KUALA LUMPUR (July 6): RHB Investment Bank has slash its end-2022 FBM KLCI target to 1,580 points (from 1,670 points) after ascribing a lower 15 times (from 16 times) P/E to FY23 EPS to reflect the less favourable operating environment going forward.

In a strategy note on Wednesday (July 6), RHB’s Alexander Chia said that with the economic reopening now fully priced in, the markets’ attempt to digest prospects for 2H22 and beyond are being hampered by limited forward visibility of business and macroeconomic conditions.

He said sentiment will remain fragile, given the potent cocktail of various external and internal macroeconomic threats, coupled with domestic political and regulatory worries.

Chia said RHB is not yet assuming the worst-case scenario as the base case.

“But the uncertainty of the severity of the slowdown and absence of clear upside risks will keep investors guarded and reluctant to take big bets, as forward valuations may be unreliable.

“This suggests that investors will be inclined to hold higher levels of cash and other liquid assets in the interim,” he said.

Chia said key investment attributes to focus on include companies with robust balance sheets, pricing power, ability to pass through higher costs, captive customer bases, and a strong ESG profile.

He advocated a core defensive stance, coupled with a trading mentality.

“Captive domestic investment funds should seek attractive entry points (nibble on weakness) to build positions.

“We also see selective opportunities in the small-cap space. We are 'overweight' on banks, non-bank financial institutions (NBFIs), oil and gas, healthcare, basic materials, gaming and technology.

“We slash our end-2022 FBM KLCI target to 1,580 points (from 1,670 points) after ascribing a lower 15 times (from 16 times) P/E to FY23 EPS to reflect the less favourable operating environment going forward,” he said.