KUALA LUMPUR: Rakuten Trade Sdn Bhd anticipates the FTSE Bursa Malaysia KLCI (FBM KLCI) to test the 1,730 level by end-2024 based on 16.5 times price-to-earnings (PER) ratio on 16 per cent earnings growth.
Previously, the research firm said it expects the index to touch 1,660 by year-end.
Rakuten Trade head of Research, Kenny Yee said the upward revision of its projection is underpinned by improved market sentiments and increasing daily trading volume.
"I think this will attract more investors to come into the play. Therefore, hitting the 1,700 level is not impossible,” he told reporters after a virtual media briefing on ‘Malaysia's Third Quarter Market Outlook: Is Market Liquidity Building Up?’ today.
Commenting on the current market trend, Yee said while the market is showing signs of improvement, a full-fledged bull run has yet to materialise.
He noted that the rising trading volume on the local market is a positive indicator but emphasised the need for more diversified investor interest beyond traditional blue-chip stocks.
"The current momentum suggests we are warming up rather than sprinting ahead,” he said, highlighting the importance of sustained positive news flow and broader investment across sectors.
He particularly underscored the significance of the banking sector, describing it as the "engine of the country's growth” while noting that banking stocks are still reasonably priced.
Earlier, during the briefing, Yee highlighted notable trends in the market performance across Southeast Asia.
"Malaysia and Vietnam are taking the lead in the performance to-date, compared to our regional peers,” he added.
According to Rakuten Trade’s data, Malaysia’s FBM KLCI year-to-date (YTD) performance has improved by 11.7 per cent, in tandem with the Philippines Stock Exchange Index (+2.3 per cent), Singapore’s Straits Times Index (+7.3 per cent) and Vietnam Ho Chi Minh Stock Index (+14 per cent).
As for fund flows, Yee noted that last year, the overall fund flows can be described as predominantly dictated by the foreign ones.
"But of late, due to the clawing back of funds from the overseas investment, it is rather apparent that the local institutions are taking over the reins, giving a more stable platform for the KLCI.
"We believe that domestic fund flows will intensify over time and take the lead to prop up the market. This is more evident as foreign markets, especially Wall Street, are currently deemed overvalued and may not justify the risk-reward ratio,” he added.
On foreign shareholding, Yee said it has improved consistently since 2021 when it touched its lowest at 11.35 per cent amid COVID-19 and political transition.
"Fast forward to 2024, we noticed a marked improvement in foreign shareholding amid a more stable political climate and business environment.
"Therefore, we are confident that foreign shareholding may surpass the 20 per cent threshold and test the 25 per cent level, especially now that Malaysia is shining rather brightly within the Southeast Asia region,” he said.
Meanwhile, Yee said the domestic liquidity is improving, as the relocation of funds from government-linked investment companies (GLICs) back to Malaysia may play a pivotal role.
He noted that the YTD average daily volume stood at 4.6 billion, surpassing the 10-year average of around 3.8 billion shares.
"It is estimated that our top six GLICs collectively manage close to RM1.9 trillion, and assumably 10-15 per cent (or RM190 billion-RM285 billion) of the amount is invested in foreign equities.
"Repatriating funds to Malaysia could potentially result in an infusion of between RM20 billion and RM30 billion into the domestic economy, significantly influencing positive economic indicators,” he added.
He said apart from data centres (DCs), the Johor-Singapore Special Economic Zone which is slated to be finalised by September 2024 could play a significant role.
As for the ringgit, Yee said the local note could strengthen to between 4.50 and 4.55 versus the US dollar by year-end due to the easing interest rate in the United States (US)/European Union and the improving investment climate domestically.
"I would expect a significant rate cut in the US in September as everyone anticipates, but after that, I am less certain because of the US presidential election in November. So the ringgit will strengthen to around 4.50-4.55,” he said.
On the other hand, Rakuten Trade equity research vice-president Thong Pak Leng said he expects banking, construction, power and utilities, technology and telecommunication (telco) counters to do well.
He said the technology sector is poised to grow in 2024 after a slow 2023, mainly due to the strong demand for artificial intelligence.
The run-up in tech stocks in the US will have some spillover effect to the manufacturers in Malaysia.
"As for telcos, we think the sector is also benefiting from the DC. I think the enterprise business from the mobile providers are doing well,” he added. - Bernama
