KUALA LUMPUR (July 4): The outlook for the local equity market looks positive for the next twelve to eighteen months, backed by steady economic growth, according to AmInvestment Bank Research.  

“We project FBM KLCI’s earnings to grow by 5.8% and 7.0% in 2018 and 2019 respectively, underpinned by a GDP growth of 5.5% and 5.3% in each respective year,” the research house said in a strategy note today. 

AmInvestment maintained its year-end targets of 1,900 points and 2,040 points in 2018 and 2019 respectively for the FBM KLCI, based on 18.5 times 2018 and 2019F earnings respectively. 

However, it is mindful of various headwinds that could cap the upside of the market which includes an elevated market risk premium, while the new administration rolls out its new policies; a persistent outflow of funds from emerging markets on the back of rising US interest rates and a strengthening USD, as well as escalating international trade tensions. 

Despite the changes especially on the local front, AmInvestment said it believes investors' sentiment towards emerging markets will improve at some point. 

It also noted that the abolishment of the 6% GST, reintroduction of petrol subsidy and capping of the electricity tariff for the domestic sector, coupled with the potential abolishment of highway tolls, have effectively been putting more money back to the pockets of consumers. 

“For exposure to consumer spending, we pick banks with strong consumer banking franchise (Public Bank Bhd and BIMB Holdings Bhd), apart from consumer/auto stocks (Berjaya Food Bhd, Power Root Bhd and Bermaz Auto Bhd).