Bursa Malaysia appears to have a good outlook, as investor confidence is expected to return as the country’s economy gradually reopens.
Analysts largely agreed that, while the local bourse remains a laggard for the time being, it is worth reconsidering given the stock market’s expected improvement in the final three months of 2021.
This confidence is also bolstered by prospects for continued growth in corporate earnings in the coming quarters.
Additionally, Kenny Yee, head of research at Rakuten Trade, believes that continuous inflows of foreign assets into the local equity market would aid in its recovery.
“Foreign capital is flowing into Asian markets in response to Wall Street’s volatility and the expectation of a higher interest rate in the United States.
“Malaysia might be a viable market, and industries such as banking and utilities would profit from the entrance of foreign funds, as investors normally gravitate toward blue chips,” he said yesterday.
Foreign investors have been net buyers for the last seven weeks, despite the fact that net fund inflows have been declining for four consecutive weeks.
Yee also stated that the country’s recovery would be aided if the government implemented the 12th Malaysia Plan “diligently” (12MP).
“Achievement of commitments, as well as a strong Budget 2022, would bolster market sentiment,” he added, adding that the construction sector will profit from the 12MP’s increased development spending.
Yee is confident that the FBM KLCI will reach 1,650 points by the end of 2021, up from 1,537.80 points yesterday.
Meanwhile, Kenanga Research anticipates the benchmark FBM KLCI will close the year at 1,611 points.
The index – which is comprised of the 30 largest stocks by market capitalisation – has lost approximately 5.5 percent year to date.
Kenanga Research’s head of research Koh Huat Soon said in a report that the reopening concept was gaining traction again as Covid-19 infections in Malaysia continue to drop and vaccination rates continue to rise.
“Following multiple false starts over the last 18 months, the declining infection rate has prompted us to rethink the economic reopening issue.
“With the quick deployment of the vaccination campaign since April, Malaysia may finally achieve a 90 percent fully vaccinated adult population by the end of October,” he said.
Building materials, gambling, media, non-bank financial institutions, oil and gas, real estate investment trusts (REITs), rubber gloves, technology, and utilities are among areas where the brokerage is “overweight.”
While Kenanga Research cut its earnings per share (EPS) predictions for 2021 and 2022, Koh stated that the earnings growth momentum remained positive.
It forecasted earnings per share growth of 41% this year and 2% in 2022.
For 2021, earnings per share growth is predicted to be led by direct exporters such as plantations, glove manufacturers, petrochemicals, and aluminium smelters.
“Exporters’ exceptional performance was fueled by a Covid-led spike in demand for gloves in 2020 and 2021 (though momentum is likely to wane in 2022), which corresponded with high recoveries in commodity prices for palm oil, aluminium, and petrochemicals,” he explained.
Koh anticipates that the local stock market will be resilient to the influence of the US Federal Reserve’s bond tapering and rising bond yields. This is due to the fact that corporate earnings have continued to expand, the local market is attractively valued, and the political situation is largely stable.
“With the anticipated reopening, tourism expenditure will rebound as interstate and international travel resumes. Pent-up spending is one factor that should result in an acceleration of physical e-payment transactions.
“As for REITs with exposure to malls, our confidence is predicated on a sector comeback following the economy’s opening, which would result in earnings normalising in 2022, albeit unlikely to reach pre-pandemic levels,” he added.
The rapid recovery is due to very consistent occupancy rates at the majority of premier malls, since rental rebates aided suffering tenants during the Covid-19 crisis, and REIT management prioritised occupancy over rental.
“As a result, tenants will be able to resume normal rent payments by 2022. It is not too late to gain exposure, as the sector’s total return has been flat year to date, and the sector’s total return for 2020 has been a disappointing – 10%, according to Koh.
MIDF Research, in comparison to Rakuten Trade and Kenanga Research, appears to be more optimistic about the local equities market, forecasting the FBM KLCI to reach 1,700 points or higher by end-2021.
It anticipates that the virtuous processes in the real economy will be replicated in the financial economy, with the final outcome being macroeconomic recovery and a higher equities market price.
“Based on prior experience, we may potentially see so-called pent-up demand in the fourth quarter of this year in this situation.
“In this sense, there is a reasonable likelihood that actual macroeconomic production will exceed the current lowered market expectation,” the report stated.
MIDF Research said it is closely following three events that could have an impact on market mood in the fourth quarter.
These include Budget 2021, the stability of Malaysian politics, and the possibility of a US taper tantrum.
It stated that the possibility of the US Federal Reserve beginning the process of reducing or tapering asset purchases as early as later this year might result in increased volatility in risk assets, including the stock market.
Additionally, and more locally, China’s recent macroeconomic, corporate, and financial market events are quite disturbing.
“While we do not anticipate any significant systemic shocks in the short term, they cannot be ignored and will demand increased monitoring,” according to MIDF Research.
For 2022, MIDF Research has set a preliminary target of 1,765 points or in the middle of the range by the end of the year.
It anticipates that market valuations will be supported by ongoing macroeconomic improvement next year, but may be restrained by potential external pressures.
Published by Zack Baharum