Thursday 28 Mar 2024
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This article first appeared in The Edge Financial Daily on June 19, 2017

KUALA LUMPUR: The current rally in the FBM KLCI is expected to continue as the election drumbeat gets louder coupled with the strengthening of the ringgit.

The benchmark index had gained 9.11% year to date (YTD) to close at 1,791.31 points last Friday — about 100 points or 5.6% away from the record high of 1,892 points — against last year’s closing of 1,641.73 points on Dec 30, 2016.

On a 52-week basis, the FBM KLCI has been trading between 1,611.88 and 1,796.75 while its percentage change for a year is at 10.92%.

Inter-Pacific Securities Sdn Bhd research head Pong Teng Siew said the FBM KLCI might see it breach 1,800 points as early as this week.

“FBM KLCI might breach 1,800 points mostly amid expectation of the upcoming election [soon],” he told The Edge Financial Daily last Friday.

Etiqa Insurance and Takaful research head Chris Eng described that the FBM KLCI performance would be like “from whipping boy to shining star” as the benchmark index had been the second-worst laggard in the region for the past three years.

“If there is no sharp pullback in the next few months, it should be good by year end. The FBM KLCI is expected to perform much better,” said Eng, adding that ample liquidity will help fuel the upward momentum on the local bourse.

Mercury Securities’ research head Edmund Tham concured that the FBM KLCI is on track to revisit its all-time high.

“The last time the FBM KLCI was above the 1,800-point level was two to three years ago (2014 to 2015), so now for the FBM KLCI to hit 1,800 and above it is quite possible, but the question is whether it could sustain at above the 1,800-point level,” he said.

YTD, among its peers in the Asia-Pacific region, the Philippines led the rally by 15.23%, followed by Singapore (12.17%), Malaysia (9.11%), Thailand (8.06%) and Indonesia (2.18%).

Pong pointed out that the FBM KLCI is currently playing catch-up with the regional peers supported by a recovery of oil prices early this year and the strengthening of the ringgit. He noted that the government’s infrastructure spending is also a catalyst for the local market.

“Malaysia lost out in the second half of last year when most of the regional markets were gaining. We were flat for the entire year. Malaysia was left out in the rally among the other peers,” he said.

Some quarters believe that the continued appreciation of the ringgit would lend support to the local stock market.

Last Wednesday, the US Federal Reserve raised interest rate for the second time in three months. Affin Hwang Investment Bank Bhd chief economist Alan Tan does not foresee Bank Negara Malaysia (BNM) raising the overnight policy rate following the rate hike in the US.

“Despite some weaknesses, the ringgit direction is still likely to sustain at this level and we’re expecting it to appreciate gradually. I don’t see the ringgit going down to 4.30 to 4.40 level [again],” said Tan.

Tan anticipates the ringgit to hover around 4.10 to 4.20 against the US dollar towards year end.

Socio-Economic Research Centre executive director Lee Heng Guie opines that BNM’s policies, such as the non-deliverable forward and the requirement for exporters to convert at least 75% of their export revenues to ringgit, have helped give stability to the ringgit.

However, he sees that there are “still headwinds” ahead for the ringgit.

Economists have also revised their outlook and raised the gross domestic product (GDP) growth to 5% in line with the government’s projection.

“The 5.6% will be the high for the year. We are expecting some moderation for the second quarter at 5.2%,” said Affin Hwang’s Tan, commenting on the GDP growth outlook.

However, Eng also pointed out that one concern about the local bourse is that the valuations are not particularly cheap. The FBM KLCI is trading at a price-earnings ratio of about 17 times, compared with the historical range of between 13 and 19 times.

“It is more expensive now [compared with a year ago]. Looking at Malaysia alone, it is difficult to beat or exceed the 16-time forward PER,” said Pong, who shared the view.

In terms of stock picks, Mercury Securities’ Tham said investors should look out for construction and infrastructure sectors amid expectation of more mega projects.

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