FBM KLCI rebounds but year-end target downgraded

25 Feb 2020 / 22:18 H.

PETALING JAYA: The FBM KLCI saw a technical rebound today, rising back above the 1,500-point psychological level after panic selling on Monday due to the political turmoil.

However, the year-end target for the benchmark index has been revised downwards to as low as 1,540 points. It ended 10.82 points or 0.73% higher at 1,500.88 points today.

All the indices on Bursa Malaysia ended in positive territory today, with technology leading the way, closing 1.66% higher at 40.44, followed by healthcare (1.52%) and palm oil (1.46%).

Market breadth was positive with 531 gainers versus 380 losers. Turnover was at 3.125 billion shares valued at RM2.757 billion.

On the currency front, the ringgit depreciated further by 0.19% to 4.2330 against the US dollar as at 5pm today.

While there is still no clarity on the political direction of the country, domestic investors are likely to adopt a holding pattern, waiting on important key initiatives to help drive the economy out of its current inertia, recently made worse by the novel coronavirus outbreak, Public Investment Bank (PIVB) Research said in a note.

“The FBM KLCI has tumbled to 14.7 times one-year forward price-earnings multiple, one standard deviation below its long-term average of 16.4 times, now deeming it relatively inexpensive. While we urge caution in light of ongoing uncertainties, volatilities will present trading opportunities,” it said.

It added that foreign investors are likely to exit the market first, on added concerns that their interests may not likely be at the forefront of considerations, should the “backdoor government” come to pass.

“Sector-wise, construction may get a shot in the arm from even more expansionary expenditures as purse-strings may be loosened in efforts to drive Malaysia’s near-term economic growth.

“A temporarily weak ringgit should be good for the manufacturing sector (particularly exporters) though coronavirus-related concerns and its impact on global demand may impede upsides,” it said.

PIVB Research’s year-end KLCI target of 1,680 points is under review, pending the impact of Covid-19 on market earnings, as well the country’s potentially new political landscape.

In terms of stock picks, PIVB Research said it favoured AMMB Holdings, Genting, Hibiscus Petroleum, Johore Tin, Magni-Tech Industries, Mega First, Sarawak Plantations, Serba Dinamik, SKP Resources and Ta Ann Holdings.

Affin Hwang, which has lowered its end-2020 KLCI target to 1,540 points, opined that having an interim prime minister will only compound concerns over a transition of power and deter foreign inflows.

Over the near term, given enhanced market volatility, the research house advocated a taking a defensive investment strategy leaning towards the real estate investment trust and healthcare sectors.

“Our other sector overweights are rubber gloves, plantations and electronics manufacturing services.

Because of the increased policy uncertainty, we downgrade construction to underweight, from overweight. We would also be weary of stocks with high foreign shareholdings in the near term,” it said.

Meanwhile, Hong Leong Investment Bank Research said following the update of some of the recently reported results, its KLCI earnings growth forecast for 2020 is lowered to 4.3% from 6.4%.

As such, it has slashed its KLCI year-end target to 1,600 points from 1,640 points tagged to a price-to-earnings ratio of 16.2 times.

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