AmInvestment Bank sees KLCI hitting 1,770 points at end-2021

TheEdge Wed, Dec 16, 2020 11:03am - 3 years View Original


KUALA LUMPUR (Dec 16): AmInvestment Bank estimated that the FBM KLCI will hit 1,770 points at end-2021, based on 17.5 times its 2021 earnings projections or an increase of 45.9%.

The research house’s head of equity research Joshua Ng said in a report today the outlook for equity markets globally, with Malaysia included, is positive for 2021, driven largely by optimism about a synchronised global economic recovery as the world emerges from the Covid-19 pandemic.

He believes the recovery-focused investment theme from end-2020 will extend well into 2021.

“Investors will continue to accumulate recovery plays, i.e. fundamentally strong names in the banking, power, oil and gas (O&G), consumer, REIT (real estate investment trust) and transport sectors, while lightening their positions in pandemic plays, i.e. glove makers and selected excessively priced technology names,” he said.

While the KLCI could be lifted higher as investors chase recovery plays, particularly the index-heavy banking stocks, he noted there could potentially be a drag from weakness in share prices of pandemic plays, particularly glove stocks.

Ng added that the fundamentals of banking stocks should improve in line with the economic recovery.

“While clarity is still lacking with regard to the extent of the irreversible damage the pandemic has inflicted on businesses, and hence asset quality of banks, we take comfort that banks have started to make pre-emptive provisions in the form of management overlays, in addition to provisions based on changes to macroeconomic factors,” he said.

According to Ng, other key sectors poised to benefit from the recovery are power (increased demand for electricity, particularly from the commercial and industrial segments), O&G (higher crude oil prices), seaport (higher throughput on the recovery in global trade), airport (the eventual reopening of borders), consumer (cash handouts and a recovery in the job market to sustain consumption) and REIT (reduced rental rebates, as well as a recovery in footfall and occupancy).

“While the availability of effective vaccines has greatly brightened recovery prospects of the air travel sector, we remain mindful of the need for airlines to recapitalise their balance sheet after months of massive losses during the pandemic,” he added.

BNM expected to hold OPR at 1.75% in 2021

Ng also expects Bank Negara Malaysia (BNM) to hold its benchmark overnight policy rate (OPR) at 1.75% throughout 2021, in line with the accommodative monetary policy stance expected from key central banks in the world in 2021.

He opined that the sustained low-interest-rate environment, coupled with the recovery narrative, will continue to make equities an attractive asset class for local investors.

He also expects domestic liquidity from both institutional and retail investors to remain robust in 2021, which shall continue to neutralise foreign selling, if any, as it did in 2020.

“We acknowledge that our market has been flying under the radar of foreign investors [due to Malaysia’s insignificant and shrinking weighting in the MSCI Emerging Markets Index and the market’s inherently high valuations, coupled with a lack of tech start-up listings].

“On the flip side, there is a silver lining to low foreign participation in the local market. Dominated by local participants, the market has remained calm in the face of a dynamic local political landscape,” he said.

Sector-wise, he is "overweight" on automobile, consumer, electronic manufacturing services (EMS), financial, healthcare, O&G, power, REITs, telco and transport.

His top picks reflect names that are likely to benefit from the recovery of the domestic and global economies, i.e. Malayan Banking Bhd (Malayan Banking Bhd), Tenaga Nasional Bhd (TNB), Axiata Group Bhd, RHB Bank Bhd, Dialog Group Bhd, Westports Holdings Bhd, Malaysia Airports Holdings Bhd (MAHB), IGB REIT, MMC Corp Bhd and Kumpulan Powernet Bhd.

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Mr Ong Ti Chiang
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i see, hitting below,1800

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