Earnings per share the key determinant to FBM KLCI’s performance
KUCHING: Observing the trends of earnings per share (EPS) may be the key to identifying the FBM KLCI’s performance.
Affin Hwang Investment Bank Bhd (AffinHwang Capital) saw that historically, earnings growth has been the key driver behind the KLCI’s performance.
“For example, the KLCI last saw an annual gain of 9.4 per cent in 2017, the same year corporate earnings growth grew 7.9 per cent,” it explained in a note yesterday.
“For 2020, the market may however arguably discount EPS growth in 2020 given the current macro predicament.
“However, as markets are forward looking and look beyond 2020, we believe that there is a possibility that the market optimist will be disapointed.
“Thus, we address the “milliondollar” question on everyone’s mind as to whether growth will form a “V” or a “U”-shaped recovery.”
AffinHwant Capital’s economist recently downgraded his Malaysia 2020E GDP growth to a contraction of 3.5 per cent, with expectations of a U-shape recovery for the economy and believes that an economic recovery will only materialise in the later part of 2021.
“This leads us to believe that corporate earnings growth will not only decline in tandem with the economy, but likely also linger as the negative impact from Covid-19 and the country’s lockdown filters down to the economy.
“In our view, with major parts of the global economy crippled as their populations are locked down, we believe the impact on global economies will be nothing like those in recent times.
“The sustained economic carnage resulting from business closures, unemployment and defaults and unemployment is likely to reveberate thorughout the global economy, and over a period of time.
“Reduced cash flows of inviduals and business should lead to weakened consumption spending and future corporate investment.