PETALING JAYA: The prevailing low valuations and a relatively steady economic outlook are expected to bring continuous foreign funds into Malaysia in the second half of 2022 (2H22) despite the subdued investor sentiment on the local bourse, says Rakuten Trade Sdn Bhd.
Head of research Kenny Yee Shen Pin said the flight of funds back to Asia was imminent in the event of heightened uncertainties on Wall Street.
He said that the prevailing weak ringgit may be an incentive for foreign funds to look at Malaysia. “Therefore, we should see these foreign funds providing the much-required liquidity in the market.
“Thus, anticipate the FBM KLCI possibly touching 1,670 points by year-end premised on a very reasonable 13.5 times calendar year 2022 (CY22) price-to-earnings ratio (PER),” he said during a media briefing yesterday on the “2H22 Market Outlook – Into The Realm of Uncertainties”.
Yee said the quantum of the inflow of foreign funds may not be big, adding that any inflow should benefit the local market as it will provide the much-needed liquidity for the local bourse.
Year-to-date, there has been a net inflow of foreign funds totalling about RM7bil, according to the research house. “This is after a massive net outflow of RM23.8bil in 2020 and RM3.3bil in 2021,” Yee said.
The research house believes that the banking and plantation sectors will surprise on the upside this year in terms of earnings.
“As for CY23, we are expecting earnings growth to rebound to 5.4%,” Yee said, adding that consensus was still relatively cautious on their earning estimates, especially for the plantation sector.
“Previously, consensus was expecting a 1.8% growth for the plantation sector. However, it has been upgraded to around 7% for the sector,” he added.
Elaborating on the banking sector, Yee said better returns from the banks should be seen, especially from the much-anticipated rate hikes by Bank Negara.
Commenting on the tremendous weakening of the ringgit, he said, “I cannot pin-point the reason behind the weak performance of the ringgit, despite the crude palm oil and crude oil prices doing well and the inflow of foreign funds into the market.”
However, Yee does not think the ringgit will weaken to RM5.50 against the US dollar due to the country’s solid economic status.
The research house expects the ringgit to strengthen to RM4.15/RM4.20 against the US dollar by the end of this year.
Recently, former finance minister Tengku Razaleigh Hamzah said the country’s depreciating currency was at risk of a fall to RM5.50 against the US dollar by the end of the year.
On investment strategy, Yee advised investors to “stay defensive” and invest in sectors that are less volatile, namely, banking, utilities and telecommunications.
“However, for those with a bigger risk appetite, we advocate investors look at companies within a robust industry, namely, those within the technology and healthcare space,” he said.
Yee highlighted some of the blue chips including Tenaga Nasional Bhd, Maxis Bhd, Digi.com Bhd, Public Bank Bhd and Dialog Group Bhd as they are trading below their mean.