PETALING JAYA: Given the heightened volatility in the equity market due to the Covid-19 pandemic, Rakuten Trade predicted the FBM KLCI will end the year at 1,400 points, based on 15 times its market price-to-earnings ratio.
However, its head of research Kenny Yee (pix) cautioned the forecast could be derailed by further downward revisions to earnings estimates by analysts, particularly from the plantation sector. The consensus projects a 40% growth for the plantation sector.
“As we move down this year, these expectations could be lower and lower. So that could be the main road bump for corporate earnings growth moving forward,” he said at Rakuten’s virtual market outlook media briefing.
With regard to the banking sector, he conceded it was still hard to tell, as the effect from the lower interest rate and six months loan moratorium to mitigate the Covid-19 impact and the ensuing movement control order (MCO) is still uncertain at the moment.
“Over the next two quarters, we will be able to see the impact on the banks, as the first quarter impact will not be that adverse. However, it is not expected to be rosy,” said the head of research.
Yee highlighted many investors have given up hope for earnings in 2020 and have been looking forward to next year instead, noting that consensus is seeing double-digit growth for 2021.
On the whole, Yee commented the market’s expectations and hopes are playing a dangerous role on the investment climate.
“This has cascaded down to the regional market, hence we have continued to advise investors to exercise caution and not to be overzealous in equities and not to be too greedy as well,” he said. Overall, he said equities markets have surpassed actual fundamentals.
“At the moment, most markets are sustained by high liquidity as the US is working overtime in printing money, which has cascaded down to the equities market. Retail participation has also risen to about 35% compared with the 2019 average of 22% which has been playing a large part in sustaining the market momentum,” said Yee.
He acknowledged there might be another dip in the stock market in the next quarter, although this will be driven by the expectations-based performance of Wall Street.
As for the upcoming KLCI constituent review in June, Rakuten Trade said Malaysia Airports Holdings Bhd, whose market capitalisation has dwindled by more than 60% to RM8.31 billion, is expected to be replaced by Telekom Malaysia Bhd which has a market cap of RM16 billion.
Meanwhile, it stated the next mostly likely change to the index would be the inclusion of KLCC Stapled Group with a market capitalisation of RM14.06 billion, which would take the place of AmBank Group Bhd.
On the currency front, Yee highlighted the ringgit will strengthen against the US dollar, hovering between 4.20 - 4.25 towards the end of the year.
Rakuten’s top five stock picks are: Ancom Bhd, Supercomnet Technologies Bhd, LYC Healthcare Bhd, Bahvest Resources Bhd and RCE Capital Bhd.
source https://www.thesundaily.my/business/rakuten-klci-to-end-2020-at-1400-AY2441604
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