PETALING JAYA: Rakuten Trade forecast Bursa Malaysia’s FBM KLCI to end the year at 1,630 points, supported by minor window-dressing activities.
“In addition, the current season earnings have been positive to support that outlook,“ its head of research Kenny Yee said at a media briefing today.
The KLCI gained 9.61 points or 0.6% to close at 1,604.36 points today.
For 2020, Rakuten expects the KLCI to rise to 1,750 points based on a price-to-earnings ratio of 16 times.
On the currency front, the research house sees the ringgit ending the year at 4.10-4.15 range against the US dollar.
“We expect the ringgit to test the 4.00 level against the dollar in the first quarter of next year,” Yee said.
He highlighted that an attractive ringgit and reasonable market valuations should limit the downside to the local equity market. Furthermore, a stable interest rate could attract foreign fund inflows amid widening yields vis-a-vis regional peers.
“This is contingent on Bank Negara Malaysia maintaining its rates, as the interest rate differential between Malaysia and its peers will induce the inflow of foreign funds that will support the equities,” he elaborated.
Yee pointed out that Malaysia’s regional peers such as Thailand, Indonesia and the Philippines are more interest-rate sensitive.
“In the case of Thailand, it has a lot of hot money inflows in the country, which is why it has to address its interest rate to push out some of the inflows. Otherwise it will have an impact to its currency similar to the Asian financial crisis in 1998.”
Speaking of local bourse, Yee said there is no major catalyst in the immediate horizon, following the failed merger between Celcom Axiata and Telenor SA, which was expected to spur similar mergers.
“Hopefully, come next year most of the pump-priming projects announced by the government will be finalised and that should net some enthusiasm into the market. In turn, the pump-priming activities are also set to benefit the local banking sector.”
On the investment strategy, Yee said blue-chips stocks are the most attractive, especially the banking counters which have high foreign shareholding with share prices expected to pick up due to the low base effects.
Yee is also slightly positive on the construction sector as it will be the beneficiary of pump-priming activities announced in Budget 2020.
The research house estimated that the total value of the mega projects to be at RM440.5 billion from the various infrastructure projects announced such as LRT3, MRT2, ECRL and Bandar Malaysia, among others.
Meanwhile, Rakuten has revised downward corporate earnings growth forecast to -3.3% from -0.5%. However, it is expecting a 5.8% growth next year versus initial forecast of 6.1%.