Rakuten Trade forecasts FBM KLCI hitting 1,580 points at year-end
PETALING JAYA: The FBM KLCI is projected to end the year at 1,580 points based on a market price to earnings (PE) ratio of 15.5 times, according to Rakuten Trade.
Subsequently, its head of research Kenny Yee (pix) explained the index is expected to test the 1,670 levels in 2021, spurred by improved earnings growth premised on a 16.5x PE ratio in line with its historical performance.
In the short term, he noted that the local bourse has seen a correction in the past two weeks and it is expected to rebound from there, barring any major event on Wall Street.
“Looking at the buying momentum, I think it should continue with the hopes that the public holiday on Wednesday does not deter buying interest. There is hope for the market to close higher than the previous week,” Yee said at Rakuten Trade’s virtual media outlook session today.
He identified continued interest in the glove sector to be the catalyst for Malaysian equities which should result in a spillover effect to the other segments of the market.
Apart from that, the head of research has noted the potential in the construction and plantation sector has yet to see any buying interest cascading to the sector.
“Going forward once the news flow on projects and contracts rolling out should see more participation in the construction sector,” he said.
“As for the plantations sector, the crude palm oil (CPO) price has been rather resilient as the continued US-China spat will only spur China’s purchase of CPO over soybean and supported by the decline in inventory.”
In regard to corporate earnings, Yee said Rakuten has revised its corporate earning projections for 2020 to -20.6% from its previous estimate of -3.9%, while 2021 is expected to see a growth of 35.3% from a 14.2% growth anticipated earlier.
He elaborated that the manufacturing sector, glove manufacturers in particular, are expected to pull Malaysia’s corporate earnings up, as its 2020 corporate earnings is expected to improve by 39% from 18% and 2021 is expected to see a growth of over 300%.
Aside from manufacturing, the plantation sector is also expected to improve due to the very stable CPO prices of late which is expected to translate into a resilient earnings growth for this year and next.
“On the other hand, the main culprit that pulls down Malaysia’s corporate earnings for this year would be the banking sector, which is anticipated to see a 22% decline,” said the head of research.
Apart from that, the gaming sector is also anticipated to be a drag on corporate earnings.
Meanwhile, with the loan moratorium period ending, Yee anticipates retail investors will still continue to drive buying on the market.
He noted that the emergence of retail participation only began in July, two and a half months into the current bull run, and is unlikely to dissipate so soon. Overall, he said retail participation has risen by 132%, which has resulted in average daily trading volumes currently averaging about 7 billion shares, from 2.5 billion shares last year.
In regard to the ringgit’s performance for end-2020, he projected it to be stronger at 4.15 against the dollar but does not expect this to translate into other currencies in the region.
“First and foremost, this is due to the continued printing of the dollar by the Fed, as everyone is expecting the dollar to be weak and it needs to be weak to be competitive against the chinese renminbi.”
As for Rakuten’s top stock picks, Yee highlighted AHB Holdings Bhd, D’nonce Technology Bhd, and Supercomnet Technologies Bhd – all of which have been deemed Covid-19 beneficiaries.