FBM KLCI to reach 1,820pts by end 2019, says AmInvestment Bank Research

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KUALA LUMPUR (Dec 13): The FBM KLCI's earnings are projected to grow by 4% in 2019 underpinned by a growth of 4.5% in gross domestic product, said AmInvestment Bank Research.

Based on the projected earnings, the FBM KLCI is forecast to reach 1,820 points by end of 2019, it wrote in a strategy note today.

"We believe the key catalyst to the local equity market in 2019 will be the return of global investors to the emerging markets, on a growing consensus that the US rate hike cycle and hence the US dollar upcycle are tapering off," it said.

In fact, AmInvestment noted that the return of global investors to the emerging markets has started since October 2018. Despite the turmoil in the global financial markets in the fourth quarter of 2018 (4Q18), it said emerging market equity funds have consistently attracted net inflows over the last eight weeks.

At home however, it said the local bourse failed to latch on to the positive trend in emerging market equity funds during the same period, noting that Bursa Malaysia did register net foreign outflows during seven out of the last eight weeks.

"We believe the divergence was 'transitional' as during the period, the local market had been hit by a slew of de-rating catalysts that were domestic and company-specific in nature, such as the MRT2 project impasse, a tight Budget 2019, generally weak corporate results in 3Q18 [to name a few].

"Assuming investors are to continue to pile into emerging market equities, we expect foreign portfolio inflows to Malaysia to eventually turn positive," it said.

Using iShares MSCI Emerging Markets ETF as a guide, Malaysia's weighting in a benchmark emerging market equity fund currently stands at 2.3%. Malaysia is on the 10th spot, trailing Thailand (2.4%) but ahead of Indonesia (2.2%) and the Philippines (1.1%).

Malaysia's 2.3% weighting is largely made up of Public Bank Bhd (0.34%), Tenaga Nasional Bhd (0.21%), Malayan Banking Bhd (0.17%), CIMB Group Holdings Bhd (0.13%) and Petronas Chemicals Group Bhd (0.11%).