KUALA LUMPUR: Kenanga Research believes trading volume on the stock market could be lacklustre over Q2 as the 14th general election approaches and the month of Ramadhan starts in mid-May.
It said mid-and-small cap stocks have shown signs of cooling off with forward price-earnings that have yet to correct back to the lower end of their historical ranges.
"Especially so for the FBM70 Index, we believe the underlying de-rating process is likely to continue in coming months, with big cap stocks outperforming the smaller ones," it said in a Tuesday report.
Kenanga Research said, post-earnings results, it fine-tuned its FY18E/FY19E earnings growth estimates for the FBM KLCI to 6.1%/6% from -0.2%/3.4% in the previous quarter or 7.4%/6% post results reporting season.
It had said that the higher earnings estimates over the previous quarter is due mainly to earnings upgrades in the banking sector and some minor adjustments in the gaming and consumer sectors.
"Post revisions, our estimates are now getting closer to the consensus estimates of 5.7%/7.3%."
Post-results season, the research firm has pegged its end-2018 index target at 1,950 from 1,860 in the previous quarter.
However, potential inflow of foreign capital could be capped due to valuations of FBM KLCI.
"Forward PER of FBMKLCI is still traded at a relatively higher level vis-à-vis regional peers post recent corrections in global and regional markets. Forward PER valuation of FBMKLCI is back to ~15% premium against regional peers, which may not be as attractive by historical standard."
Going by sector, Kenanga Research has maintained its sector ratings except for an upgrade in the construction sector and a downgrade in gloves and plastics packaging sectors.
