KUALA LUMPUR (Jan 4): Despite rising 9.4% to close at 1792.79 points in 2017, the FBM KLCI ended up as the worst performer among ASEAN countries. However, it is expected to hit 1,880 points in 2018, said Hong Leong Investment Bank Bhd (HLIB).

“Our 2018 FBM KLCI target of 1,880 is premised on a 16.5 times price-to-earnings multiple translating to 0.5 standard deviation above mean. We believe this is palatable, as we expect higher investor risk appetite once the 14th general election is done and dusted,” said analysts Jeremy Goh and Felicia Ling Xiao Wei.

In a 2018 Market Outlook strategy note, Goh and Ling said the general election, a revival in domestic consumption, the likelihood of ringgit’s appreciation by 4.9%, and a robust flow of construction jobs to continue, are themes that would play out in 2018.

They also expect Malaysia’s economy to moderate but remain strong at 5.3% in 2018, compared to estimated 5.8% in 2017, with domestic demand emerging as key support to growth.

“While the external environment is expected to grow in 2018, a steady ringgit at 4.00 to 4.20 compared to an average of 4.2996 in 2017, will dampen the export boost to economy,” Goh and Ling said in their note.

On domestic consumption, the deceleration in private consumption growth seen in 2015 and 2016 from the implementation of the goods and services tax (GST) has bottomed out.

“For 2017, we expect private consumption to grow at 6.8% and sustain at this level for 2018 as well,” the note added.

Goh and Ling said the ringgit appreciated the strongest by 9.4% for 2017, against its regional ASEAN peers comprising the Singapore dollar, Thai baht, Indonesian rupiah and Philippines peso.

“However, if measured since mid-2015 (when the ringgit first started its drastic depreciation to break its previous defunct peg level of 3.8), it is the second worst performing currency after the peso,” Goh and Ling said.

The research house is mildly positive on the ringgit, as the synchronised monetary policy normalisation in advanced economies lead to a more subdued US dollar, firmer oil prices and Bank Negara Malaysia’s forex measures.

With the appreciation of the ringgit, Goh and Ling opine it would help stimulate the return of foreigners to Malaysian equities, with more expected after the general election, as well as while the perception of political risk abates.

Meanwhile, they expect a 7.3% year-on-year earnings growth for FBM KLCI this year, driven by banks (loan growth, higher non-interest income and normalisation of opex), plantations (fresh fruit bunch growth for Felda Global Ventures Holdings Bhd, Sime Darby Plantation Bhd and Genting Plantations Bhd).

They also see the gaming (mainly from Genting Malaysia Bhd due to the Genting Integrated Tourism Plan), and healthcare (low base recovery, coupled with contribution from new hospitals) supporting the growth.

Risks to the earnings forecast could stem from rising cost environment due to higher prices for fuel, gas and labour, while the implementation of MFRS9, a more stringent methodology in recognising loan impairment, could affect banks.