PETALING JAYA: Shares on Bursa Malaysia will likely trend higher next year, with some analysts expecting the key benchmark FBM KLCI to end 2017 at around 1,720-1,750 points.
The positive trend, said experts, is due in part to the expected rebound in corporate earnings next year from a low base and the prevailing inexpensive valuations of the Malaysian bourse.
According to Maybank Investment Bank Bhd (MaybankIB), the FBM KLCI is no longer “the most expensive by a huge valuation premium”.
“With cumulative foreign net buying already down to low levels, the downside for Malaysian equities from foreign selling should be limited, barring another global rout... we think the external view on Malaysian equities will also be a view on the ringgit,” MaybankIB said.
The investment bank added that an early general election in Malaysia next year would lift sentiment, which would be positive for equities.
Similarly, Public Investment Bank Research (PublicIB) said the markets were primed for investors with a longer-term horizon and to position for a turnaround, as the corporate earnings outlook had somewhat stabilised and Malaysia remained fractionally cheaper from a regional standpoint.
“The one major push factor to drive market participants out in droves at this point or even in the foreseeable future is the further weakening of the ringgit, but which would only affect foreign investors specifically. Domestic investors flushed with cash should be primed for re-entry,” PublicIB said.
“While it is still early days to assess the potential impact of United States president-elect Donald Trump’s action plans and ramifications on the rest of the world, we are cautiously optimistic that level heads will prevail,” the investment bank added.
Both MaybankIB and PublicIB have pegged their end-2017 FBM KLCI targets at 1,750 points based on a valuation of 16 times 2018 earnings.
MaybankIB’s previous end-2017 FBM KLCI target was 1,780 points.
In its recently published research report, MaybankIB recommended a defensive core equity portfolio, as external headwinds are expected to stay dominant and drive volatility.
Within the defensives, the investment bank is “overweight” on utilities, real estate investment trusts (Reits), construction, and oil and gas (O&G).
PublicIB is also “overweight” on power, construction and O&G, in addition to plantations.
MaybankIB is “underweight” on cement and property.
“Thematic investing in 2017, we believe, will revolve around construction plays, with the added angle being new major infrastructure projects relating to China’s OBOR (One Belt One Road) initiative,” it said, pointing to projects such as the East Coast Rail Line, Kuantan Port, Melaka Gateway and Kuala Lumpur-Singapore high-speed rail.
MaybankIB said thematic investing next year would also revolve around foreign-exchange proxies; oil price proxies; small and mid caps; general election plays; and higher tourist arrivals, with 2017 being Visit ASEAN@50 Year and as Malaysia plays host to the 2017 SEA and Para Asean Games.
Its refreshed top “buy” list has taken cue from its weight for sectors such as Tenaga Nasional Bhd (TNB), Gamuda Bhd, SapuraKencana Petroleum Bhd (SapKen), IGB Reit and Yinson Holdings Bhd, as well as expected thematics such as Genting Malaysia Bhd and Malaysia Airports Holdings Bhd, in addition to its value picks of Alliance Financial Group Bhd, Inari Amertron Bhd and RCE Capital Bhd.
PublicIB’s recommended stocks include Genting Plantations Bhd, Kossan Rubber Industries Bhd, Chin Hin Group Bhd, Ta Ann Holdings Bhd, SCGM Bhd, Sime Darby Bhd, SapKen, Wah Seong Corp Bhd and LBS Bina Group Bhd.
Meanwhile, AllianceDBS Research in its report last week argued that going into 2017, macro conditions for Malaysia would remain unexciting.
“Weak domestic consumption amid a rising unemployment rate, low income growth and high household indebtedness will continue to dampen the domestic economy. While corporate earnings are expected to rebound in 2017 from a low base, there is lack of conviction due to prevalent earnings risk from the telco and banking sectors,” the brokerage said.
“As such, we continue to be cautious on the market outlook in 2017. This is particularly so for the big-cap stocks, as the FBM KLCI is currently trading at 16.7 times and 15.4 times its 2016 and 2017 estimated earnings versus its historical mean of 15.4 times,” it added.
AllianceDBS’ end-2017 FBM KLCI target stood at 1,720, which was derived by using a bottom-up valuation approach.
It favours small-to-mid-cap stocks, which would be boosted by an additional RM3bil allocation by Government-linked investment companies to external fund managers.
AllianceDBS’ top picks include TNB, Public Bank Bhd, Hong Leong Bank Bhd, Gamuda, Sunway Reit, Inari, CapitaLand Malaysia, Sunway Construction Bhd, VS Industry Bhd and SKP Resources Bhd.
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