Bursa Malaysia bull run to continue this year, says global financial company

Export growth and positive corporate earnings revisions among reasons

GLOBAL financial firm Nomura Holdings believes that Malaysia’s stock market will continue its bull run this year, giving eight reasons why this is possible.

They include broad-based growth in exports, positive corporate earnings revisions, improved balance sheet and good general election vibes.

The benchmark FTSE Bursa Malaysia KLCI (FBM KLCI) finished at a high of 1,796.81 points on December 29 last year, up 155.08 points, or 9.45 per cent, from 1,641.73 points at the end of 2016.

“The first reason is that broadbased growth in exports, along with consumption recovery, means that many of the macro improvements will carry over to this year.

“As such, we forecast a 5.5 per cent gross domestic products growth (GDP), on the back of a healthy current account surplus and growing fiscal revenue on rising energy prices,” said Nomura.

Secondly, it expects positive earnings revisions this year, led by margin improvements, which will lead to more foreign inflows.

The firm, however, said only a nominal amount of GDP would continue to be translated to revenue growth.

Thirdly, Nomura cited improvements in corporate balance sheets, with aggregate leverage declining to 31 per cent from 33 per cent last year.

“We see both operating and free cash flow generation remaining strong, with no significant capital expenditure cuts, as well rising cash balances that indicate dividends may rise this year.”

On the general election, the firm said: “In three of the past four election years, the benchmark index rose in the 12-month period surrounding the elections. As such, we forecast the next general election to be in the second quarter of this year, with Barisan Nasional as the projected winner.”

The fifth reason is that more inflows to local institutional asset managers due to rising contributions and out-of-the-norm net selling in the fourth quarter this year, will set the stage for net buying in the first half.

“Malaysia’s relative valuation, in comparison to its Asean peers, looks more favourable now as the market has lagged,” it said of its sixth reason.

For the seventh reason, Nomura noted that banks should see key concerns getting addressed as loan growth and net interest margin stabilised, with loss covers including reserves now almost at the range of 100 per cent without significant Common Equity Tier 1 erosion.

Finally, Nomura pointed to the local currency factor, saying the appreciating ringgit had historically been correlated with the FBM KLCI upside.

“The ringgit rising against the main countries where foreign workers are sourced should ease labour costs as many corporates are also likely to report foreign exchange translation gains in the fourth-quarter 2017 results season,” it added.