year-end, says Hong Leong Investment Bank (HLIB) Research.