KUALA LUMPUR (Jan 5): Maybank Kim Eng is projecting for the FBM KLCI to end higher at 1,830 points this year, buoyed by better corporate earnings growth and ample liquidity.

The target represents an upside of 14.1% to the KLCI’s level at 1,603.90 as at 3.10pm today. 

The local benchmark index ended the year 2020 two trading days ago at 1,627.21. Its intraday high for the year was 1,695.96 on Dec 14, while its intraday low was 1,207.80 on March 19, a day after the movement control order (MCO) was imposed by the government.

Looking at the new year, Maybank Kim Eng head of regional equity research Anand Pathmakanthan said both the corporate earnings outlook and liquidity are “looking good” in 2021, thereby supporting the KLCI performance moving forward.

“For [corporate] earnings growth, we are looking at a very sharp recovery in 2021, which [is] expected to grow by 45% year-on-year (y-o-y), compared to a 11% contraction in 2020,” said Anand at a virtual media briefing on “Maybank Investment Bank’s 2021 Malaysia Outlook”.

According to him, the corporate earnings growth spurts would be due to a low-base effect from last year.

Also, he pointed out that the government's stimulus spending will support the overall economy growth, hence boding well for the corporate earnings growth outlook.  

Earnings growth this year, he said, would be supported by the glove sector, which he expects to continue to do well, as well as the recovery-play sectors that include the casino and financial sectors.

Other sectors that he expects to support the earnings growth outlook are the plantation and oil and gas (O&G) sectors, driven by an upside to crude palm oil (CPO) and crude oil prices.

Another factor pushing the KLCI higher this year would be ample liquidity in the market, supported by the 125-basis point cuts in the overnight policy rate (OPR) done by Bank Negara Malaysia (BNM) last year.

“If you look at the banking system liquidity coverage ratio, [it] was at a near-record high. There was no shortage of liquidity in the system at this point of time.”

“All liquidity is looking for returns. Looking at asset classes in Malaysia, such as cash, property, fixed income and equity, equity looks more attractive as it gives higher yields,” Anand added.

Maybank Kim Eng has “overweight” calls for the mid-cap financials, utilities, healthcare, automotive, large-cap O&G, construction, plantation and technology sectors.

In contrast, it has given “underweight” ratings to aviation and the mid-cap O&G stocks.