Is the local bourse really out of the woods?

AT a glance, the conclusion of the third quarter (3Q) reporting season seems to point to a stronger final quarter performance amid the recovery theme which has somehow lifted the key FBM KLCI to higher grounds despite an initially depressing outlook for the COVID-19 stricken economy.

The aggregate reported earnings of the benchmark index’s 30 constituents rebounded to RM12.57 bil in 3Q CY2020 with a positive growth both sequentially at 78.3% quarter-on-quarter (qoq) and 0.7% year-on-year (yoy), according to MIDF Research.

However, on an adjusted basis, the aggregate normalised 3Q CY2020 earnings of the FBM KLCI’s 30 constituents came in slightly higher at RM12.91 bil after adjusting for non-operational items, mainly the RM316 mil impairment loss on floating assets and property, plant & equipment by MISC Bhd.

“After neutralising the impact of non-operational items (3Q CY2020: -RM344.6 mil; 2Q CY2020: +RM110.99 mil; 3Q CY2019: -RM1.4 bil), the aggregate normalised growth in 3Q CY2020 was higher sequentially at 86.1% qoq but lower at -7.0% yoy,” the research house pointed out.

Of interest is obviously the fact that the normalised sequential performance in 3Q CY2020 chalked a massive post-movement control order rebound from the -39.1% qoq recorded in the prior quarter.

“Likewise, the adjusted on-year performance in 3Q CY2020 was superior in comparison to      the -50.4% yoy growth recorded during the preceding quarter,” noted MIDF Research.

“Overall, the latest quarterly corporate earnings performance was better than market expectation albeit skewed towards certain sectors particularly healthcare.”

While 2020 remains a washout year by all measures, PublicInvest Research foresees the coming calendar as offering some glimmer of hope, particularly if the global economic recovery picks up momentum sooner than expected.

“While markets have been moving upward in recent months, predominantly on heightened levels of expectations, earnings recoveries on the back of business-related improvements are picking up,” observed the research house.

“While current upward adjustments are not to the cyclically-critical sectors like banks, properties and construction as yet, we expect to see improvements in the coming year due to pick-up in activity, underpinned by the global and our economic rebound.”

As such, PublicInvest Research maintained its end-2020 FBM KLCI target unchanged at 1,590 points while suggesting that the benchmark index could head toward the 1,720-point mark in the coming year.

“Going forward, the market will still be supported by expectations of a V-shaped recovery in earnings,” justified the research house.

“Beyond 2021, preliminary indications suggest a circa 5% earnings growth, likely sufficient to keep investors engaged in the market.”

Moreover, interest rates at all-time lows – a condition last seen in 2008/2009 – which is feeding the hunger for investment returns, thus preventing the market from reacting negatively to weaker earnings reports (1Q CY2020 and 2Q CY2020). – Dec 2, 2020

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