KUALA LUMPUR (Oct 11): The benchmark FBM KLCI, which plunged to 1,385.19 points — its lowest level since May 2020 — after dropping 1.48% at 12.30pm on Tuesday (Oct 11) from 1,406 points last Friday, has likely found its bottom at its current level and is in an appealing position for a rebound, according to Rakuten Trade Sdn Bhd head of research Kenny Yee.
“Looking at the current situation, there is strong support at the current level, unless something drastic happens globally or a crisis [occurs]. If things remain, the market [local bourse] may be considered as already having bottomed out,” Yee said in a media briefing on the fourth-quarter (4Q2022) market outlook.
Yee’s optimism is fuelled by an anticipation of improved trading activities for the next two quarters, riding on the upcoming general election (GE15) and the attractive valuations of FBM KLCI — whose price-earnings ratio (PER) stood at 11.5 times as of Sept 30, 2022, its steepest discount of almost 40% compared from its five-year historical average PER of 18.4 times.
“This coupled with [possible] reducing [of interest rate] hikes over in the US will put some stability on the regional as well as the local bourse. Therefore, we should see foreign funds providing the much-required liquidity in the market, thus anticipating the FBM KLCI to possibly touch 1,580 by year-end premised on a very reasonable 13 times calendar year 2022 (CY2022) PER,” he added.
He also said a cheap ringgit and good growth potential are major catalysts for foreign investors to look into the local equity market and this was evidenced by net foreign inflows of RM6.5 billion as at end-September 2022, compared to net foreign outflows totalling RM27 billion over the 2020 and 2021 period.
Also, Yee is expecting his FBM KLCI's 1,580 year-end target to be supported by year-end window-dressing activities.
Meanwhile, Yee commended the Budget 2023 allocation for development amounting to RM95 billion, which he deemed crucial for driving the country’s economic growth going forward and also serve as a catalyst for the construction sector.
Commenting on the lacklustre performance of FBM KLCI so far this year, which fell by 11.63% year-to-date to 1,385.19 at noon trade on Tuesday, from 1,567.53 at end-December last year, Yee said the performance of the local bourse has been immensely impacted by global uncertainties primarily from the US given the volatility in the US market has created ripples across the region.
“Commodities were not spared either as [the prices of] both crude palm oil and crude oil underwent wild gyrations, no thanks to uncertainty in the outlook of the global economy. The [price of] CPO [fell] from [a] high of RM7,200 to around RM3,800 while Brent crude [fell] from US$130 to around the US$98 level,” he added.
As for corporate earnings, Yee has revised the forecast to 1% growth this year, from an earlier projection of 4.3%, mainly attributed to the cuts for the utilities and glove manufacturing sectors.
Nonetheless, he expects earnings growth to rebound and grow at a rate of 6.8% in 2023, underpinned by the banking sector on improved earnings growth due to higher interest rates.
As for the ringgit, he foresees it to remain at the RM4.50 to RM4.60 range against the greenback till end-2022 but expects the local note to strengthen in the second half of 2023 to around the RM4.10 to RM4.20 range due to an anticipation of US interest rate cut.