KUALA LUMPUR (Jan 5): The KLCI is expected to climb 11% this year to 1,660 points, supported by lower political risk premium, as well as stronger corporate earnings growth in the absence of the Cukai Makmur, according to Maybank Investment Bank (Maybank IB).
Although Malaysia’s GDP is expected to slow to 4.0% this year, it is still in the positive region and comparatively better than certain countries that face the risk of tipping into a recession, said the investment bank’s head of Malaysia and regional equity research Anand Pathmakanthan.
“We are more confident now that the market can sustain a higher valuation because we are seeing two key things which investors are cautiously optimistic on; one is the fairly seamless move to a new coalition government,” he said during Maybank IB 2023 Market Outlook media briefing on Thursday (Jan 5).
“Anything can happen in politics obviously, as we have seen in the last three years, but the sort of solid blocs that appear in the unity government give us some confidence that this government is here to stay at least for the next five years.
“The second thing is [although] GDP will slow this year, it is important to note that it is still positive to quite a big degree, 4%, compared to many other parts of the world which are going into recession in 2023; that is a very good outcome. With corporate earnings growth, the political risk premium in the market is likely to decline; these will lift the market towards our target,” he added.
Anand also noted that there is fiscal breathing room for the government to tackle subsidy matters, given that Petroliam Nasional Bhd (Petronas)’s financials remain healthy.
“There is some space for the government to take some time on this; a big driver of this space is the health of Petronas, which has recovered quite strongly over the last two years. So, the government doesn’t need to tackle this issue immediately; they can probably take some time to think about the most optimal way to scale back subsidies or perhaps change that policy,” he said.
In terms of price-to-earnings ratio, Anand said the KLCI is “looking quite attractively valued” at forward earnings multiple of about 13 times, versus the average of 16 times over the last two decades.
“Now, we are not saying that the market will go back to 16 times but we do think the market should be able to sustain 14 times, given the improving earnings and political outlook for the country,” he said.
Some of the sectors that Maybank has overweight ratings for 2023 include banking and technology, he added.
“We have a lot of tech stocks [in our research universe]; as interest rates in the US start to show peaking in the first or second quarter of this year, tech stocks would have a much better runway to perform, so it is something we would encourage investors to accumulate.
“Also, (with regard to the) consumer (sector), many stocks benefit from the reopening of the economy and with continued positive GDP growth this year, consumer stocks should be in the portfolio as well,” Anand said.