FBM KLCI may hit 1,885 over time, says CGS-CIMB

MARKET watchers are not discounting the benchmark FTSE Bursa Malaysia KLCI (FBM KLCI) breaching the 1,800 points threshold as Datuk Seri Anwar Ibrahim takes the nation’s reign.

For analysts, the resolution to the political impasse is certainly a positive outcome and investors will now be looking out for the re-tabling of Budget 2023 which could possibly include some of the GE15 manifesto pledges by coalitions of this unity government.

After a strong rally yesterday on news of the appointment of the Pakatan Harapan (PH) chairman as prime minister, the Bursa Malaysia’s key index remained below the 1,500-psychological mark at midday today due to profit-taking. At lunch break, the FBM KLCI fell by 16.75 points, or 1.12%, to 1,485.13 from 1,501.88 on Thursday.

With near term political risk having eased, CGS-CIMB Securities raised its end-2022 KLCI target to 1,602 points from 1,484 points. The research house said the Bursa Malaysia’s barometer index could even hit 1,885 points if the political instability concerns ease over time.

“We raise our end-2022 KLCI target to 1,602 points (which is a 12 month forward P/E of 13.8x or 1.5 s.d from its historical three-year moving average mean P/E) from 1,484 points (2.5 s.d. below its three-year average mean P/E) to reflect the resolution of the hung Parliament.

“If the concerns of political instability ease over time, there is potential for the KLCI to revert to its pre-GE14 valuations of 16.5x, which is closer to the 3-year average mean P/E of 16x and values the KLCI at 1,855 points, it said in a report today.

UOB Kay Hian head of research Vincent Khoo said the emergence of a unity government has snuffed out fears of sin sectors being affected by adverse regulation, as investors will refocus on the promising growth outlook and depressed valuations of the gaming and brewery stocks.

“We are again overweight on the gaming and brewery stocks. Tentatively trimming end-2022 FBMKLCI target to 1,550 from 1,585 (to be finalised post 3Q22 results season).

“We continue to expect the FBMKLCI to trend up towards year-end, in rejoining the global equity uptrend as US core inflation eases. Our tentative end-2023 target is 1,640,“ he said.

Socio-Economic Research Centre (SERC) executive director Lee Heng Guie said the market reaction is a reflection of investors’ positive sentiments and confidence that a unity government would provide much needed political stability and certainty for Malaysia.  

“Since the 14th General Election (GE14), Malaysia’s political conditions were marred by lingering uncertainties, which saw the change of government and three Prime Ministers were appointed.

“Malaysians, investors, and the business community have set high expectations on the new government to focus on healing the nation, unite the people and more importantly, fix the economic problems and put the economy on a sustainable path.

“There are so many unfinished institutional, economic, and social agendas that require reforms and retool. Amid the risk of global recession in 2023, the economic reforms have to be prioritised and be implemented gradually to smoothen painful adjustments for the households and businesses,” Lee told The Malaysian Reserve (TMR).

The government needs to step up efforts to drive domestic direct investments, especially small and medium enterprises (SMEs) as well as attract foreign direct investment (FDI) to boost high economic growth and generate more employment opportunities.

Lee added that maintaining political stability and good governance of economic policies would attract investment, lift economic growth and generate more jobs.

On its part, Rakuten Trade Sdn Bhd equity research vice president Thong Pak Leng said the market reacted positively to Anwar’s appointment as the 10th PM.

“The broad market was positive as gainers led losers by 981 to 197. Given the improving sentiment, we expect the FBM KLCI to trend between 1,500 to 1,530. Meanwhile, the benchmark index broke 1,470 and 1,500 resistance, we expect it to charge ahead to between 1,530 and 1,550 in the near future.

Malaysian equities were mostly in green shoots soon following the latest political development, he said.

“Meanwhile, key regional indices closed mostly higher following positive cues from Wall Street overnight. Additionally, news on the US Federal Reserve may slow the pace of interest rate hikes going ahead and hopes of fresh economic stimulus from China have lifted investor sentiment,” Thong told TMR.

As for the local bourse, he said Anwar’s appointment should provide a much needed impetus.

“As such, we anticipate the FBM KLCI to trend higher within the range of 1,500 to 1,530 towards the weekend. After breaking the 1,470 and 1,500 resistance, the benchmark index is expected to charge towards the 1,530 to 1,550 level in the near future,” he said. – TMR / pic TMR File