KUALA LUMPUR: FTSE Bursa Malaysia (FBM) KLCI is likely to test around 1,700 levels this year underpinned by healthy corporate earnings growth.
Analysts, however, expect investors to still be vigilant amid the surprises that could come under Donald Trump's second presidency.
Bank Muamalat Malaysia Bhd chief economist Dr. Mohd Afzanizam Abdul Rashid is optimistic about the performance of the benchmark index on grounds of economic growth of 5.0 percent, which will translate to healthy earnings growth.
He said that the Bank Negara Malaysia (BNM) is also likely to hold the overnight policy rate at 3.0 per cent, further supporting corporate earnings.
"The construction of data centres (DC) would also mean that the construction sector is likely to be busy as the contractors have won various projects from the players. Not to mention, sizable development expenditure (DE) allocation via Budget 2025 would result in more infrastructure projects to be rolled out.
"As for 2025, we are targeting FBM KLCI to end the year at 1,700 points given all the factors mentioned above," he told Business Times.
In a note, Rakuten Trade Sdn Bhd said the FBM KLCI is anticipated to hit 1,730 this year, based on a 16x price-to-earnings ratio premised on earnings growth.
It said that growth in corporate Malaysia earnings is expected to be decent in 2024 at around 17 per cent.
"As for 2025, earnings may experience a degree of sustainable growth at almost 10 per cent. As for 2026, we expect a commendable 7.1 per cent growth underpinned by improvements across the board," said Rakuten Trade research head Kenny Yee and vice president Thong Pak Leng in a note.
As for the ringgit, the firm expects the local currency to trend between the 4.30 or 4.40 range against the greenback as it believes the ringgit is currently undergoing some normalisation.
Commenting on policies under Trump, Rakuten expects "nasty surprises" from the US as highlighted by its numerous headwinds.
"What is supporting Wall Street now is the ample liquidity. As such, we advise investors to be vigilant on the heightened volatility, possibly by the second half of 2025, especially when sentiment begins to turn against the US's perpetual high rates," it added.
Meanwhile, Mohd Afzanizam said the recent announcement by the US government on further restriction of artificial intelligence microchip sales will undergo a 120-day grace period for discussion before the new administration would actually adopt it.
"Despite that, we cannot totally rule out that the incoming administration would put more sense on the tariff measures as a means to bring two parties to the negotiation table and to resolve any differences that result in a win-win solution.
"We have seen that the Phase One trade deal between the US and China was officially signed on Jan 15, 2020, which would see both countries agree on the international trade terms and conditions. If the same thing can happen, it would lead to a more palatable trade deal that will promote better conditions for the international trade environment," he added.