FBM KLCI seen reaching 1,530 points by year-end

Aminvestment Bank mildly positive on market outlook

PETALING JAYA: Aminvestment Bank Research is mildly positive on the market outlook in the second half of this year (2HFY20) with the FBM KLCI projected to reach 1,530 points by year-end.

The brokerage said the year-end target was based on 18 times its 2021 forecast-earnings projection, which is in line with its fiveyear historical average.

“We believe there is a case for the FBM KLCI’S multiple to stay elevated to reflect the robust domestic liquidity, driven by the riskon sentiment globally that has been triggered by the massive monetary and fiscal stimulus packages around the globe, optimism on economy reopening and the news flow on vaccine development.

“Also helping are the risk-free assets, such as cash and Malaysian Government Securities (MGS), which are hardly generating any positive inflation-adjusted yield, following a series of cuts in the overnight policy rate by Bank Negara,” the bank said in its second half 2020 Market Outlook report released yesterday.

The FBM KLCI closed up 13.46 points or 0.9% at 1,514.43 yesterday.

Aminvestment believes that the next market driver could come from the return of appetite for risk assets, including emerging market equities, on expectations that the Covid-19 pandemic is to gradually come under control or be simply driven by the need for investors to look elsewhere for opportunities.

This is because valuations of developed market equities, especially the large-cap technology stocks, have become increasingly rich.

The research firm has an “overweight” on the automobile, consumer, glove, healthcare, power, real estate investment trust (REIT) and technology sectors.

“We believe there is a case for staying fully invested in the glove sector as no one knows for sure if the pandemic is going to go away or evolve into another wave, or any effective treatment drug and/or vaccine could be found anytime soon.

“Post-pandemic, there is a case for staying invested in the sector given the higher hygiene standards and practices of global population,” it said. According to the bank, the pandemic has accelerated the digitalisation of the economy.

This has spurred tremendous investment in both software and hardware technology.

While lockdowns and supply chain disruptions at the heights of the pandemic did delay the rollout of 5G in certain countries, it has also sped up the adoption of 5G in a few cities in China out of necessity.

Going by this, it believes that investors should stay fully invested in technology during and post-pandemic.

As for the automobile sector, the bank forecasts a strong second half, driven by a surge in car sales on reduced new car prices following the sales tax holiday from June 15 to Dec 31, 2020 under the short-term National Economic Recovery Plan or Penjana.

The bank said that while automobile stocks were re-rated on the heels of the announcement in early June, it believes the market has not fully priced in the full impact of the measures.

The bank added that logistics (particularly, parcel delivery on the back of the booming online shopping) and telco (higher Internet and mobile data usage on accelerated digitalisation of the economy) are “technically” beneficiaries of the pandemic and should continue to enjoy the demand growth post-pandemic although they are weighed down by their sector-specific structural issues such as a crowded playing field with cut-throat competition.

Where banking is concerned, the sector “fits the description of a recovery play,” said Aminvestment.

“We believe the market has priced in the negative earnings impact from the sixmonth interest-free loan moratorium.

“However, investors still have two key concerns namely if the six-month national service will be extended and if there will be a significant uptick in the loan credit cost at the end of the moratorium (as certain businesses fail to tide over the slump caused by the pandemic and default on their borrowings).”

“We believe there is a case for the FBM KLCI’S multiple to stay elevated to reflect the robust domestic liquidity, driven by the risk-on sentiment globally that has been triggered by the massive monetary and fiscal stimulus packages around the globe.” Aminvestment Bank