Sentiment has been noticeably buoyant in the first half of 2024. This is more the result of a lack of “bad news” and/or market-shaking negative developments (i.e. geopolitical flare-ups, more acute supply chain disruptions, etc) however, rather than stark improvements in global economic conditions which have remained steady. Highlight of the first half has to be the artificial intelligence-driven fervour which, amongst others, saw the share price of industry-darling NVIDIA rocket >+170% higher year-to-date to catapult the company above Microsoft Inc. as the most valuable (public-listed) globally, at a point.

For 1H 2024, our view was for investors to “Stay the Course”, expecting that market conditions would be better, underpinned by healthier economic growth domestically (which has been fulfilled), a steadier earnings growth picture (which has been reflected) and traction from the various growth frameworks unveiled last year (relatively positively news flows), amongst others.

While risk premiums have risen with the risk-reward balanced skewed slightly to the downside, we think there is still sufficient reason to remain exposed to the local market, suggesting that investors “Push the Limits”.

Economic Outlook: As we approach mid-2024, our outlook on the global economy remains steady despite various notable developments. Optimism is cautiously emerging, highlighted by modest growth amid ongoing geopolitical uncertainties. Inflation rates are declining more rapidly than expected, while labour markets continue to exhibit robust health with unemployment rates at historic lows. An upswing in private-sector sentiment is evident, although the effects of tighter monetary policies are becoming increasingly pronounced, particularly in the housing and credit markets. While the overall risk outlook is becoming more balanced, substantial uncertainties persist. [pages 2 – 17].

Market outlook. While we are seeing some growing traction from the consideration of an undervalued Ringgit, the full scenario has not been played out as yet. The expected cutting in US interest rates will likely result in further repatriation of portfolio capital back to emerging markets in 2H 2024. Despite having closed the market undervaluation gap, the local bourse still retains some manner of attraction for foreign investors on the lookout for currency-related gains in addition to capital gains, though upward movement in the coming half may be limited and more volatile. [pages 18 – 25]

Two (of four) considerations we had presented for market exposure appear to have weakened. With the market still being a very trading-oriented one, we continue to suggest buying on market weaknesses to ride on the liquidity-driven optimism in 2H 2024. Our year-end 2024 closing remains unchanged at 1,680 points based on ~15x (-1SD to the FBM KLCI’s short-term average) multiple to CY24 earnings, suggesting less pronounced upsides in the market vis-à-vis 1H 2024. [pages 25 – 26]

The negatives now outweigh the positives going into 2H 2024, in our view. While we still suggest exposure in the market, we also advocate heightened levels of vigilance. The “easy money” has already been made. [pages 26 – 27]

Almost all of our suggested picks for 2024 have outperformed respective benchmarks [page 28]

We continue to favour names with multi-year growth stories to capture upsides from relatively steady global and domestic economic conditions. Kawan Food and QES Group are included alongside CIMB Group, Dayang Enterprise, Inari Amertron, Uzma, D&O Green Technologies and Mega First Corporation as picks going into 2H 2024. CCK Consolidated, IJM Corporation and QL Resources are replaced following recommendation changes. [pages 28 – 29]

Source: PublicInvest Research - 26 Jun 2024