A very subdued stock market window dressing anticipated for end-2021

WITH Bursa Malaysia having softened amid a host of uncertainties triggered by the Omicron COVID-19 variant, there is high likelihood that stock trading for the rest of 2021 will be one of a somber affair.

Based on CGS-CIMB Research having slashed its end-2021F FBM KLCI target by 8.2% to 1,495 points (from 1,629 point previously) to reflect earnings revision post the 3Q 2021 results season, only a mild window dressing can be expected at best.

“We expect the market to be lacklustre till year-end as investors assess the potential impact of the COVID-19 Omicron variant and a potential earlier end to bond tapering in the US,” projected head of research Ivy Ng Lee Fang in a 3Q 2021 results season review.

“Investors could also stay on the sidelines as they brace for the impact of the proposed 50% increase in stamp duty rates on contract notes which will make Malaysia the most expensive market to trade in ASEAN starting Jan 1, 2022 as well as the one-off windfall tax (cukai makmur) and removal of tax exemption on foreign-source income.”

Meanwhile, Kenanga Research reduced its year-end FBM KLCI target to 1,533 from 1,601 which reflects a fragile early-stage recovery based on a forward FY2022 price-to-earnings ratio (PER) of 15 times.

This is despite strong earnings upgrades in the planters as well as CIMB Group Holdings Bhd and RHB Bank Bhd being the main compelling reasons for the research house to raise its FY 2021E FBM KLCI earnings per share (EPS) estimates by 2% to 108.6 sen.

“And, following clearer guidance on the prosperity tax (cukai makmur), a less aggressive than previously assumed application led to FY2022E EPS being cut by just 5% (vs 9%) to 102.2 sen,” contended Kenanga Research. “As a result of EPS adjustments, EPS growth for FY2021 is 44% and for FY2022 is -6%.”

Elsewhere, PublicInvest Research views 2022 as “a year of contradictions”. While growth in gross domestic product (GDP) is expected to hit a commendable 5.5% to 6.5% which typically raises optimism and brightens investor sentiment owing to expectation of steady earnings growth, investors are likely to be faced with contemplations on various “negative” prospects.

“In addition, structural issues like ongoing supply chain disruptions (though the expectation is an eventual easing going into 2022) and labour shortages (only industry-specific allowances have been accorded for now) may still cloud sentiment,” opined the research house.

“We maintain our FBM KLCI year-end 2021 closing at 1,590 points though current sentiment points toward a 1,550pt closing at best,” added the research house. – Dec 2, 2021



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