BURSA NEARING TURNAROUND?

FBM KLCI can surge to 1,800-1,900 points this year, says Macquarie

MALAYSIAN equities, the world’s worst major market this year, might be close to a turnaround on the back of the government’s increasing support, according to Macquarie Group Ltd.

Reforms at state-linked companies, more political clarity and stimulus could see the benchmark FTSE Bursa Malaysia KLCI (FBM KLCI) surge to 1,800 points

in the base scenario, or even reach 1,900 points in the bullish case, Macquarie analysts wrote in a recent note.

That implies a 10 to 16 per cent return from Friday’s close.

Malaysian stocks have bucked the global rally this year, losing more than three per cent this year while the MSCI Asia Pacific Index gained 11 per cent.

An economic growth slowdown and uncertainty over the new administration’s policies led to US$4.4 billion (RM18.2 billion) of equity outflows in the past 12 months.

Prime Minister Tun Dr Mahathir Mohamad has shown signs of moving away from his earlier budget-cutting stance to revive large state projects and seek foreign investments.

Malaysia struck a deal with China to resume the East Coast Rail Link (ECRL) at a lower cost and revived the US$34 billion transport hub Bandar Malaysia.

“Fiscal stimulus, per resurrection of ECRL and Bandar Malaysia projects, is returning, oil prices are exceeding target and liquidity is ample,” the bank said in the report.

“Government policy-centric catalytic news flow alone could allow the FBM KLCI to recover to 12-month highs of 1,850.”

Macquarie expects similar developments to happen with Mass Rapid Transit 3 and the Singapore-Kuala Lumpur high-speed rail project, as well as in the telecom sector and within the Petroliam Nasional Bhd (Petronas) group of companies.

The FBM KLCI is showing some signs of a revival. It climbed one percent last week, halting five straight weeks of declines, the longest stretch of losses since 2015.

The main risk remained Malaysia’s potential exclusion from FTSE Russell’s World Government Bond Index, which could lead to US$23 billion of government bond outflows as other index providers followed suit and worsen foreign selling in equities, said the bank.

Macquarie prefers “yield-resilient” plays, corporate banks, government-linked companies.

Its top picks are Tenaga Nasional Bhd, Telekom Malaysia Bhd, Axiata Group Bhd, Petronas Chemicals Group Bhd, MISC Bhd, Malayan Banking Bhd, CIMB Group Holdings Bhd, AMMB Holdings Bhd, RHB Bank Bhd, Gabungan AQRS Bhd, Malaysian Resources Corp, HSS Engineers Bhd, ViTrox Corp and Top Glove Corp.