KUALA LUMPUR (June 28): Kenanga Research has maintained its end-calendar year 2024 (CY2024) FBM KLCI target of 1,700 points, based on 16 times CY2024 earnings (+16.2%).

In a market strategy note on Friday, the research house projected KLCI’s earnings growth to moderate to 8.1% in CY2025.

“On one hand, we acknowledge that the key catalyst for global markets, which is policy easing by central banks in advanced economies, has somewhat been watered down.

“On the other hand, we also acknowledge that there could be overriding revolutionary investment themes, particularly generative artificial intelligence (AI), and/or investors may be willing to 'roll forward' their rate cut expectations, say, for another six months, instead of cutting their positions as they expect interest rates to stay higher for longer,” it said.

Kenanga said that locally, it takes comfort that despite a buoyant stock market, the government had remained steadfast in pursuing fiscal policy reforms.

“It has taken a big step forward with the removal of the diesel subsidy, [replacing it with targeted subsidies] effective from June 10.

“We also see local investors turning more decisive, and taking the lead in buying, versus them taking the lead from foreign investors in the past.

“They soak up the occasional foreign selling and as and when foreign investors return, the market’s vibrancy could only be amplified,” it said.

Kenanga said it senses exuberance in investment themes surrounding AI, data centres and Johor's economic transformation.

“We advocate investors who are taking an immediate to short-term view on the related utilities and property names to lock in profits.

“While we believe these investment themes may still have legs over the long term, investors will have to be prepared for much lower returns, as the easy money has already been made upfront.

“We see value in laggard sectors, particularly telecommunications on improving clarity of the 5G dual network policy and growing demand for fibre optics backhaul, network hubs, submarine cables and landings from new data centres (which we believe have not been fully priced in by the market), and financial services of which stock prices are poised for a better performance when foreign investors flock back to the local stock market,” it said.

Kenanga said the top conventional picks are CIMB Group Holdings Bhd (KL:CIMB), IHH Healthcare Bhd (KL:IHH), Celcom-Digi Bhd (KL:CDB), Telekom Malaysia Bhd (KL:TM), RHB Bank Bhd (KL:RHB), Gamuda Bhd (KL:GAMUDA), Inari Amertron Bhd (KL:INARI), Dialog Group Bhd (KL:DIALOG), Alliance Bank Malaysia Bhd (KL:ABMB), and SKP Resources Bhd (KL:SKPRES).

“Our top shariah picks are IHH, CDB, Maxis Bhd (KL:MAXIS), TM, Gamuda, Inari, Dialog, Fraser & Neave Holdings Bhd (KL:F&N), MBM Resources Bhd (KL:MBMR), and SKP Resources.

“Our top small-cap picks are Oppstar Bhd (KL:OPPSTAR), Karex Bhd (KL:KAREX), Thong Guan Industries Bhd (KL:TGUAN), MKH Bhd (KL:MKH), LGMS Bhd (KL:LGMS), and Eng Tex Group Bhd (KL:ENGTEX),” the research house said.