KUALA LUMPUR (Oct 2): Kenanga Research has raised its end-2020 FBM KLCI target to 1,603 (from 1,590) and said three conditions at play now are setting the stage for a positive stock market close for 2020 despite the prevailing negative sentiment around the slow progress in dealing with the pandemic.
In a strategy note today, the research house said firstly, liquidity remains ample – this is key in order to fund both private and public sector recoveries; secondly, the current negative earnings cycle is expected to bottom as economic conditions recover, pointing to a better 2HCY20 with follow-through momentum into 2021; and thirdly, a virtuous circle of confidence can develop very quickly on positive news of vaccine development, potentially sparking a risk-on mode in 2021.
Kenanga recalled that in its 3QCY20 Strategy Note “Volatility Up Ahead” released a quarter ago, it stated: “Chances of a breakthrough in treatment rises with time, but that is probably a case for 2021”.
“Now is the time to position for that. Continue to adopt a barbell strategy to ride the near-term political risks and bouts of anxieties over rising new Covid-19 cases.
“Keep weighted in large cap yielders that include the rubber gloves while having sufficient exposures in fundamentally sound small-mid caps in the tech space,” it said.
The research house advocated investors to be so bold as to dip into selected travel & leisure stocks for they offer deep value.
It said with interest rates expected to remain low for at least another year, offsetting elevated equity risk premium and coupled with premium valuation for rubber gloves makers, the target PE multiple for the FBMKLCI remains above historical mean.
“Based on a blended 16.8x PE multiple on recently raised FY21 EPS of 95.5 sen (thanks to EPS upgrades in Top Glove Corp Bhd and Hartalega Holdings Bhd), our end 2020 target is raised from 1,590 to 1,603.
“We recommend Overweight call on the following sectors: Construction, Gaming, Rubber Gloves, Technology and Utilities and Underweight Healthcare and Media,” it said.