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PETALING JAYA: Rakuten Trade projects that the FBM KLCI will end 2022 at 1,700 points, as foreign funds will continue to enter Malaysia, according to head of research Kenny Yee (pix).

“Our projection for next year is rather bold but, then again, with the volatility on Wall Street, we expect funds will flow to other destinations, especially Asia,” he said at Rakuten Trade’s virtual media outlook session today. “Being part of Southeast Asia, Malaysia should see some spillover effect from foreign fund flows.”

Although the end-2022 target of 1,700 points translates into a 11.33% or 173.13 point improvement from today’s close of 1,526.87 points, Yee pointed out the projected figure translates into a valuation of 14x market PE ratio.

He said the prevailing low market valuations that may limit outflows could be the saving grace for the local bourse, as foreign funds perceive the domestic market as a safe haven for the time being.

On volatility, Yee believes the situation will be dependent on developments on Wall Street as an uptick in volatility is expected next year from an interest rate increase and bond-buying tapering in the US. This will lead to shrinking liquidity in the US and funds will be looking to other destinations to invest in.

Despite the lack of fresh buying catalysts, he anticipates foreign funds will continue to flow into Malaysia as it serves as a cushion to external volatility.

“Hence, I believe Malaysia can be deemed as a safe haven for funds to preserve their capital.”

Year to date, the bourse has seen a net foreign outflow of RM1.5 billion despite a continuous net inflow of RM3.9 billion since August. The previous year saw a record high foreign outflow of RM24 billion.

For the immediate horizon, Rakuten anticipates the key index to end the year at 1,585 points, a downward revision from its earlier estimate of 1,630 points as it does not foresee valuation premium to return anytime soon despite the presence of some foreign funds.

For next year, it foresees the local bourse remaining mundane in the first half but sentiments are expected to improve in the second half as it looks towards 2023.

With regard to Bursa Malaysia’s latest quarterly performance, Yee stated that, at a glance, the third-quarter results are rather weak with the exception of some tech stocks and plantation counters.

“This is expected due to the movement control order (MCO) implementation during the quarter and we will see a spike up in the fourth quarter,” he said.

Moving ahead, Yee expects the bourse’s fundamentals to remain solid but market sentiment has been affected by certain measures laid out in Budget 2022, namely the lifting of the RM200 cap on stamp duty and the one-off ‘Cukai Makmur’ (Prosperity Tax) which will see a tax rate of 33% instead of the usual 24% for companies earning over RM100 million for assessment year 2022.

He said the lifting of stamp duty is expected to translate into a decline in retail participation in the market.

However, Yee pointed out there is still some uncertainty with the implementation of the Prosperity Tax as the government has yet to lay out whether it will be taxed at group or company level. “Should the tax be placed at the company level, the impact might not be as bad as initially feared.”

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