‘FBM KLCI MAY EXCEED 1,700 POINTS’
Rakuten Trade says this is possible if foreign fund inflows revert to normal levels
RAKUTEN Trade Sdn Bhd suggests that the FTSE Bursa Malaysia KLCI (FBM KLCI) has the potential to exceed the 1,700 threshold if foreign fund inflows revert to normal levels.
Rakuten Trade head of research Kenny Yee Shen Pin emphasised that a consistent flow of foreign investments would bolster Malaysia’s standing in the stock market.
“We expect the FBM KLCI to reach 1,660 points by the end of this year based on a 15.5 times price-to-earnings ratio (PER) with a 16 per cent earnings growth.
“If foreign fund inflows return to normal, we may see the index surpassing the 1,700 mark based on just a 16 times PER,” he said during the virtual media briefing on Malaysia’s second quarter market outlook yesterday.
Nevertheless, Yee said although foreign investors were returning to Asia, they lacked the staying power, primarily affected by global uncertainties.
He also added that the more records Wall Street breaks, the more vigilant Malaysia may have to be, as the United States remains the epicentre of global market volatility.
On that note, Yee said unlike last year, foreign fund inflows into the equity market were quite apparent, but the progress had been rather erratic.
He said this could be due to a selective portion that intended to find stability rather than going through the vagaries on Wall Street.
He added that this could also be a prelude to or start of certain portfolio diversification among foreign funds, albeit on a smaller scale.
“Foreign shareholding touched its lowest point at the end of 2021, reaching only 11.35 per cent, while the nation was suffering from Covid-19 and undergoing a political transition.
“Fast forward to 2023, we noticed a marked improvement in foreign shareholding amid a more stable political climate in the fourth quarter of 2023 until now.
“Therefore, we are confident that foreign shareholding will surpass the 20 per cent threshold and test the 25 per cent level since Malaysia has been shunned and underinvested by foreign investors for so long.”
Meanwhile, Yee also highlighted that retail participation had been steady until a selective group of small caps experienced an abrupt, sharp sell-down.
He said this mini contagion affected retail participation, which dipped to a low of 20 per cent from around 26 per cent before.
“Though we view this as a kneejerk reaction, given the time to heal from the trauma, we believe retail participation should revert to normal,” he noted.
Commenting on the ringgit, Yee said the current exchange rate of the currency did not truly reflect the country’s improving environment.
He said Rakuten Trade believes that the ringgit would strengthen against the US dollar to between the range of 4.50 and 4.55 by the end of this year.