PETALING JAYA: The positive outlook for Bursa Malaysia appears to be achievable as investor confidence is expected to return with the gradual reopening of the country’s economy.
Analysts generally opined that while the local bourse remains a laggard for now, it is worth a relook as the stock market performance is set to improve in the final three months of 2021.
This confidence is also backed by expectations that corporate earnings will continue to strengthen in the coming quarters.
Furthermore, the continued inflow of foreign funds into the local equity market would support its recovery, according to Rakuten Trade head of research Kenny Yee.(pic below)
“Foreign funds are heading to the Asian markets following the volatility on Wall Street and the expectation of a higher interest rate in the United States.
“Malaysia could be one of the potential markets and sectors such as banking and utilities would benefit from the foreign fund inflow as the investors would typically go for the blue chips,” he told StarBiz yesterday.
For the past seven weeks, foreign investors have been net buyers although the net fund inflow has been shrinking for four consecutive weeks.
Yee also said that the country’s recovery would be boosted if the government “diligently” implements the 12th Malaysia Plan (12MP).
“A good delivery of promises as well as a good Budget 2022 would fuel market sentiment,” he said, adding that the construction sector would benefit from the higher development expenditure allocated under the 12MP.
By end-2021, Yee is positive that the FBM KLCI could touch 1,650 points, up from 1,537.80 points yesterday.
Meanwhile, Kenanga Research expects the benchmark FBM KLCI to end at 1,611 points this year.
Year-to-date, the index – which is composed of the 30 largest stocks by market capitalisation – has dropped by about 5.5%.
In a report, Kenanga Research head of research Koh Huat Soon noted that the reopening theme was catching on again as Covid-19 infections in Malaysia continue to decline while vaccination rates continue to go up.
“After several false starts over the past 18 months, the falling rate of infections that is finally taking root has led us to revisit the economic reopening theme.
“With the vaccination programme rapidly deployed since April, Malaysia may finally reach the 90% fully vaccinated rate among the adult population by the end of October,” he said.
The brokerage is “overweight” on building materials, gaming, media, non-bank financial institutions, oil and gas, real estate investment trusts (REITs), rubber gloves, technology and utilities.
Koh said that while Kenanga Research had lowered its earnings per share (EPS) forecasts for 2021 and 2022, the earnings growth momentum remained positive.
It expected EPS to grow 41% this year and 2% in 2022.
The EPS growth for 2021 is expected to be driven mainly by direct exporters in the form of plantation, glove makers, petrochemicals and aluminium smelters.
“Exporters’ stellar growth stemmed from Covid-led demand surge for gloves in 2020 and 2021 (but waning momentum is expected in 2022), which coincided with sharp recoveries in commodity prices of palm oil, aluminium and petrochemicals,” he said.
Koh expects the local stock market to be resilient against the impact of bond tapering by the US Federal Reserve and rising bond yields. This is attributable to continued corporate earnings growth, attractive valuation of the local market and a relatively stable political environment.
“In light of the expected reopening, tourism spending will recover from the resumption of interstate and international travel. There is an element of pent-up spending that should see an acceleration of physical e-payment transactions.
“As for REITs, with exposures to malls, our optimism is premised on a rebound in the sector soon as the economy opens up, which sees earnings normalising in 2022, albeit unlikely to revert yet to pre-pandemic levels,” he added.
The quick rebound is a result of fairly stable occupancy rates at most prime malls as rental rebates had helped struggling tenants get by during the Covid-19 crisis, as REITs management prioritised occupancy over rental.
“As such, tenants will be able to meet normal rent payments soon as the situation normalises by 2022. It is not too late to get an exposure as the sector’s total return has been flat year-to-date, while 2020’s total return was a disappointing – 10%,” according to Koh.
Compared to Rakuten Trade and Kenanga Research, MIDF Research appears to be more upbeat on the local equity market as it expects the FBM KLCI to hit 1,700 points or higher by end-2021.
It expects the virtuous dynamics in the real economy to be mirrored in the financial economy, with the end results being macro output recovery and higher equity market price respectively.
“Under this scenario, based on earlier experience, we might also witness a so-called pent-up demand in the fourth quarter of this year.
“In this regard, there is a fair chance that the actual macro output may exceed the prevailing lowered market expectation,” it said.
Looking ahead into the fourth quarter, MIDF Research said it is closely monitoring three events that could influence the market sentiment.
These are Budget 2021, the stability of Malaysian politics and the possible taper tantrum effects from the US.
It said the possibility of US Federal Reserve commencing the reduction or tapering of asset purchases as early as later this year may result in heightened volatility of risk assets, including equities market.
“Additionally, nearer to home, the recent macro, corporate and financial market developments in China are rather unsettling.
“While we do not expect any major systemic shocks in the near-term, nonetheless they cannot be overlooked and require keener monitoring,” according to MIDF Research.
As for 2022, MIDF Research has introduced its FBM KLCI preliminary target of 1,765 points or middle-range by the end of next year.
It expects the market valuation next year to be supported by continued macro recovery but could be moderated by the potential external headwinds.