KUALA LUMPUR: Rakuten Trade Sdn Bhd has revised its year-end target for the FTSE Bursa Malaysia KLCI (FBM KLCI) to 1,630 from its earlier projection of 1,730, in line with the recent downgrades in corporate earnings, said its head of research Kenny Yee Shen Pin.
He noted that foreign investors have yet to return to Malaysian equities, despite attractive valuations across Southeast Asian markets, further weighing on the overall market sentiment.
"In view of the short-term stance among foreign funds, coupled with recent earnings downgrades, we have lowered our 2025 target for the FBM KLCI to the 1,630 level, based on a 16.0 times price-to-earnings ratio (PER) for the calendar year 2025 ” he said during a webinar today.
He noted that at present, the FBM KLCI is trading at a PER of between 12 and 13 times, which remains below both its historical average and valuations of regional peers. He described foreign fund flows as "disappointing” after recording net outflows of RM4 billion in 2024, with the situation deteriorating further this year with net foreign outflows reaching RM11.2 billion so far.
"This level (of foreign outflows) is quite perplexing, especially since Malaysia is quite steady both fundamentally and politically, yet we are seeing a diminishing foreign interest in the local market,” he said. He added that non-US-based funds are expected to gradually reduce their exposure to the US markets and shift their focus back to Asia, which could support a rebound in foreign fund inflows in the near term.
Notwithstanding the massive foreign outflows, Yee highlighted that foreign shareholding in the local bourse surprising remains decent at 19.44 per cent as of June 2025.
"We can only deduce that long-term foreign investors may be returning, while the majority of those who exited were short-term participants. For now, the Hong Kong market will still be their primary destination,” he said.
Meanwhile, Yee projected that the US dollar will continue to weaken against the basket of major currencies, with the ringgit likely to strengthen to the 4.10-4.20 range by year-end, supported by the US recessionary concerns that could trigger interest rate cuts.
"As many of you know, the US Dollar Index (DXY) has already dropped by 10 per cent year-to-date against major currencies. Hence, moving forward, many expect the dollar index to continue to weaken further --along the way, we may see the ringgit performing better against the US dollar,” he added.
On domestic policy, Yee proposed that the government take a measured approach to the rationalisation of RON95 fuel subsidies, especially in light of ongoing geopolitical tensions in the Middle East.
"We may see only a partial rationalisation of RON95, depending on how high or how much crude oil prices go,” he suggested.
As of this morning, the ringgit traded higher at 4.2490/2700 against the US dollar, while the FBM KLCI climbed 0.22 per cent to 1,504.79 at lunch break. - Bernama
