KUALA LUMPUR (July 1): MIDF Research has reduced its end-2022 target for the FBM KLCI to 1,600 points from 1,680 points previously.
The research house expects the key benchmark index to remain below the normal historical range due to negative effects of the US Federal Reserve’s aggressive tightening of its monetary policy on global financial liquidity, and the higher risk attached to earnings forecasts.
“However, going forward, we expect local equity market valuations to inch higher from current levels in line with expectations of better earnings next year," MIDF Research said in its Second Half Calendar Year 2022 (2HCY22) Outlook.
Year to date, the KLCI had fallen 7.87% as of June 30, closing at 1,444.22, compared with 1,567.53 recorded on Dec 31, 2021.
On a quarterly basis, MIDF Research said that global indices saw a volatile second-quarter (2Q22) performance.
The KLCI closed 1Q22 1.3% higher but declined by 8.4% in 2Q22 as of June 27, 2022.
On sector calls for 2HCY22, the research house is positive on the automotive, banking, construction, consumer, healthcare, oil and gas, plantation, technology, media and real estate investment trust sectors.
It noted that the upcoming award of Mass Rapid Transit 3 (MRT 3) tenders may generate some feel-good factors for the construction sector.
However, it is neutral on the glove, power, property, telecommunications and transportation sectors (which include aviation, ports and logistics).
Meanwhile, MIDF Research remained sanguine on economic prospects, especially with the reopening of the economy, while commodity players would also benefit from elevated commodities prices.
“With the economy and corporate earnings growth expectations remaining intact, it may seem a bit perplexing that Malaysia's (and ASEAN peers') equity market continues to be sluggish. We believe that it boils down to valuations," it said.
It also expects domestic economic activities to continue expanding steadily, driven by higher consumer spending and business expenditure, while the external trade sector is forecast to grow at a solid pace, underpinned by elevated commodity prices and expansionary regional demand.
The research firm maintained its forecast of Malaysia’s gross domestic product growth at 6% in 2022.