Report: Light at the end of the tunnel for Bursa Malaysia

In its equity report today, AmInvestment said the benchmark counter is anticipated to reach 1,530 by year-end, backed by robust domestic liquidity from both institutional and retail investors that has effectively neutralised persistent selling by foreign investors. — Bernama pic
In its equity report today, AmInvestment said the benchmark counter is anticipated to reach 1,530 by year-end, backed by robust domestic liquidity from both institutional and retail investors that has effectively neutralised persistent selling by foreign investors. — Bernama pic

KUALA LUMPUR, June 1 — The FTSE Bursa Malaysia KLCI (FBM KLCI) is expected to rebound and end on a higher note this year, amidst global volatility, business closures and the slowdown in corporate incomes due to the Covid-19 pandemic.

In its equity report today, AmInvestment said the benchmark counter is anticipated to reach 1,530 by year-end, backed by robust domestic liquidity from both institutional and retail investors that has effectively neutralised persistent selling by foreign investors.

The research house believes that the robust domestic liquidity has been driven by the risk-on sentiment globally, triggered by the massive monetary and fiscal stimulus packages put in place by central banks and governments around the globe, among others.

It added that the recent massive re-rating of the already high price earnings for the rubber gloves sector -- which now accounts for nine per cent of the FBM KLCI weighting due to strong demand for personal protective equipment amidst the Covid-19 pandemic — also helps to boost the index's performance.

“We expect this performance to continue beyond the pandemic as a result of stronger hygiene awareness and practices globally,” it said.

Meanwhile, the research house said that the local political situation does not seem to be weighing on the market risk premium as the dominant market players, i.e the local investors, are calmer compared to foreign investors.

“We upgrade our end-2020 FBM KLCI target to 1,530 points, based on 18x our revised 2021 forecast (2021F) earnings projection, from 1,300 points based on 15x our previous 2020F earnings projection,” it said.

Overall market performance

According to the Bloomberg, the FBM KLCI traded between 1,207.80-1,694.55 in the 52-week range, with year-to-date returns standing at -6.32 per cent.

The market’s performance was affected by the trade tiff between the United States and China, crude oil price volatility, decline in commodity demand as well as the ongoing Covid-19 pandemic which had caused business closures globally.

However, several key sectors — most notably the healthcare sector — had been top gainers following the onset of the pandemic.

Top gainers include Top Glove, Hartalega as well as Rubberex Corp — companies which are involved in supplying medical gloves worldwide.

Top Glove, the world's largest rubber glove maker, is now the 13th biggest market cap stock on the Singapore Stock Exchange, with a market capitalisation of S$11.40 billion (RM35 billion).

This is larger than that of conglomerates like Keppel Corp Ltd, Jardine Cycle & Carriage Ltd and even insurance giant Great Eastern Holdings Ltd.

In its recent filing with Bursa Malaysia, Top Glove revealed that it had made a net profit of RM227.11 million in the first six months of its 2020 financial year, with a revenue of RM2.44 billion.

Top Glove’s share price has more than doubled from an average of RM8 per share in March to RM16.04 today.

Top Glove is also one of the component stocks of the MSCI Global Standard Index, FTSE Bursa Malaysia KLCI Index, FBM 100 Index, FBM Emas Index, FBM Hijrah Syariah Index, FBM Emas Syariah Index, FTSE4Good Bursa Malaysia Index and the Dow Jones Sustainability Index (DJSI) for Emerging Markets.

On the broader market, commodities, utilities and construction segments are showing signs of recovery after slipping earlier this year due to demand cuts, oil price volatility as well as delay in construction period due to the movement control order (MCO).

An analyst said that following the reopening of economies, global markets are expected to recover from the sharp dip in the second quarter by year-end.

“With local tourism expected to reboot by the end of the third quarter, we expect to see a robust uptrend in the fourth quarter across all sectors.

“Tough times are ahead, but with the correct strategy as well as the government’s continuous efforts to create jobs for locals and reboot small businesses affected by the MCO, Malaysia will be on track for recovery by year-end,” she said. — Bernama

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