KUALA LUMPUR (Dec 21): Phillip Capital sees better opportunities in the domestic equity market heading into 2024, given the ringgit strength, stronger gross domestic product (GDP) growth, stable political landscape, easing global inflation, as well as expectation of US interest rate cuts. 

In a strategy note on Thursday, the research house said it prefers staying invested in the small-mid-cap space, given the stronger corporate earnings growth and as interest returns to the growth-oriented names on US interest rate-cut expectations.

Meanwhile, the tail-end of the current interest rate upcycle, moderation of global inflation and its belief in a soft US economy’s soft-landing are among the main reasons to turn positive on the domestic equity market, it said.

“The expectation of a federal funds rate (FFR) cut in 2H2024 will see interest rate differentials against [the] OPR (overnight policy rate) narrowing, driving a stronger ringgit and reinforcing our view of a broad market rebound. 

“We expect the US dollar-to-ringgit rate to be around RM4.40 to RM4.50 at the end of 2024, strengthening from the current RM4.65 to RM4.70,” it added. 

Moving into 2024, it sees opportunities in construction, electronic manufacturing services (EMS), healthcare, oil and gas (O&G), and technology sectors in Malaysia, and reiterated its “overweight” call on them. 

The accelerated infrastructure spending rollout to the notable projects such as MRT3, Penang LRT and five newly revived LRT stations could spur more news flow for the construction sector. 

It stated that the surge in data centres’ investments also presents significant opportunities for contractors with design and build capabilities.

Meanwhile, Phillip Capital said Malaysia is expected to greatly benefit from the ongoing US-China geopolitical tensions, as the trade diversion leading to the relocation of supply chains out of China is expected to pick up momentum in the coming years, driving a positive outlook for the EMS sector in Malaysia. 

The healthcare sector is also on the upswing, thanks to increasing demand for healthcare products and services in the post-pandemic era, as well as the larger allocation of the government budget to this sector in 2024. 

Phillip Capital is also positive on the O&G sector, given sustainable earnings growth to be driven by higher work activities, positive rate revisions, and Petronas’ higher capital expenditure spending.

Also, “Following the two consecutive years of sector underperformance, we believe the technology sector may turn around in 2024, on the back of a resumption in growth trajectory, as inventory imbalance dissipates and restocking activities resume, ” it said.

The top-10 buys include Gamuda Bhd, Kerjaya Prospek Group Bhd, CAPE EMS Bhd, NationGate Holdings Bhd, UMediC Group Bhd, Optimax Holdings Bhd, Dayang Enterprise Holdings Bhd, Pantech Holdings Bhd, UWC Bhd and Pentamaster Corp Bhd, it added.