Coming off a blockbuster year, we take a more balanced approach for Malaysia equities in 2025. We believe market liquidity will still be healthy, as potential cash received from a spike in privatisation activities and rising cash levels (as a % of AUM), will eventually have to be redeployed. However, due to the high base achieved in 2024, the key challenge for the year ahead is deciding what to buy. Our focus is on sectors that have been relatively unloved and those with strong structural thematics. Stock picking will also play a key role, as pockets of opportunities do exist, within sectors we are Neutral on. Our top picks are CIMB, Gamuda, KL Kepong, Sime Darby Property and Vitrox. Mimicking our views, we are excited to introduce AmResearch's model portfolio, a tool designed to instil accountability, by empowering clients to track our recommendations.

• Market liquidity to remain healthy. Drivers that could bolster market liquidity for domestic equities are: 1) A spike in privatisation activities (see here) and 2) Rising cash levels to 8% of AUM as at October 2024 (based on our fund manager radar). In the medium term, another potential upside is the mandatory EPF contribution for non-citizen employees (see here), which we estimate could inject additional annual inflows of up to RM1.7bil in the domestic equity market. Further helping the cause are calls by PM Anwar for GLICs (government linked investment companies) to reduce overseas investments and focus more on the domestic market (see here). The domestic equities market grew at a 2018-2023 CAGR of 1% YoY, significantly lagging the fund management industry's AUM growth of 6% YoY. This was primarily underpinned by increased investments overseas, as the domestic share of the equities market fell by 17pp to 57%, between 2018 and 2023.
• Where to allocate money to? Implying a high base, the broader market delivered its best annual return in 14 years in 2024. We like unloved sectors (determined as a % of AUM) such as Technology and Plantations, due to tariff driven supply chain realignment activities and expectations of stronger CPO prices caused by supply tightness. We believe structural interest in data centres will persist, underlying our positive calls for Construction and Property. Sectors that we are Neutral on shouldn't be entirely ignored, as pockets of opportunities do exist from selected mini themes. Our top picks (sorted by market cap) are CIMB, Gamuda, KL Kepong, Sime Darby Property and Vitrox. Liquidity will also likely make its way into new listing, with 50 IPOs in the pipeline for the year ahead (see here). There is a strong pipeline of IPOs in the healthcare and telecoms sector, while there is also increased applications for dual listings.
• Introducing AmResearch's model portfolio. This is to align our recommendations with measurable outcomes and to provide a benchmark for clients to evaluate our calls. Using 2nd January 2025 as a starting point, our portfolio has a value of RM300mil, comprising of 31 stocks (represented by those within our coverage universe). Consistent with our theme for unloved sectors, 41% of our model portfolio is weighted towards value stocks. Technology is our largest sector Overweight, representing 14% of our portfolio. Valuation metrics for the portfolio include a PE of 17.9x, PB of 1.5x, dividend yield of 3.2% and ROE of 9.1%.

Source: AmInvest Research - 2 Jan 2025