MIDF Research said in retrospect, foreigners offloaded -RM19.5bil and -RM6.9bil in 2015 and 2014 respectively.
KUALA LUMPUR: Affin Hwang Capital Research believes the Malaysian stock market is still in its early-stage rally and it remains positive with a new FBM KLCI target of 1,813 by end-2017.
It said on Monday the world economy, including developed markets, is growing on an even keel, global trade is rebounding, Malaysia’s GDP is strong, the Ringgit is strengthening, capital outflows are reversing, and commodity prices are rebounding.
“Hence, recent market talk of profit taking is positive, in our view, as it makes the uptrend more sustainable,” it said
Affin Hwang Research said the KLCI has done well since hitting a post-Trump election victory trough of 1,616.64.
It said admittedly, the market rebound has made investment decisions more difficult with higher valuations and thus, associated risks. Yet the stock market is still up less than 10% since then.
“We believe that things will improve further as we move deeper into 2017,” it said.
The global outlook has improved with the IMF revising up world GDP growth to 3.5% from 3.4% in 2017. This optimism is corroborated by the EU, which boosted its 28-member country GDP growth to 1.9% from 1.8% previously.
Even Japan has increased its 2017 economic expansion to 1.6%, from 1.5% previously. Meanwhile, the Fed expects the US to grow at a median 2.1% rate.
On Malaysian shores, 1Q17 GDP blew past the most optimistic expectation at 5.6% year-on-year driven by private consumption and gross fixed capital formation. The current account remains in a surplus of 1.7% of GNI, while fiscal consolidation is attainable at a 3% deficit in 2017E (2016: 3.1% of GDP).
Headline inflation has moderated after hitting a high of 5.1% in March 2017 and should settle in at the government’s 3%-4% target for 2017. Catalysts are building up
“One catalyst for the stock market is a reversal of capital outflows that have characterised emerging markets, including Malaysia, since early November 2016.
“In the equity market, we are very pleased to note net inflows for every month so far this year. Total inflows up to May 2017 were RM9.8bil already more than neutralising the RM8.2bil in outflows in 2016,” it said.
Meanwhile, the public debt market has seen persistent selling pressure since November 2016 culminating to a sharp RM27.5bil rush to the door in March 2017 and overwhelming the RM22.9bil inflow for the first 10 months of last year.
“Nonetheless, green shoots have emerged with RM6.2bil in net inflows in April 2017 into government securities. This is indirectly linked to another catalyst that is also gaining momentum – Ringgit strength.
“Our fully-diluted EPS growth at end-February 2017 was 3.7%. Fast forward to now and analysts are still conservative with the growth rate that has been revised up just marginally to 3.8%. It is small but the trajectory is a welcome break from the past three years, and hopefully, the growth rate can pick up as the year progresses.
“The improvement is driven by the banking & financial, oil & gas and healthcare sectors. On the back of the EPS growth figure, we revised up our KLCI year-end target from 1,799 to 1,813 based on an unchanged 17.9 times PE.
“If the earnings momentum continues, we could potentially see 6.6% fully-diluted EPS growth in 2018E, bringing the KLCI to 1,933 next year.
“We have made substantial changes to our top-picks list in part due to the market rally with many stocks reaching our target prices,” it said.
“In total, we have kept 10 stocks on the list, deleted eight and made five additions. In the past three months, we initiated coverage on 12 new companies. This time around, we have provided a separate list for these 12 companies instead of including them in the usual top-picks list in order to highlight the investment merits of each stock,” it said.
The top picks are AirAsia, Bumi Armada
, CIMB. Ga,muda, Genting, Inari. KL Kepong. KPJ Healthcare, Maybank, Petra Energy, Public Bank, Ta Ann, Tenaga, UOA Development and WCT.
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