KUALA LUMPUR (Dec 7): Rakuten Trade Sdn Bhd is expecting the FBM KLCI to perform stronger next year, fueled by more corporate earnings optimism on imminent Covid-19 vaccines that are expected to hasten economic recovery, as well as more liquidity amid lower interest rates.

“Looking into 2021, we believe the FBM KLCI will be spurred on by improving earnings growth, thus may test the 1,770-level premised on 16.5 times calendar year 2021 price-earnings ratio (PER),” said its head of research Kenny Yee in a virtual media briefing on the market outlook today.

Yee believes the recovery mode will persist on positive developments on the vaccine front, hence a broad-based realignment of stocks will continue with financial, plantation and tourism-related companies in the forefront.

Hence, he expected corporate earnings to rebound strongly in 2021, at a faster growth rate of 50.7% from the earlier projection of 35.3%.

Besides better corporate earnings growth, he said the KLCI will also continue to enjoy liquidity next year, with brisk trading participation of retailers to go on until next year, coupled with foreign fund outflows reversing into inflows.

“Next year will be an exciting year for the KLCI, as we expect retail participation to improve further, enticed by the returns of foreign funds into the local equity market, together with the support of local institutional funds,” said Yee.

Yee said foreign funds will shift into the Asian markets next year, especially in China and Hong Kong, on strong economic recovery prospects, and he believes that Malaysia will benefit from this positive spillover effect.

Moreover, the current foreign shareholding is at a multi-year low of under 12% as of November, hence it is unlikely that another wave of significant net foreign outflow will occur, he added.

Year to date, Bursa Malaysia's foreign net outflow stood at about RM24 billion.

In contrast, funds flowing into the local bourse from local retail investors has risen by almost four-fold to an average of RM12.19 billion, from RM2.56 billion in 2019.

Retail investors participation has experienced a surge in daily trading volume, increased by 179% to an average of seven billion shares from 2.5 billion shares in 2019.

Meanwhile, for KLCI’s end-target this year, the research house is projecting that the benchmark index will close at 1,620 points, which has been observed recently.

“[Year-end target for the] index should remain at current level with some mild consolidation expected. I think the market needs time to digest from the recent rallies,” said Yee.  

When asked whether the share prices of glove counters have already bottomed, Yee said given the high valuation in the sector, he has downward bias towards the glove counters.

“Certainly there is a price overhang in glove companies, as the share price already surged quite high, and we are seeing a lot of funds profit-taking on glove counters,” he added.

Meanwhile, Rakuten Trade’s recovery picks are low-cost aviation company AirAsia Group Bhd, gaming counters Genting Bhd and Genting Malaysia Bhd, airport operator Malaysia Airports Holdings Bhd and utility giant Tenaga Nasional Bhd (TNB).

Yee said airline traffic is expected to pick up gradually in tandem with the lifting of travel bans following the successful development of Covid-19 vaccines, which should also lift the earnings of tourism-related businesses.

For TNB, Yee said the company’s business remains resilient with a decent dividend yield. Given the pullback in TNB’s share price, present levels present a good entry opportunity for the recovery theme. TNB shares were four sen or 0.37% lower at RM10.90. Year to date, the stock has declined 18% from RM13.30 on Jan 2.

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