KUALA LUMPUR, July 1 — MIDF Research has reduced its FBM KLCI end-2022 target to 1,600 points from 1,680 points previously.
The research house expects the key benchmark index to remain below the normal historical range due to the negative effects of the United States (US) Federal Reserve’s aggressive tightening of its monetary policy on the global financial liquidity, and the higher risk attached to earnings forecasts.
“However, going forward, we expect the local equity market valuation to inch higher from the current levels in line with the expectation of better earnings next year,” MIDF Research said in its Second Half Calendar Year 2022 (2HCY222) Outlook.
Year-to-date, the FBM KLCI fell 7.87 per cent on June 30, 2022, closing at 1,444.22, compared to 1,567.53 recorded on December 31, 2021.
On a quarterly basis, MIDF Research said that global indices saw a volatile second quarter (Q2 2022) performance.
The FBM KLCI closed Q1 2022 higher by 1.3 per cent but declined by 8.4 per cent in Q2 2022 as of June 27, 2022.
On sector calls for 2HCY22, the research house is positive on the automotive, banking, construction, consumer, healthcare, oil and gas, plantations, technology, media and the real estate investment trusts (REITS) sectors.
It noted that the upcoming award of Mass Rapid Transit 3 (MRT3) tenders may generate some feel-good factors for the construction sector.
However, it is neutral on the gloves, power, property, telecommunication and transportation sectors (which include aviation, ports and logistics).
Meanwhile, MIDF Research remained sanguine on the economic prospect, especially with the reopening of the economy, while commodity players would also benefit from the elevated commodities prices.
“With the economy and corporate earnings growth expectation remaining intact, it may seem a bit perplexing that Malaysia’s (and Asean peers’) equities market continue to be sluggish. We believe that it boils down to valuation,” it said.
It also expects the domestic economic activities to continue expanding steadily, driven by higher consumer spending and business expenditure, while the external trade sector is forecast to grow at a solid pace, underpinned by elevated commodity prices and expansionary regional demand.
The research firm also maintains its forecast for Malaysia’s gross domestic product growth at six per cent for 2022.