PETALING JAYA: With 2021 set to be a year of rebound for corporate earnings, the Malaysian stock market may emerge as the best performer in the Asia-Pacific region.
Leading the surge in earnings would be the gaming, property, chemicals, gloves and healthcare sectors.
According to Credit Suisse, local equities’ net profits in 2021 are forecast to leap by nearly 59% as compared to an estimated decline of 29% this year.
This would likely surpass the projected 2021 net profit growth of Singapore (41.1%), South Korea (40.9%), India (37.1%), Hong Kong (33.7%) and China (18.5%), among others.
“Excluding gloves, the rest of our coverage universe (for Malaysia) is expected to suffer a net profit decline by 37% in 2020 and rebound by 55% in 2021, ” the research house said in a research report.
Credit Suisse added that the Malaysian market’s valuation has turned cheaper, given record foreign outflows over the past months.
“The market is trading on a forward price-to-earnings (PE) multiple of 13.9 times, slightly below the long-term average of 14.2 times.
“Having historically traded at an average PE premium of 4% to Asean peers, Malaysia’s PE is now trading at a 9% discount, ” it said.
Sectors that are trading at compelling valuations, according to the research house, are property, gaming, utilities and gloves.
Meanwhile, TA Securities Research also expects 2021 to be a “very strong year” for the Malaysian stock market as well as the country’s economy.
“Our gross domestic product (GDP) growth forecast of negative 4.5% in 2020 and 6.4% in 2021 are in line with the government’s forecast of negative 4.5% and between 6.5% and 7.5% in those respective years.
“Meanwhile, earnings of FBM KLCI component stocks are expected to contract by 14.9% in 2020 before growing strongly by 39.5% in 2021, ” it said.
TA Securities Research believes the current bull cycle, which started in last March, still has a long way to go.
Among the key factors that could drive the stronger performance of FBM KLCI in 2021 are the ample liquidity in the market, the discovery of effective Covid-19 vaccines and the multilateral approach in global trade and key policies that affect the world subsequent to Joe Biden’s victory in the US presidential polls.
The net inflow of foreign funds post-active selling in the past three years, stronger domestic economy and corporate earnings as well as a recovery in commodity prices would also be instrumental for a renewed positive sentiment in the market.
“Our end-2021 FBM KLCI target is 1,830 points based on 2022 PE of 17.5 times.
“The PE multiple should dwindle in the second half of 2021 as more clarity emerges on the Covid-19 recovery story, followed by earnings upgrade, ” it said.
RHB Research Institute, while remains positive on market outlook for 2021, however said that the stock market is not entirely out of the woods yet.
“The anticipated economic benefits will take time to manifest itself depending on the efficiency of the vaccination programme.
“Persistent spikes in Covid-19 cases could worsen unemployment and slow the pace of recovery as weak demand impacts corporate profitability, ” it said.
Given the potential for volatility as the markets adjust to shifting expectations, RHB Research Institute said a balanced portfolio remained appropriate for investors.
It recommended a trading bucket, coupled with an increasing focus on cyclical sectors to be adequately positioned for a gradual structural recovery, back-stopped by core holdings in defensive and resilient yield stocks.
“We are overweight on banks, non-bank financial institutions, automotive, construction, rubber products, basic materials and gaming, ” it said.