KUALA LUMPUR (March 5): Malaysia’s stock market is expected to stay sideways “till closer to mid-year” before picking up, said Hong Leong Investment Bank (Hong Leong IB), after most companies reported earnings that came in within expectations.

The market will gain “upward momentum again when it becomes more apparent” that the US Federal Reserve is cutting interest rates, the research house said in a note. A US rate cut would be positive for FBM KLCI given its relationship with the spread between US federal funds rate and Malaysia’s overnight policy rate, it said.

“We continue to like themes such as continued tourism recovery, energy transition and Johor’s developmental reinvigoration,” Hong Leong IB said. The house raised its KLCI target to 1,630 from 1,550 following adjustments to earnings and valuations.

The KLCI has climbed as much as 7.1% before paring gains. The benchmark index was at 1,520 at 12pm.

In the most recently concluded earnings reporting season, the aggregate core earnings for Hong Leong IB’s stock coverage slipped 8.4% quarter-on-quarter and 5.7% year-on-year.

For the full year, total core earnings dipped 3.2% from 2022 mainly due to plantation stocks, Petronas Chemicals Group Bhd, Tenaga Nasional Bhd, Axiata Group Bhd and glove manufacturers.

Nearly half of the stocks reported earnings within house’s expectations, 25% fell short and 25% were better than expected, according to Hong Leong IB. Results shortfalls were more prevalent in media and technology sectors while gaming, energy, property, and telecommunications sprang positive surprises.

The ratio of companies that outperformed consensus expectations against underperformers has improved to 0.85 times in the fourth quarter from 0.66 times in the preceding three months, marking the third quarter-on-quarter increase.

Hong Leong IB is now projecting a 7.1% earnings growth for the 30 companies on the KLCI index this year following the inclusion of YTL Corp Bhd and YTL Power International Bhd. For 2025, the research house is predicting a 4.1% earnings growth for KLCI.