MIDF: FBM KLCI to reach 1,800 points by year-end

PETALING JAYA: Despite the uncertainties, the local stock market is expected to move in an upward direction this year, backed by a less aggressive US Federal Reserve (Fed), mild local corporate earnings growth and supportive domestic economic policies, says MIDF Research.

The brokerage reiterated its view that the benchmark FBM KLCI would reach 1,800 points by the end of 2019. This would price the Malaysian equity market at a 2019 price-earnings ratio of 17.4 times, representing a premium to its multi-year mean of 16.8 times.

In the near term, though, the direction of the local bourse would be influenced by various external factors such as the progress of the US-China trade war, Brexit and the US-North Korea summit, MIDF said.

“Domestically, the macro picture remains healthy, with gross domestic product growth expected at 4.9% this year, while corporate earnings growth (is expected) at circa a middle single-digit figure,” it said.

Given the various risks affecting the movement of the local bourse, MIDF has recommended a trading strategy focusing on “velocity and volatility”, which is divided into four quadrants – “opportunist”; “trading”; “buy and hold”; and “bullets”.

“Overall, we observed that construction players are the most suitable for a ‘trading’ strategy due to their high velocity and high volatility,” the brokerage said.

“Other sectors such as rubber gloves are fit to be used as ‘bullets’ for the execution of the ‘opportunist’ trading strategy,” it added.