MIDF expects FBM KLCI to hit 1,700 points next year


MALAYSIA’S FBM KLCI has been laggard when compared to other regional peers, as the local benchmark was hit by both external and domestic concerns this year.

MIDF Research head of strategy Syed Muhammed Kifni Syed Kamaruddin said the index fell to a 7.7% year-to-date (YTD) as of Dec 2.

“MIDF Research’s FBM KLCI target for 2022 is at 1,700 points, at an implied price-earnings ratio (PER) of 16.5 time which equates to its ten-year historical average,” he said at the MIDF Market Outlook Presentation yesterday.

Despite the sanguine outlook for next year, the research house head Imran Yassin Md Yusof has recognised several downside risks that have started this year to spill over into 2022.

These include the recent discovery of a new variant of Covid-19 Omicron, incessant inflationary pressures, the pullback in China’s property market, and Malaysia possible 15th general election, he said.

“These issues will lead to some disruption in the economic recovery, even though the occurrence of any of these events, either in isolation or in combination will not derail the recovery process,” Imran said.

He also did not discount the possibility of these events turning out worse than expected cannot be discounted given our experience this year.

“Therefore, investors need to be ever vigilant of the possible downside risks next year,” he added.

MIDF Research expects the economy to grow at 3.7% for this year and elevate to 6% by next year driven by the recovery in domestic spending and business activities.

Its economist Abdul Mui’zz Morhalim foresees that the growth is also supported by investment activity, stable inflation as well as demand in several sectors such as electrical and electronic (E&E) and commodities.

“For 2022, we opine the continued recovery in the domestic economic activities to continue as both consumers and businesses will increase their spending in view of a better outlook,” Abdul Mui’zz said.

He noted that Malaysia’s economy was negative in the third quarter of 2021 (3Q21) with real gross domestic product (GDP) declining by 4.5% due to the impact of the full lockdown which caused domestic spending and business activities to weaken.

However, the country’s high vaccination rate has allowed the government to reopen the economy which will continue to support the country’s growth for the next year.

“The government’s spending will also contribute positively to growth, given the expansionary Budget 2022 and record high allocation for development expenditures,” he said.

The Ringgit is also expected to appreciate against the US Dollar to RM4.09 to US$1 by the end of 2022, while inflation is anticipated to be at 2.1% year-on-year (YoY).

“With the economy expected to recover and inflationary pressure to return, we also expect Bank Negara to undertake a rate hike of 25 basis points in the second half of 2022 (2H22),” he stated.

Besides, MIDF Research also expects the commodities prices to remain elevated despite normalising.

“We forecast brent crude oil price to average at US$75 to USD$80 per barrel and crude palm oil (CPO) to average at RM3,300 per tonne,” said MIDF Research.