KLCI to remain volatile in 2019 due to earnings risks, says CIMB Research

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KUALA LUMPUR (March 5): CIMB IB Research said the KLCI rose 1.4% month-on-month (m-o-m) in Feb to close at 1,708 points due to improved sentiment in the global markets.

In a strategy note March 4, the research house said in Feb, the KLCI performed in line with the broader market but underperformed the small-cap sector.

“Based on past performance, the market tends to be mixed in Mar with average m-o-m gains over the past 10 years but negative average returns over 40-year period.

“We expect KLCI to remain volatile in 2019 due to earnings risks, policy uncertainties and external risks. Our end-2019 KLCI target is 1,638 points,” it said.

CIMB Research said 4Q18 market earnings for stocks under its coverage fell at a higher rate of 7.5% year-on-year (3Q18: -5.9% y-o-y) due to lower earnings from the agribusiness, aviation, construction, oil and gas and telco sectors.

“Corporate earnings under our coverage fell 2.1% in FY18 due to lower sales, provisions for receivables and weaker profit margins. KLCI earnings fell 1% in 2018 against our 4% growth forecast.

“We lower our KLCI earnings growth forecast to 5% for 2019F (from 6%) but keep our growth projection of 6% for 2020F,” it said.