Analyst sees KLCI at 1,670 by year-end

Rakuten reckons that the ringgit will strengthen, which is in line with the high crude oil prices and more inflows of foreign funds

by ANIS HAZIM / pic by TMR

FOREIGN funds are expected to bring much-needed liquidity to the market and bump up the FTSE Bursa Malaysia KLCI to 1,670 by the end of the year.

Rakuten Trade head of research Kenny Yee said the prevailing weak ringgit and the steady economic outlook is an incentive for foreign funds to look at Malaysia.

“Despite the prevailing subdued sentiments on the local bourse, we believe prevailing low valuations and a relatively steady economic outlook should see continuous foreign funds gravitating into the country in the second half of 2022,” Yee said at a media briefing today.

He said foreign shareholding in local companies is gradually improving (with 11.88% of the total in May 2022) compared to a percentage decline in 2021 and a 2.5% drop in 2020.

He said Rakuten reckons that the ringgit will strengthen by year-end to around 4.15 to 4.20 against the dollar, which is in line with the high crude oil prices and more inflows of foreign funds.

Yee said the ringgit would not weaken to 5.50 against the dollar when commenting on a forecast made by former Finance Minister Tengku Razaleigh Hamzah last week.

“Our economic status is still rather solid as our major exports like crude palm oil (CPO) are still seeing a very solid price. 

“As we look at the trade figures so far, Malaysia has done rather well. So personally, I don’t think we will come to that level,” he told reporters.

He noted that the CPO price remains elevated at around RM7,000 per tonne over the uncertainty on supply in particular the on and off export ban from Indonesia.

“Crude oil prices remain high as the European Union are still pondering on the ban of Russian oils with the Brent crude hovering around the US$114 (RM498.18) per barrel level,” he stated.

Hence, Rakuten believes that the banking and plantation sector will surprise on the upside this year in terms of earnings and expects earnings growth in both sectors to rebound to 5.4% in CY23.

“Higher revision on corporate earnings growth for 2022 especially for the planters. Despite this, 2023 growth remains decent,” he added.

On regional volatility, Kenny said it is very much dependent on the situation on Wall Street.

“We can expect volatility to heighten as inflation continues to play its part in the US translating to more interest rate hikes,” he further said.

The research house also has an overweight rating in gaming, oil and gas, real estate investment trust, technology, and utility sectors.