PETALING JAYA: Rakuten Trade has revised downwards its year-end forecast for the FBM KLCI to 1,720 points from 1,760 points previously.
“This is due to the weaker corporate earnings in the bourse and external factors,” said its head of research Kenny Yee at Rakuten’s second-half market outlook briefing today.
For 2019, it has revised the forecast for Malaysia’s corporate earnings to -0.5% from its previous expectations of 2.3% growth.
Nonetheless, Rakuten is optimistic on Malaysia’s index-linked blue-chip stocks, particularly within the banking sector due to a low prevailing foreign shareholding level of 14.9% and the fact that many are trading at reasonable levels.
At the moment, the FBM KLCI is estimated to trade at a price-to-earnings ratio of 15.5 times against a historical five-year average of 18.0 times.
During the session, Yee shared some of the research house’s top picks, including Crest Builder Holdings Bhd, Econpile Holdings Bhd, Kelington Group Bhd, MBSB Bank Bhd and Serba Dinamik Holdings Bhd.
He noted that the merger between Telenor ASA and Digi.com Bhd has proved to be a boon to the sector, which has managed to outperform the market. Once the merger is concluded, Yee expects there will be more merger & acquisition (M&A) activities in the sector.
The banking sector is also expected to see more M&As as local banks have reached their saturation point with the need to expand regionally and to counter the imminent digital banking wave.
On the currency front, Rakuten expects the ringgit to test the RM4.00 level against the US dollar by the end of the year. “This will be driven by foreign net inflows and the start of pump-priming activities in the country,” Yee explained.
The pump-priming activities will come from the resumption of East Coast Rail Link, Bandar Malaysia and infrastructure projects related to the Penang Transport Master Plan. Once these mega projects are kick-started, the market will see an inflow of foreign funds, particularly from China.
When asked whether he foresees another rate cut by Bank Negara Malaysia, Yee opined that it is not likely to happen. This, he said, is because the pump-priming activities would be a better instrument to spur the economy as the construction sector has high spillover effects that would be more effective than an interest rate cut.
Source: The Sun Daily