“Our end-2023 FBM KLCI target is 1,660 points. So that’s about a 12% to 13% upside from where we are right now and pegged to 14 times forward price-earnings,” says Maybank Investment Bank Bhd head of Malaysia and regional equity research Anand Pathmakanthan.
KUALA LUMPUR: Despite a forecast slowdown in Malaysia’s economic growth to 4% in 2023, the local bourse is expected to perform better this year due to fewer political risks and stronger corporate earnings growth, says Maybank Investment Bank Bhd head of Malaysia and regional equity research Anand Pathmakanthan.
“We are fairly constructive on the market compared to 2022, when it was very challenging.
“The index (FBM KLCI), even though it outperformed many developed and North Asian markets, was still down about 7% year-on-year.
“Our end-2023 FBM KLCI target is 1,660 points. So that’s about a 12% to 13% upside from where we are right now and pegged to 14 times forward price-earnings,” he said during an online market outlook briefing.
Anand was confident the market could sustain a higher valuation because of the fairly seamless move to a new coalition government and a forecast double-digit earnings growth in 2023.
He noted that the new coalition government is seen to adopt a reformist agenda, which has the market excited “about what we could see going forward in terms of policy, reforms and restructuring”.
While Malaysia’s economic growth is expected to ease in 2023, Anand explained that a forecast 4% expansion is still “quite big, compared to many other parts of the world, which are sort of going into a recession.”
He said the research unit also views monetary policy as being “very close to the end of the interest rate upcycle.”
“We only expect one more rate hike in the first quarter of this year to take the overnight policy rate to 3%.
“And then, we expect a pause by Bank Negara. So, monetary policy is also looking quite supportive. We haven’t tightened too much,” noted Anand.
Meanwhile, Maybank Investment Bank chief economist Suhaimi Ilias said the country’s economic growth is forecast to moderate to 4% in 2023, from an estimated 8% expansion in 2022, which mainly reflects a moderation in domestic demand.
This is particularly on the back of slower growth in private consumption as pent-up spending after the full economic reopening in 2022 dissipates.
It will be compounded by the effects of high inflation and rising interest rates on the cost of living and real disposable income, together with the outlook of some moderation in public consumption growth, in line with the lower operating expenditure allocation in Budget 2023, he said.
“The impact of a global economic downturn on the Malaysian economy can be seen from the trend in imports and export volume growth that has basically also moderated quite significantly.
“We also expect consumer spending growth to slow down to around 6% this year from 11.5% last year, so that’s quite a cutback,” said Suhaimi.
Still, he noted that there are mitigating factors to the downside risk, including the central bank’s monetary policy, which is essentially shifting from accommodative to neutral, “and is not restrictive.”
He added that China is also a “wild card”, as the research unit expects China’s growth to improve to 4% in 2023, from an estimate of 3.3% last year.
Suhaimi said despite the unwinding of China’s zero-Covid policy, he is cautious especially about its real estate sector, which constitutes up to 30% of the economy when include various related activities in the value chain and accounts for a quarter of banking system loans.
“There is a slump in property prices and widely reported incidences of loan defaults.
“That’s why we saw last year’s reversal of a previous clampdown on the property sector. And what we see instead is a raft of measures to stabilise and support the sector,” he said.
On global crude oil prices, Suhaimi said the current price level at US$80 (RM351.24) per barrel is not consistent with global downturns in the past.
“On that basis, it’s good news for Malaysia as an oil and gas exporter,” he said.
Meanwhile, Maybank head of foreign exchange research Saktiandi Supaat said the ringgit could potentially appreciate by 25 sen to 40 sen against the US dollar, to end 2023 at around RM4.05.
“The pressure from narrowing US dollar-ringgit 10-year yield differentials, in our view, could dissipate into 2023 once the US Federal Reserve stops hiking rates and US recession risks grow. That could help to help support the ringgit.
“The ringgit, in terms of a five-year history, remains a bit undervalued.
“Our fair value for the ringgit still, on a longer-term five to 10-year basis, converges towards the RM3.70 to RM3.80 level against the US dollar,” said Saktiandi.
