KUALA LUMPUR (Aug 9): MIDF Amanah Investment Bank Bhd said today that there is a bias towards downward revision in its 2019 FBM KLCI forecast of 1,720 points, due to the increasing number of below-consensus corporate financial results so far during the current reporting season.

In a note today, MIDF analysts Mohd Redza Abdul Rahman and Adam Mohamed Rahim said the downward bias also took into consideration the heightened US-China trade war and other geopolitical issues. 

"The US Fed is expected to be less aggressive in regard to its monetary stance this year, which may be positive to EM (emerging market) currencies (including ringgit), as well as to commodity prices. Moreover, the slowing China economy may prompt more stimulus measures (both monetary and fiscal) by the local authorities, with positive spill over effects to the broader region. 

"Meanwhile, we are sanguine on the prospect of deescalation in the ongoing US-China trade spat, as both parties are seen as seeking acceptable
solutions to the dispute. Domestically, the macro picture remains healthy with GDP growth expected at 4.9% this year, while corporate earnings growth at circa middle single-digit. All factors considered, our KLCI year-end 2019 target remains at 1,720 points, pending the outcome of the ongoing 2Q CY2019 results season,"  the analysts said.

According to them, the KLCI had risen gradually during 2019's first two months, when the index hit 1,731 points on Feb 21, before falling thereafter.

Nevertheless, year-to-date market volume is 3.6% higher at 2.64 billion shares a day, compared with what was seen for the whole of 2018, they said.

"As of 5 August 2019, the KLCI had lost 4.7% so far for the year, amidst continuing foreign net outflows affected by ongoing external developments which are also impacting other global markets. Earnings of the KLCI are expected to grow by 6.3% y-o-y in FY2019, as per the Bloomberg consensus," they said.

MIDF noted that the aggregate net outflow of foreign funds from Bursa Malaysia so far this year, amounted to RM5 billion.  

"Malaysia is the only market with a cumulative foreign net outflow in Southeast Asia. In contrast, the other six Asian markets we monitor (South Korea, Thailand, Indonesia, India, Taiwan and the Philippines) have seen a foreign net inflow so far for the year, with India being the largest," the analysts said.