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PETALING JAYA: Rakuten Trade expects heightened trading activities on Bursa Malaysia with the benchmark FBM KLCI touching 1,560 points by year-end and has targeted 1,800 points for 2023, its head of research Kenny Yee said at a virtual media briefing on Malaysia’s Year-end Market Outlook post-GE15.

Yee said there are encouraging signs from the foreign funds with the appointment of Datuk Seri Anwar Ibrahim as the tenth prime minister which instil stronger sentiment on the local bourse.

“Global uncertainties aside, the performance of the local bourse had been affected by domestic issues as well primarily politics. Hence, it is not surprising that the FBM KLCI rebounded post-GE15, especially when Datuk Seri Anwar Ibrahim was appointed as the nation’s PM. Going forward, we expect net foreign inflows to recover in view of improving political environment domestically,“ Yee said.

In addition, retail participation is expected to improve over time, hence providing the much required liquidity in the market.

“Year-to-date, retail participation has been greatly reduced in line with the decreasing market traded volume. Net inflow from retail amounts to only RM2.2 billion. However, we noticed the number of improving smaller cap stocks are on the increase, thus may be a pre-cursor of improving retail participation,“ Yee said.

Thus, the firm anticipates the benchmark KLCI to possibly touch 1,560 by year-end premised on 13 times price-to-earning (PE) ratio while for 2023, the firm estimates the index might touch 1,800 points based on 14 times PE ratio, which is still below its five-year average.

Its equity research vice-president Thong Pak Leng said the firm is overweight on both the banking and telco sectors that would support this momentum going forward.

On the banking sector, Thong said: “October 2022 loans grew by 6.5% year-on-year, in line with its 2022 industry loan growth target of 6-6.5%. Broadly, more inflows are expected to be seen from businesses mainly on greater working capital needs as household demand for debt could wane on higher borrowing costs. At present, we reckon that healthy domestic economic prospects will keep loan demands strong.”

On the telco sector, Thong said it sees telcos as domestically-driven plays, hence will escape external headwinds.

“The single wholesale network is no longer an issue as all parties concerned have agreed to the terms of the lease pricing and have signed the access agreement. The merger between Axiata Group and Telenor Group have also been completed, poised to invest in network expansion and support the growth of Malaysia’s digital ecosystem,“ added Thong.

The improved performance forecast of the KLCI is also premised on the improved estimate for corporate earnings growth for 2023, now at 9.7% from previous 6.8%.

“There has been drastic changes in corporate earnings growth following changes to the constituents as weakening earnings amongst the rubber gloves players were replaced by steadier earnings stream from AMMB and QL Resources,“ Yee explained.

Meanwhile, the firm expects ringgit to strengthen to 4.30 to 4.35 against the US dollar by end-2022 and possibly to 4.10 to 4.20 in 2023 as the currency turmoil to come to its tail end, given the easing of the US Federal Reserve’s stance on its rate hikes. Currently, the ringgit has strengthened from the low of 4.78 to currently 4.38 or almost an 8% rebound against the greenback.

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