This article first appeared in The Edge Financial Daily on December 19, 2018

KUALA LUMPUR: MIDF Research has projected the FTSE Bursa Malaysia KLCI (FBM KLCI) rising to 1,830 points by end-2019, driven by positive earnings growth.

The research house is bullish on corporate earnings growth despite negative external factors such as the US-China trade war and Brexit. Corporate earnings growth for 2019 is expected to rise to 5.8% compared with 1.96% in 2018, it said.

At the MIDF’s market outlook media briefing yesterday, its head of research Mohd Redza Abdul Rahman said the KLCI is likely to end the year at between 1,680 and 1,700. The benchmark index closed at a one-year low of 1,635.31 yesterday.

On whether trade tensions between the US and China would impact the research house’s KLCI projection and if the benchmark index could fall below 1,600, he said as long as there is no escalation in tensions that affects earnings growth, the dispute should not affect the index’s performance.

“As long as there is no escalation in the amount or rate of tariffs imposed, we do not foresee this could impact our earnings growth next year,” he said.

Mohd Redza also said “our macroeconomic fundamentals are certainly strong, with the labour market having almost 0% unemployment and we have seen diversification from electrical and engineering, and the countries that we export our products to”.

“The good thing is the services sector is starting to contribute a higher share of GDP (gross domestic product), with the current account deficit going down, so it is still positive, unlike our neighbouring countries,” he added.

MIDF Research chief economist Dr Kamaruddin Mohd Nor expects Malaysia’s GDP growth to improve to 4.9% year-on-year in 2019. He said “clarity in the domestic policy direction observed through the midterm review of 11th Malaysia Plan and Budget 2019 will lend support to the domestic sector”.

Kamaruddin also projected that Bank Negara Malaysia will maintain the overnight policy rate at 3.25% next year. MIDF Research expects the ringgit to strengthen at 4.00 against the US dollar by end-2018 as well.

On inflation, it said the consumer price index is expected to rise to 2.2% in 2019 from the full-year target of 1.3% in 2018. The research house has also forecast Brent crude oil prices to average at US$75 per barrel, and crude palm oil at RM2,200 per tonne, in 2019.