The first half of the year performance is robust, and the bull market in the Malaysian stock market is sustainable.

With the stable overall performance of the Malaysian stock market in the first half of the year, many investment banks maintain an optimistic outlook for the second half of the year. Some believe that with the support of positive factors such as the rate cuts in the United States, the Malaysian stock market is expected to maintain an upward trend, reaching above 1700 points.

According to analysts at Fung Long Investment Bank, the FBM KLCI index, which has been lagging behind the broader market, has performed well in the first eight months of this year, rising by 15.4%, surpassing the 8.3% average increase of the stock markets in the five ASEAN countries.

In view of this, the analyst predicts that the upward trend of the Malaysian stock market will continue, benefiting from the upcoming rate cut cycle by the Federal Reserve.

"We predict that the Federal Reserve will cut interest rates three times in the remaining meetings this year, with a 25 basis points cut each time."

Based on two reasons, analysts believe that the rate cuts in the United States will help the composite index to continue to strengthen.

"Firstly, there is a 50% inverse correlation between the performance of the composite index and the difference between the Federal Funds Rate and the Overnight Policy Rate (OPR). Secondly, the rate cuts in the United States will boost the recovery of the Malaysian Ringgit, which is also beneficial for the Malaysian stock market."

The Malaysian Ringgit could rise to 4.30.

Fonglong Investment Bank has set a year-end target of 4.30 Malaysian Ringgit against 1 US dollar exchange rates for 2024.

The analyst also estimates that the current level of foreign holdings in Malaysian stocks is still relatively "reducing", which means that there is a greater possibility of a rebound in foreign shareholding.

The fundamental situation in Malaysia is improving, supported by the strengthening of Gross Domestic Product (GDP) growth, strong investment activities, and ongoing subsidy policy reforms, which are favorable for attracting foreign inflows into Malaysian stocks.

Driven by positive prospects, the analyst has decided to raise the year-end target of the SSE conglomerates index, from the previous 1700 points to 1720 points. The price-to-earnings ratio for 2024 is estimated at 15.6 times, which is 0.5 standard deviations lower than the average valuation of the past 5 years.

In a major bullish market cycle

Furthermore, although the Security analyst maintains this year's year-end target for the SSE conglomerates index at 1690 points, he stated that Malaysian stocks are currently in the middle of a major bullish market cycle, with the potential to create historical highs within 3 years, even breaking the 2000-point level.

“Before the current 5-year government term ends on November 19, 2027, the SSE conglomerates index may achieve a historically significant breakthrough, surpassing 2000 points.”

Public Investment Bank analysts believe that despite recent increases, the valuations of Malaysian stocks are still relatively cheap, and the market still has some room for upward movement. Therefore, the year-end target for the SSE conglomerates index has been raised to 1750 points.

Continues to be bullish on sectors supported by domestic demand.

Looking at the sector ratings given by various investment banks, sectors driven by stable domestic demand, including banks, consumer goods, construction, and gambling, are generally bullish.

This time, Maybank Investment Bank, which raised the target for the composite index to 1720 points, continues to give "shareholding" ratings to banks, construction, consumer goods, gambling, oil & gas, renewable energy, technology (electronic manufacturing services (EMS) and software), and aviation sectors.

The investment bank also did not change its "shareholding" rating for the media and petrochemical industries.

DaZhen Securities has a similar view, maintaining "shareholding" ratings for banks, construction, consumer goods, gambling, oil & gas, industry, electrical utilities, and technology shares.

Technology stocks had mixed performance in the first half of the year, but we have found signs of overall improvement in the previous quarter's performance. We predict that technology stocks will rebound strongly in the coming quarters, supported by improved orders in all sectors except automobiles.

Most consumer stocks' latest performance meets expectations, and the demand for essential goods remains high in a high inflation environment. We estimate that consumer spending will improve in the future, benefiting from the improving labor market conditions and increased disposable income for consumers due to salary increases for civil servants and withdrawals from housing provident funds. However, essential goods will be the main beneficiaries, rather than discretionary consumer goods.

Gloves (shareholding)
The latest performance of glove stocks is mixed, but the future prospects are positive. Manufacturers are starting to increase production, and raw material prices are slightly rebounding. We are optimistic about the recovery process of Malaysian glove stocks, as evidenced by improved sales volume and average selling price in the latest quarter.

Planting (neutral)
Planting stocks performed poorly in the second quarter, but we predict a strong rebound in profitability in the second half of the year, benefiting from higher oil palm fruit bunch (FFB) production and lower production costs.

Real estate investment trusts (REITs) (neutral)
REITs' performance in the second quarter did not have any surprises or unexpected events. Overall, we believe that the valuation of REITs is reasonably fair, so we maintain our rating.

Media (neutral)
Media operators continued to disappoint in the second quarter. Despite 2024 being a major year for sports events, we believe that advertising expenses will not increase significantly this year due to the impact of weak consumer sentiment.

Auto (neutral)
Auto stocks delivered mixed quarterly performance. Although total industry volume (TIV) in Malaysia increased by 7.2% year-on-year in the first 7 months, demand for new cars in the second half of the year is expected to soften, influenced by rationalization of fuel subsidies, poor consumer sentiment, and lack of incentives in the automotive industry.

Furniture (neutral)
The performance of furniture stocks in the second quarter was mixed. We predict that the furniture industry will see increased sales driven by year-end holiday factors, but high interest rates and persistent inflationary pressures will continue to challenge furniture stocks.

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[Reporter] Lin Dishing

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