GIVEN the seemingly twin positives of economic re-opening and political resolution only occurring in the later stages of 3Q 2021, Malaysia’s current state of flux and notable change in market dynamics will make it unlikely for the local bourse (and key benchmark) to trade anywhere near its long-term price-earnings average as initially anticipated.
This has led to PublicInvest Research to lower its FBM KLCI year-end 2021 closing to 1,590 points (from (1,690 points previously), corresponding to a 15 times price-earnings multiple (16 times previously) due to higher risk premiums.
Nevertheless, the research house expects earnings growth momentum, albeit affected slightly by recent lockdown measures, to remain largely intact.
“From a medium- to longer-term perspective, the market appears attractive, currently trading at around one-standard deviation below the price-earnings averages,” projected PublicInvest Research.
“We continue to be advocates of buying on weakness, in anticipation of a rebound in 4Q 2021. Notable upside may, however, be capped by expectations of a rollback in central bank support, possibly weighing on global market movements – possibly 2022’s biggest issue.”
With the next Parliamentary sitting (and confidence vote) only expected in September, the Government of Prime Minister Tan Sri Muhyiddin Yassin appears to remain safe for now though one cannot really tell for sure as many things can change in a month, according to the research house.
“Come what may, a definitive resolution of the issue is a long-term boon to the economy (which appears to have lacked significant direction) and market (which reflects confidence),” justified PublicInvest Research.
“Certain key economic initiatives (the 12th Malaysia Plan and Budget 2022) will soon need to be deliberated and voted on, failing which the market may be plunged into a state of chaos, particularly if Budget 2022 fails to be passed.”
Assessing the market further, the research house noted that while global markets have been breaking new highs, Bursa Malaysia continues to plumb new depths.
“Granted, the drop is not as severe as that seen in March last year, but disconnect with the global markets is disconcerting however,” noted PublicInvest Research.
“While market participation continues to be dominated by retail investors, average daily traded value has been on a decline since March this year. Additionally, foreign investors have sold a cumulative RM5.3 bil in equities (on a net basis) year-to-date July 2021 despite their relatively tepid participation.” – Aug 9, 2021
