PETALING JAYA: Foreign funds are expected to gravitate continuously into Malaysia in the second half of this year (H2’22) on the back of low valuations and a relatively steady economic outlook, despite the subdued sentiments on the local bourse, according to Rakuten Trade Sdn Bhd.
Its head of research, Kenny Yee (pix), believes a flight of funds back to Asia, with spillovers to Malaysia, is imminent in the event of heightened uncertainties on Wall Street. The prevalent weak ringgit may be an added incentive for foreign funds.
“Therefore, we should see these foreign funds provide the much required liquidity in the market, thus anticipating the FBM KLCI to possibly touch 1,670 by year end premised on a very reasonable 13.5 times 2022 price-to-earnings (PER),” said Yee during Rakuten Trade’s H2’22 market outlook briefing today.
Performance of the local bourse has been immensely impacted by global uncertainties primarily from the US.
However in line with the high crude oil prices coupled with more inflows of foreign funds, it reckoned the ringgit will strengthen by year end to around the RM4.15-4.20 level against the greenback.
On investments, Rakuten Trade advised investors to “stay defensive” and to invest in less volatile sectors such as banking, gaming, oil & gas, plantation, real estate investment trust, technology and utilities, which it gave an overweight rating for H2’22.
For the banking sector, Rakuten Trade vice president of research Thong Pak Leng said banks are expected to see uplift in earnings on the back of better loan growth in line with economic recovery in addition to lower credit cost inputs with possible write-backs from provisions.
Concerning oil and gas, Thong expects oil prices to continue staying elevated. The ongoing conflict between Russia and Ukraine coupled with subsequent sanctions on Russia have created significant market disruptions. After a period of under investment, he expects Petroliam Nasional Bhd’s capital expenditure (capex) to normalise to the range of RM40-50 billion per year for the next few years (versus 2020/2021 capex of RM33 billion/RM31 billion). Globally, total upstream spending is also expected to continue its steep recovery trajectory from the low of 2020-2021.
On the plantation sector, it believes palm oil prices will likely stay elevated beyond the first half of 2022 and into 2023 due to the Russian-Ukraine conflict having further compounded the supply bottleneck.
“Already, rising grain prices are threatening to limit the prospective planting season for oil crops. Palm oil supply, however, looks set to improve seasonally so expect some downward pressures on CPO prices but staying elevated due to tight overall edible oils and fats supply internationally.”
