Market Outlook
Local
1H 2025 Market Strategy - Opportunity Lies in the Midst of Uncertainty
Thu, 02-Jan-2025 03:51 pm
by Research Team • Apex Research

  • Key focus towards overseas developments such as further progress over US interest rate cuts, potential trade conflict between US-China and geopolitical tensions across the globe will continue to dictate market directions, moving into 2025, Back home, investors will be bracing over details surrounding the implementation of blanket subsidies removal for RON95.

 

  • With interest rate cut took center stage in the US towards late 2024, we opine the further rate cuts remains on the horizon, albeit potentially at a slower pace. Given that inflation remains sticky at this current juncture (Nov 2024 reading recorded 2.7% yoy rise) and is still a distant from the US Fed long-term target of 2.0%, we expect two rate cuts from the US Federal Reserve throughout 2025. Still, we do not discount for additional rate cuts, should there be signs of economic slowdown arising potentially from the escalation of trade tension between the world two largest economic powerhouse. 

 

  • We are adopting a more selective stance in view of potential market volatility stemming from the trade tension between US-China. Upsides potentials remain on the cards, premised to the stability in domestic political landscape, prospects of corporate earnings growth and stability in economic growth along with the improved market sentiment towards late-2024.

 

  • Valuations remains fairly attractive with the FBM KLCI trading at P/E multiples for 2025F/2026F at 14.2x/13.1x vis-à-vis its five-year average of 16.7x, implying potential upsides in our view. This will be further reinforced by corporate earnings growth forecast in 2025F with EPS set to expand +10.4% yoy, mainly anchored by banking, utilities and plantations heavyweights.

 

  • After the key index performed a late surge to closed at 1,642.33 at end-2024; nearing our in-house target of 1,650, we made a slight upward revision in FBM KLCI end-2025F target at 1,760 (from 1,750) based on assigned 15.3x P/E multiple, following some house-keeping revolving around the inclusion of 99 Speed Mart Retail Holdings Bhd as well as Gamuda Bhd, replacing two Genting-related companies in the key index component list. We also our introduced 2026F year-end target at 1,810, based on assigned 14.5x PE multiple. The discount of P/E multiple assigned as compared to 2025 is due to potentially slower corporate earnings growth potential in 2026 at +8.6% yoy.

 

  • Sector wise, we are upbeat onto utilities sector that is primed for multi-year growth, on surging electricity demand from data centres, increasing adoption of electric vehicles, and the energy transition. This in turn set a stage for the renewable energy (RE) sector to ride onto a clear and firm government-led policies under NETR in bid to achieve net-zero emissions by 2050.

 

  • Export oriented technology sector will capitalise onto global trade diversion, recovery in global semiconductor sales that is entering into a new upcycle as well as improving global consumer electronics sales along with local government-led initiatives such as the National Semiconductor Strategy (NSS) to attract FDI.

 

  • We also remain in favour of datacentre (DC) supply chain players that are leveraging onto the AI and cloud computing boom. Malaysia will remain as a preferred investment destination with abundant and relatively inexpensive land, coupled with adequate infrastructures.

 

  • Our top picks for 1H 2025 are HLBANK, SCGBHD, UUE, LAGENDA, SLVEST, PEKAT, INARI, FRONTKN and MALAKOF.

Sentiment: Positive
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Market Mover
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USD 4.461227 4.492117
EUR 4.632123 4.637427
CNY 0.613888 0.614502
HKD 0.573047 0.577030
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