Rakuten Trade head of research Kenny Yee
KUALA LUMPUR: Rakuten Trade Sdn Bhd expects foreign funds to make a U-turn back to Asian markets going forward, particularly emerging markets including Malaysia due to low stock valuations, a cheap ringgit and heightened volatility in the United States and Europe.
Its head of research Kenny Yee Shen Pin said the FBM KLCI is expected to touch 1,630 points, based on a 15.5 times price-earning (PE) ratio while the ringgit would hit RM4.20-RM4.10 versus the US dollar by the end of the year.
"With the heightened volatility in the US and Europe, investors are getting more risk-averse and we think they will shift their attention back to Asia, which they have been ignoring since the pandemic period in 2020.
"Previously, with an abundance of liquidity, they were trading comfortably in their home market, but this time around, with high risk in their own market, they have no choice but to start looking at Asia," he said in a virtual media briefing on Malaysia's Second Quarter (2Q) Market Outlook today.
Global markets have been hit by rising interest rates while the recent collapse of the Silicon Valley Bank and Credit Suisse needing a financial lifeline have spurred worries of a global banking crisis.
Although Malaysia is not in the "premier league” of Asian bourses, Yee said it would certainly enjoy some positive impact once the funds come in, thus improving the market’s liquidity.
Also, based on the developments in the United States, it reckons that Bank Negara Malaysia (BNM) would not be overly eager to hike interest rates to defend the ringgit.
"We think BNM should maintain the interest rates at 2.75 per cent this year and allow the local economic activities to create wealth, and that will attract foreign funds when they see growth.
"Once foreign funds start to come in, we will see the supply and demand dynamics of the ringgit improve.
"Now the ringgit is trading at around 4.50 to the US dollar, and with the expectation of 4.20-4.10 by end-2023, imagine the double 'beans' that foreign investors will enjoy," said Yee.
He reckons that investors would start to realign and diversify their portfolios, especially in the Asian financial sector, as it is more stable in capitalisation.
He advised investors to start to accumulate below the 1,400 level especially blue chips, given the resiliency of the Malaysian banking sector which is trading at a reasonable valuation.
For the second quarter, the FBM KLCI is forecast to hover at the 13.6 times PE range, which is almost 30 per cent below its historical average.
Sectoral performance
On the sectoral performance, the online equity broker's vice-president of equity research Thong Pak Leng expects banking to see an uplift in earnings as overall industry loan growth is anticipated at 4.0-4.5 per cent in 2023.
"Net interest margin (NIM) is expected to improve...and in the most recent quarterly corporate results, banks have displayed resilient and solid earnings," said Thong.
Other sectors expected to make a comeback include the telecommunication (telcos) and construction sectors, which have been largely ignored in the past two years and recorded low earnings growth.
"The telcos we think will surpass about 20 per cent growth level and ripe for accumulation as well.
"For construction, we think the government wants to grow this sector, given the increased spending on development and infrastructure projects under the revised Budget 2023 (of RM97 billion versus RM95 billion previously)," said Thong. - Bernama
