FBM KLCI sees growing foreign interest
KUCHING: The FBM KLCI continues to see foreign buying with some local support mainly in the financial, construction, and property sectors with the balance into energy, healthcare, telco and plantation.
According to the research team at AmInvestment Bank Bhd (AmInvestment), even though the ringgit depreciated 2.9 per cent in January, the FBM KLCI rose four per cent to 1,517 as foreign buying gained momentum, surging 2.7-folds month-on-month (mo-m) to RM679 million into the financial (33 per cent), construction (28 per cent) and property (22 per cent) sectors with the balance into energy, healthcare, telco and plantation.
This was slightly offset by foreigners were selling out of the consumer and industrial products/services sectors.
“With the support from foreign and domestic institutions, the FBM KLCI’s year to date rise of 4.4 per cent appears optimistic compared to the negative performances of regional markets such as China’s -6.8 per cent, Thailand’s -3.4 per cent, Korea’s -2.1 per cent, Indonesia’s -1.0 per cent and Singapore’s -1.7 per cent.
“Amongst positive bourses, Malaysia outperformed Philippines’ 4.3 per cent, Vietnam’s 4.1 per cent and US’ 2.9 per cent,” the research team pointed out.
Looking ahead, it maintained its base-case end-2024 FBM KLCI target at 1,545, pegged to a 2024F P/E of 14.5-folds – slightly below its five-year median, which is likely to decline given low post-pandemic valuations.
“Against the backdrop of below-median 2024F P/ E valuation of 13.6-folds, improving corporate earnings prospects, highly compelling dividend yields, low foreign shareholding low of 19.5 per cent and prospects of a stronger ringgit towards the year-end, we expect a better end-2024 FBM KLCI conclusion amid reinvigorated expectations of infrastructural rollouts with a firm government mandate,” it said.
“However, this is tempered by slowing global economic growth and shifting expectations of the timing of US Federal Reserve cuts, which will drive volatility across all markets, coupled with moderating domestic consumption amid rising domestic inflation from targeted subsidy rationalisation, two per centhike in service tax rate to 8 per cent in March and introduction of high value good tax at five to 10 per cent in May,” the research team cautioned.
In a worst-case scenario from a global recession, new pandemic-driven lockdowns, more US rate hike surprises, bank failures and worsening geopolitical conflicts translates to an end-2023, AmInvestment projected FBM KLCI’s target of 1,315, pegged to 2024F P/E of 12.7-folds at -1 SDB5YM.
In a best-case scenario from an abrupt US Federal Reserve policy reversal and betterthan-expected global economic growth, it predicted that these would underpin an end-2023 FBM KLCI target of 1,655, pegged to 2024F P/E of 16x at 0.5 standard deviation (SD) above its 5-year median.