PETALING JAYA: MIDF Research has cautioned investors to tread carefully in the last three months of 2018, as the global outlook continues to be marred by political and trade uncertainties.
A heightened likelihood of a short-term correction in the United States equity market, worsening Sino-US trade war and a technical resistence in the FBM KLCI that may persist until the year-end could limit Bursa Malaysia’s performance in the fourth quarter of 2018 (4Q18), according to MIDF Research.
The research house has reiterated its 2018 year-end FBM KLCI target at 1,800 points.
However, MIDF Research said that a positive corporate earnings growth in 4Q18 may provide support for the local market against the backdrop of the lingering challenges.
Additionally, greater clarity on the government’s policies via Budget 2019 measures and the mid-term review of the 11th Malaysia Plan, as well as the possibility of a technical rebound in emerging markets, have also been cited as potential market supporting factors.
“Geopolitical events will continue to influence investor sentiment in Malaysia and also regionally, impacting exports, the exchange rate and the capital market performance.
“Thankfully, this will be mitigated by stable inflation and gross domestic product growth.
Expectations of policy reforms will also put the country on a stronger footing to face the headwinds on the external front.
“We are forecasting the economy to expand 5.2% this year and grow between 4.5% and 5% in 2019.
Inflation is also expected to moderate this year and next year to 1.3% and 1.2%, respectively,” stated the research firm in a note.
In the first nine months of 2018, the benchmark FBM KLCI was the top performer in Asia, as it advanced 7%.
Valuation-wise, MIDF Research pointed out that the index is relatively more expensive in comparison to many key South-East Asian markets and main European markets.
However, it is cheaper against key Wall Street indices.
“In tandem with the recent price upswing, we also witnessed an expansion in the price-to-earnings ratio (PER) of the FBM KLCI back to above its long-term mean levels. The PER of FBM KLCI is now at 16.7 times against its long-term (2006-present) mean of 16.3 times,” said the research house.
For calendar year 2019, MIDF Research projects the FBM KLCI to achieve a year-end target of 1,900 points.
“While the FBM KLCI earnings are expected to continue to expand into next year, the growth rate is anticipated to remain rather lukewarm at 5.2%,” it said.
MIDF Research has not made changes to its sector calls.
Moving forward, the research house continues its positive stance on the automotive, aviation, banking, healthcare, insurance, oil and gas (downstream), power and property sectors.
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