KUALA LUMPUR: FBM KLCI is likely to close at 1,720 points at the end of 2024 on expectation that business and investor sentiment will remain on a positive footing, said RHB Investment Bank Bhd (RHB Research).
RHB Research analyst Alexander Chia said his optimism is supported by upbeat news flow, a reasonably solid global macroeconomic backdrop, swelling liquidity conditions and greater confidence that corporate earnings are on track to continue improving.
While near-term market risks will stay elevated, he said the base case expectation for 2025 remains constructive for equities hence the outlook remain upbeat in the next 12 months.
The FBM KLCI was trading at 1,642.74 points earlier.
He said that the positive outlook is supported by the US Federal Reserve's (US Fed) dovish pivot and recent economic data that should support a soft landing scenario for the global economy.
"We anticipate the US federal funds rate (FFR) to be reduced by 25 base points (bps) at the Federal Open Market Committee (FOMC) meetings in November and December, versus our initial view that there would be only one more 25 bps cut in December."
"For 2025, we forecast the FFR to be further cut by a cumulative 100bps, or a 25bps reduction per quarter," he said in a research note.
He added that news flow will retain a positive bias with the strong ringgit offering upside to corporate earnings, as stable politics support further progress on the reform agenda.
"Our investment strategy is centred on navigating 4Q volatility, protecting realised gains, and positioning for 2025," he said.
Chia also suggested that the global recessionary concerns are exaggerated, with a soft landing base case still the core expectation for investors.
He said that the view is supported by the aggressive monetary policy pivot and recent better-than-expected US economic data prints.
"The US Fed's emphasis on employment implies a continued easing federal funds rate (FFR) bias and a stronger ringgit in 2025, on the back of narrowing interest rate differentials," he said.
According to him, the expectation increases the propensity for investors to relook at emerging market opportunities.
He added that troubling events in the Middle East and escalation of the conflict there bring renewed inflation risks, and is a major caveat to this base case outlook.
On local front, Chia said the steady pace of foreign and domestic direct investments will rebuild productive capacity to help sustain growth, supported by an acceleration in trade and manufacturing activities and resilient domestic demand from increased consumer spending.
"We expect that the stable domestic environment will allow the unity government to see out its five-year term in full, with ample political capital to make further meaningful progress on subsidies and initiatives to broaden the tax base in order to improve public finances," he said.