Kenanga: Stock market to have good run in 1Q18
Besides, the undemanding valuation of the FTSE Bursa Malaysia KLCI (FBM KLCI) against regional peers is likely to attract more foreign interest on top of the favourable uptrend of the ringgit and crude oil prices.
KUALA LUMPUR: Kenanga Investment Bank Bhd expects the local equity market to be relatively good in the first quarter of this year underpinned by several favourable seasonal factors, said head of Research at Kenanga Research, Chan Ken Yew.
He said in the short run, the market would be supported by the spill-over effects from favourable seasonal factors, coupled with improved buying momentum.
“Besides, the undemanding valuation of the FTSE Bursa Malaysia KLCI (FBM KLCI) against regional peers is likely to attract more foreign interest on top of the favourable uptrend of the ringgit and crude oil prices.
“Timing wise, we believe investors should start nibbling if and when the benchmark index retraces below 1,765,” he told Bernama in an interview.
As of end-December 2017, the FBM KLCI closed at near 52-week high at 1,796.81. This closing is 1.8 per cent higher than Kenanga Investment’s prediction of 1,765.
Meanwhile, Chan said there were uncertainties over global capital flows arising from the unwinding of quantitative easing and United States’ (US) tax reform, as well as the sustainability of US equity market due to high expectations of economic and corporate earnings growth, although these uncertainties were no strangers to investors.
“In fact, we also always hear investors raising concerns over the forthcoming general election, and as such, we urged investors to focus back on the fundamentals... but of course with an open mind on potential black swans arising from these uncertainties,” he said.
While the recent run-up in commodities prices could be due to a weaker US dollar, Chan said the strength of some commodities such as aluminium, steel and crude oil could provide trading opportunities for their related sectors and stocks.
“For instance, steel prices are currently at a five-year high of RM2,700 to RM2,850 per tonne, and we believe steel prices could be sustained resulting from the reduction of imports from China, due to the Chinese government’s initiative to cut output with safeguard measures into Malaysian shores, and the higher demand for steel products as major infrastructure
Chan Ken Yew, Research at Kenanga Research head
projects pick up,” he said.
As for risks, he said investors should also realise and be prepared to embrace the impact of interest rate hike, should it materialise, while the banks could see a kneejerk rally following the short-term expansion in interest margin, but asset quality remained a concern in the longer run.
Chan also reminded investors to stay cautious over oil and gas players that have high borrowings while property counters might see greater selling pressure before buying or trading opportunities emerge.
“As for plantations sector, it may not see immediate rerating catalysts judging from the lacklustre price movement,” he added.