MIDF expects better stock market performance in 2018

KUALA LUMPUR: With the local stock market showing signs of recovery, a rebound is expected moving into 2018 aided by an expected “relief rally” post-14th General Election (GE14), according to MIDF Research.
After being the worst performing stock market in Southeast Asia this year with merely a 6.7% return year to date, MIDF Amanah Investment Bank Bhd Research Head of strategy & quantitative analytics Syed Muhammed Kifni Syed Kamaruddin sees a better outlook for the equity market next year given that there has been a recovery in corporate earnings and share price movements since the second half of 2016 and the momentum continued throughout 2017.
Speaking at a media briefing on the 2018 market economic outlook here today, he noted that the underperformance of the Malaysian equity market compared with its regional counterparts in the second half of this year was due to selling pressure arising from the “pre-election” effect.
However, drawing reference to the market performance trend during 13th GE, he believes the situation will reverse with a “relief rally” once the ballot results are out, as share prices and corporate earnings are expected to see an upturn.
“Right after (the 13th) election, we outperformed. We gained back all our pre-election discount. The Monday after GE13, the market shot up 130 points,” he said.
The local equity market, which saw strong momentum last week, is projected to end the year at around 1,740 points before reaching a new high of 1,900 points in 2018, with the banking stocks to be the growth driver.
The FBM KLCI closed 1.43 points or 0.08% lower at 1,751.64 today.
Despite registering positive foreign fund flows, MIDF Amanah chief economist Dr Kamaruddin Mohd Nor cautioned on the challenges to heed in terms of possible interest rate increases by Bank Negara Malaysia next year as well as developments in the home country of investors.
Based on MIDF’s baseline assumptions and barring any surprising upside in terms of economic growth and inflationary pressure, Bank Negara is projected to increase the Overnight Policy Rate (OPR) by 25 basis points to 3.25% in 2018.
As for economic growth, he expects the gross domestic product growth to moderate to 5.5% in 2018 from the forecast 5.8% growth this year due to the high base effect.
Meanwhile, the ringgit is seen climbing to RM3.95 against the US dollar by the end of 2018, buoyed by the interest rate tightening by global central banks, especially the US Federal Reserve, stable commodity prices, continued robust economic growth, the OPR hike and the fiscal deficit reduction.
For this year, the local unit is expected to settle at RM4.05 to the dollar. As at 5pm today, it was up 0.02% at 4.0855.