KUALA LUMPUR: The global stock markets including the Malaysian bourse are expected to continue to do well during the remainder of the year, according to Kenanga Research.
But there are some risk factors that could derail the rally in the local market, although Kenanga Research takes comfort that they are rather manageable.
The concerns are policy rates to stay higher for longer in advanced economies led by the US, potential threats to political stability locally, the health of China's economy, and freight cost inflation and supply-chain disruptions arising from the Red Sea conflict.
"We continue to believe the key driver for global markets in calendar year 2024 (CY24) is policy easing by central banks in advanced economies, particularly the Federal Reserve (Fed)," said the firm in a note today.
This will make emerging markets (EM) assets attractive again given a lower risk-free return of developed markets assets.
The policy easing will also set in motion a synchronised recovery in advanced economies, fueling an export boom in the largely still export-dependent EM economies, Kenanga Research added.
"During the Federal Open Market Committee meeting this month, the US Federal Reserve kept the target range of its funds rate at 5.25 per cent-5.50 per cent and end-CY24 Fed Funds rate forecast of 4.6 per cent (unchanged from three months ago), effectively signalling three rate cuts in CY24."
Kenanga Research has reaffirmed its FBM KLCI target of 1,605 points by the end of CY24, while anticipating a moderate earnings growth of 6.2 per cent in the following year.
Policy rates might stay high for a long time in advanced economies, especially in the US, could affect investor confidence and impact Malaysia's market, it said.
"Local political stability is another factor. Any instability could make investors nervous and affect market performance."
The health of China's economy is also important as problems there could have a ripple effect on global markets, including Malaysia's.
Disruptions to global trade due to issues like higher freight costs and supply-chain problems from conflicts in the Red Sea could also pose challenges, it added.
"But despite these risks, it is believed that they can be managed. Investors are keeping an eye on these issues while remaining cautiously optimistic about market performance for the rest of CY24," said Kenanga Research.
The firm pick banks for a proxy to the return of foreign investors given the heavy weighting banking stocks command in various indices.
Kenanga Research is upbeat on contractors given the imminent roll-out of MRT3 (RM45 billion), Bayan Lepas LRT (RM9.5 billion) and six flood mitigation projects reportedly to be worth RM13 billion.
In the oil and gas sector, it likes offshore supply vessel owners due to supply crunch on a surge in demand leading to strong charter rates, FPSO players given the current upcycle in the FPSO sector and the storage segment that has shown signs of recovery.
In the renewable energy space, Kenanga Research likes PV System EPCC contractors given the strong job flow underpinned by corporate green power programme, large-scale solar 5 and an additional quota of 400 megawatts under the net energy metering scheme.
For the technolgy sector, the firm believes it takes time for the recovery in global semiconductor sales to be fully transmitted to local players that are mostly at the back end of the supply chain.
For now, Kenanga Research nibbles on large-cap and liquid names such as Inari Amertron Bhd.