Friday 29 Mar 2024
By
main news image

This article first appeared in The Edge Financial Daily on December 13, 2018

PETALING JAYA: A weak ringgit may draw foreign funds back to Bursa Malaysia next year, while uncertainties in Wall Street may give an added push towards the same, says Rakuten Trade, following a year of heavy sell-offs seen here that have exceeded over RM11 billion year to date.

“We expect them to return to take advantage of the lower ringgit and to position (their portfolios) ahead of the new year,” said Rakuten Trade’s head of research Kenny Yee (pic) at a market outlook briefing yesterday.

Rakuten expects the ringgit to appreciate to between RM4.05 and RM4.10 against the US dollar by year end. At the time of writing yesterday, it has weakened to RM4.186. The local currency started off 2018 at RM4.0195 against the greenback.

On the converse, investor interest in the US has already shifted towards more stable, higher-yielding US Treasuries and away from equities, which have been richly valued.

Meanwhile, the outflow from Malaysia has been tapering off, Yee noted.

The research house expects the FBM KLCI to rise some 100 points from just over 1,660 points currently to reach 1,780 points by the end of this year, though this is much lower than the year-end target of 1,895 points it set in the third quarter of this year. (See chart)

As a traditionally defensive market compared with its regional peers, Malaysia is better poised to attract foreign funds that may return to the region, Yee said.

Notwithstanding the volatility seen in global markets throughout 2018, Yee expects to see more disciplined movements from market players with resultant less severe effects going into 2019.

As for the local market, he is of the view that index-linked blue-chips could be ripe for the picking after having been battered down this year.

“We are still expecting the banking sector to be the main catalyst for earnings growth,” he said, referring to the research house’s 4.6% earnings growth forecast for KLCI constituents.

Among blue chips, Yee said Genting Bhd and CIMB Group Holdings Bhd could outperform the index if there is a market rebound. Conversely, he also noted that the gaming sector will certainly face higher taxes. Higher taxes are also a possibility in the utilities sector.

Meanwhile, small-capitalised stocks may become a better bet after liquidity returns to the market.

"This would be driven by the return of foreign funds," Yee said.

The risks to Rakuten’s view are largely seen to be external, including an expected three to four rate increases by the Federal Reserve System next year.

A key signal to watch would be the performance of US equities, which have rallied to fresh all-time highs this year, said Rakuten’s deputy research head Vincent Lau.

On top of that, algorithmic trading in the US could exacerbate any persistent selldown of equities, which could be triggered by disappointing earnings, Yee said.

Meanwhile, domestic issues, such as management changes at government-linked companies and government policies, will be less of a concern to investors next year, he said. “The government has become more disciplined in giving statements (which are) now more investor-friendly,” Yee said.

Lau also noted that the “government has been proactive in meeting with ratings agencies,” as well as investors, via meetings set up by local investment banks.

      Print
      Text Size
      Share