FBM KLCI to grow in 2018, 2019
KUCHING: The team of AmInvestment Bank Bhd (AmInvestment Bank) was positive on the outlook for the FBM Kuala Lumpur Composite Index (FBM KLCI), projecting the FBM KLCI’s earnings to grow by 5.7 and seven per cent in 2018 and 2019.
AmInvestmentBankmaintained year-end targets of 1,900 points and 2,040 points in 2018 and 2019 for the FBM KLCI, based on 18.5 times 2018F and 2019F earnings respectively.
“This is at a 1.5 times multiple premium to the five-year historical average of about 17 times, largely to reflect the cyclical upturn in corporate earnings growth; and the introduction of largely high priceto-earnings ratio stocks during the recent round of changes to the FBM KLCI constituents,” it said in a report yesterday.
This came after the semi-annual review on the FBM KLCI in May 2018, the index providers FTSE RussellandBursaMalaysiadecided to remove three constituents -- YTL Corporation Bhd, AMMB Holdings Bhd and Astro Malaysia Holdings Bhd -- and replace them with Hartalega Holdings, Malaysia Airports and Dialog Group, with effect from June 18, 2018.
“We are reflecting these changes in our revised valuation. However, we are mindful of various headwinds that could cap the upside of the FBM KLCI including an elevated market risk premium while the new administration rolls out its new policies; the US Fed that has turned a tad hawkish; persistent outflows of funds from emerging markets; the structurally rich valuations of the Malaysian equity market against its regional and global peers; and external risks such as escalating international trade tensions and the potential of a new EU existential crisis.
“We hold the view that investors’ sentiment towards emerging markets will improve at some point: when the market feels that the US rate hike cycle and the US dollar upcycle are about to taper off; when the risk-andreward profile and valuation-to-growth matrix of emerging markets become attractive again; and if commodity prices stay firm, strengthening the finances of commodity-exporting emerging markets.”