BIMB Securities forecasts corporate earnings to grow by 6.7% this year, KLCI target 1,820

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KUALA LUMPUR (Jan 13): BIMB Securities Research has forecast corporate earnings to grow by 6.7% in 2016 with its FBM KLCI target tagged at 1,820 premised on a market PE of 16.5x.

In a strategy note today, the research house envisions 2016 to be another interesting year, adding that it believes interest rates and currencies to play a pivotal role in determining the flow of funds.

“Though the Feds and its rate revision may still be the main focus, we view the inclusion of the Chinese renminbi into IMF’s Special Drawing Rights (SDRs) to have an even more profound impact on us.

“We believe the inclusion of the Renminbi as a reserve currency

to be positive on the regional currencies hence we expect most to strengthen against the US Dollar (USD) notwithstanding the rate revision by the Feds going forward,” it said.

The research house said that vased on its analysis, it reckons the ringgit with the highest correlation in relation to the USD and Renminbi may stand to benefit the most hence envisaged the local currency to recover vis-à-vis the USD with the 4.00 mark as the  initial target.

“Though China is seen to continue with their monetary easing, we believe the Renminbi will be well supported from the massive US$12.5 trillion in foreign reserves worldwide.

“In view of this, fragments of the foreign equity funds will certainly gravitate back to Asia again as all the regional markets are now trading at a discount to their respective 5-year average valuations,” it said.

BIMB Securities said that for Malaysia, by imputing the currency effect at RM4.00 the FBM KLCI is actually trending at an alluring 14.5x which is way below its multi-year average of 16.0x.

“For 2016 we forecast corporate earnings to grow by 6.7% with our FBM KLCI target tagged at 1,820 premised on a market PE of 16.5x,” it said.