KUALA LUMPUR (Sept 3): A strengthening ringgit and inexpensive forward valuations could lend further upside to Malaysian equities, despite recent run-up in share prices, analysts said following a positive 2Q2024 earnings season.

Analysts are expecting the benchmark KLCI index to close above 1,700 points this year, amid upward earnings revision, benchmarked against its long-term mean of 16 times forward price-to-earnings ratio.

The 30-stocks KLCI index opened at 1,677.82 on Sept 3.

Earnings revisions of Bursa Malaysia-listed companies post-2Q2024 have been net positive, said PublicInvest Research, which has raised its year-end KLCI target for the second time in three months.

The research house now sees the KLCI settling at 1,750 points, based on 2024 earnings forecast, from 1,680 previously revised in June.

In its research note on Tuesday, PublicInvest said some 80% of companies under coverage saw 2Q2024 results meeting or exceeding forecasts.

“On the balance, the 2024 earnings basket is now expected to expand by +12.7% (@1Q2024: +11.6%), while year 2025’s earnings will grow by +8.8% (@ 1Q2024: +8.2%),” it said.

While the impact of a stronger ringgit has already been reflected in stock prices, there could be further movements as the US Federal Reserve “has yet to guide on the degree of its monetary loosening,” PublicInvest said.

If the loosening exceeds expectations, this may further drive inflow of funds, “thereby giving the ringgit another upward lift,” it added.

“We still suggest buying on weakness, in anticipation of near- to medium-term strength on account of steadier economic prospects and value proposition of the local bourse.”

Separately, RHB Research said it expects the market “to be well supported by the pooling of domestic liquidity”.

A bottoming out of the ringgit would “set the stage for the return of foreign portfolio funds,” said the research house, which maintained its KLCI target of 1,720 points, based on 16 times FY2025 price-to-earnings ratio.

“We observe positive foreign direct investment (FDI) news flow, with markets standing on the cusp of a rate cut cycle that will be positive for emerging market equities, from expected US Dollar Index (DXY) weakness, renewed interest from foreign portfolio funds, and robust domestic liquidity conditions,” it added.

Both PublicInvest and RHB Research are “overweight” on the construction, technology, healthcare, and rubber glove sectors.

RHB Research is also “overweight” on the property, basic materials, oil and gas, and utilities sectors; whereas PubicInvest is also “overweight” on consumer, and gaming sectors.