Malaysia's real GDP growth picked up in 1Q 2024, which had prompted Maybank Investment Bank (Maybank IB) to raise the 2024E real GDP growth forecast to +4.7% (from +4.4%) and 2025E to +5.1% (from +5.0%).

Maybank IB said today, over at equities, core earnings of their research universe rose +20.1% YoY in 1Q 2024 which had led to upliftment in our forecasts; Maybank IB now estimates a higher +15.5% core earnings growth for their universe in 2024E (previously +13.1%), while for 2025E, they now estimate +10.7% growth (previously +9.9%).

Malaysia's economic growth will be underpinned by the trifecta of positives:

1) investment upcycle in FDI and DDI reflecting the on-going realisation of the sustained momentum in robust approved investment since 2021;

2) external demand recovery especially in electronics/tech and tourism, contributing to firmer services sector growth, pick up in manufacturing sector growth as well as rebound in exports of goods and services; and

3) resilient consumer spending on the back of the favourable job market conditions as per the low and stable unemployment rate as well as income growth and support measures.

Maybank IB said, positively, the Ringgit has stabilised vs. USD following intervention by Bank Negara and coordinated communications and measures by Bank Negara and Ministry of Finance.

Maybank IB forecasts the Ringgit ending this year vs. USD at 4.60.

Ringgit-positive factors include improving domestic economic growth prospect, as well as the expectation of stable Overnight Policy Rate of 3.00% vs. market and Maybank IB's expectations of 2-3 cuts in the US federal funds rate between Sep 2024 and Dec 2024.

For equities, the positive signs are:

1) progress in economic restructuring and fiscal reforms;

2) record high approved FDI/DDIs; and

3) corporate earnings growth delivery has led to the KLCI's outperformance and re-rating in 2024 YTD.

Maybank IB maintains their YE KLCI target of 1,680, with tailwinds including:

1) US interest rate cuts;

2) details of the JSSEZ which will be catalytic in bringing in further FDIs and infra developments; and

3) the outlook of a firmer Ringgit.

For investment strategy, Maybank IB recommends a portfolio of selective investment-related, and domestic sectors, balanced with yield stocks.

Key wildcards to Malaysia's macro-outlook are the upside risk to domestic inflation and the downside risk of external geopolitics.

Key risks for equities are US elections (in Nov 2024) and a "Trump 2.0" outcome, "higher-for-longer" US interest rate, and Russia-Ukraine & Middle East instability escalating.