Analysts expect investors to adopt more cautious stance, focus on earnings and outlook visibility By Choy Nyen Yiau / theedgemalaysia.com

KUALA LUMPUR (Jan 2): Investors are expected to take a more cautious approach in the local stock market, focusing on earnings and clear outlooks amidst anticipated market volatility in 2025.

Analysts are, however, optimistic that the Malaysian stock market is in a stronger position, supported by solid fundamentals and a strong performance in 2024, which saw the benchmark index, FBM KLCI, rise to a high of 1,678 points before settling around the 1,600 range.

They believe the market can navigate the uncertainty surrounding US President-elect Donald Trump's upcoming inauguration and higher US rate expectations with caution.

AmInvestment Bank, in a strategy note on Thursday, highlighted that local market liquidity is expected to remain healthy, driven by privatisation activities and increasing cash levels.

In the medium term, the mandatory EPF contribution for non-citizen employees and the prime minister’s call for government-linked investment companies (GLICs) to focus on domestic investments may further boost liquidity.

The research house favours underperforming sectors such as technology and plantations, driven by supply chain shifts and stronger crude palm oil prices, while expecting ongoing interest in data centres to support the positive outlook for construction and property.

AmInvestment Bank’s top picks include CIMB Group Holdings Bhd (KL:CIMB), Gamuda Bhd (KL:GAMUDA), Kuala Lumpur Kepong Bhd (KL:KLK), Sime Darby Property Bhd (KL:SIMEPROP) and Vitrox Corp Bhd (KL:VITROX).

Kenanga Research, in a separate note, said investors could adopt a wait-and-see approach in the first quarter, with focus on earnings visibility and outlooks. It expects the consumer sector to benefit from the minimum wage hike to RM1,700, effective next month, and tourism growth. Meanwhile, artificial intelligence and data centres should see increased demand from global big-tech investments.

The research house also placed emphasis on stocks with good dividend yields at reasonable valuations, particularly in the banking sector.

It said sectors such as petrochemicals and metals may be more volatile but could benefit from demand growth, including China’s stimulus. The plantations and glove sectors, meanwhile, are expected to feature strong quarterly earnings.

It added Petronas Chemicals Group Bhd (KL:PCHEM) and MR DIY Group (M) Bhd (KL:MRDIY) to its top picks.

Maybank Investment Bank (Maybank IB), which has set a 2025 KLCI target of 1,740, sees the banking sector acting as a key driver, with a positive outlook for the consumer and healthcare sectors.

The only sector rated "underweight" is petrochemicals, as Maybank IB expects weak demand and new regional capacities to keep polymer average selling prices (ASPs) subdued in 2025.

While the sector has likely bottomed out, it is expected to experience an L-shaped recovery due to additional capacity coming online in 2026, it noted.