KUALA LUMPUR, July 14 — MIDF Research expects another wave of selling pressure to emerge in the local equities market, albeit moderately, as the real extent of economic and corporate earnings impacts of Covid-19 manifests.

In a note, the research house said the forthcoming wave of selling pressure might be moderated somewhat by the sheer amount of liquidity in the financial system.

"Nevertheless, empirically, the secular trajectory of the equity market will always correspond to its underlying fundamentals, earnings in particular, either with or without the central banks in the picture.

"We maintain our FTSE Bursa Malaysia KLCI (FBM KLCI) year-end 2020 baseline target at 1,320 points which equates to 2020 price-earnings ratio valuation target to 17 times,” it said.

In line with global markets, the FBMKLCI recovered strongly in the second quarter this year (2QCY20), with the main driver being liquidity and increased participation of retail investors.

At first glance, MIDF Research said the behaviour of the markets in 2QCY20 suggests that the market is pricing in a sharp V-shape economic recovery, however, it is likely that complete economic recovery might be a long drawn affair as the market rally has not been broad-based.

From the sectoral indices, healthcare and technology index seemed to be the only performer thus far, suggesting that investors are continuing to reward companies which would continue to benefit from a lingering Covid-19 pandemic rather than an economic recovery.

The research house also noted that increase in trade volume and value in Bursa Malaysia in the Q2, given higher participation of retail investors.

"The rally in 2QCY20 had been mostly domestic investor driven. As for 2QCY20, the net selling was — RM8.6 billion, however, we should note that foreign net selling has not been confined to Malaysia’s market.

"We have observed net selling in all the Asian markets that we tracked with South Korea, Taiwan and Thailand being the most at -US$21.7 billion, -US$18.3 billion and — US$6.7 billion respectively,” it added. — Bernama