Rakuten: Ringgit to breach RM3.80, FBM KLCI to touch 1,910 this year

When there are inflows of funds, our index will perform positively and vice versa, says an expert


RAKUTEN Trade Sdn Bhd has projected the FTSE Bursa Malaysia KLCI (FBM KLCI) to hit 1,910 based on 16 times market price earnings (PE) and the ringgit to breach RM3.80 against the US dollar this year, on the back of foreign funds inflow.

Rakuten Trade head of research Kenny Yee Shen Pin said the online trading platform operator has already tracked some RM3 billion of foreign funds that have come into the Malaysian equities market as of January 2018.

“Foreign funds inflows is one of the main factors that drive the index. When there are inflows of funds, our index will perform positively and vice versa,” Yee said in a presentation in Kuala Lumpur recently.

Yee said the foreign fund inflows will continue — especially from China, with around RM240 billion.

He also viewed that Malaysia valuation “is still doing okay” as the market is still trading below or on par with its five-year average PE ratio (PER) compared to other major regional indices with an exception of the Singapore Straits Times Index.

The FBM KLCI is currently trading at 16.8 times PER against 17 times of its five-year average.

As a comparison, the Stock Exchange of Thailand’s current PER is 19.3 times against 18 times of its five-year average PER and the Jakarta Composite Index is at 24.4 times, higher than its 23.2 times average.

“Our market can touch as high as 17 times PER, which would translate into the index going above 2,000 points. But, we are putting 1,910 first in order to manage expectations,” Yee said.

He added that the 14th General Election will add to the run-up of the upward trend, prior and post of the election, should there be no major disruption that could distort the market.

The FBM KLCI closed at 1,796.81 last year — up 155.08 points, or 9.45%, from 1,641.73 points seen at end-2016.

On the ringgit, Yee believes that the local currency has a lot more room to strengthen in the near future.

He said the ringgit had weakened against the US dollar from a high of RM3.15 to a low of RM4.50, or a 43% depreciation during the height of its volatility in 2012 to 2016.

“The Malaysian ringgit has been the weakest currency against the greenback over the last few years. So far, it has only appreciated by almost 14%. Hence, it has more legs to go up further,” Yee explained, adding that the ringgit could breach the RM3.80 level this year.

On the flipside, he also opined that the weakening of the US dollar globally (not exclusively against the ringgit), is a “deliberate” move by the US administration in order to enhance its competitiveness in terms of products’ pricing and cost.

In addition, Yee said corporate earnings growth will continue on its recovery path from 4.6% recorded in 2017 to 8.4% this year.

Rakuten Trade has picked five top stocks to invest in this year — namely Binasat Communications Bhd, HSS Engineers Bhd, Kelington Group Bhd, KUB Malaysia Bhd and Straits Inter Logistics Bhd.