Growth momentum to continue in Q3

KUALA LUMPUR: Malaysia’s economy and corporate earnings may continue to see growth despite heightened risk of US slowdown and volatile market expected in the third quarter of 2022, analysts said.

Some research houses anticipated a positive market trajectory especially in the fourth quarter with Bursa Malaysia’s benchmark FBM KLCI baseline end-2022 target at 1,600 points.

Since May 31 this year, FBM KLCI has been on the downward trend, touching an over two-year low on July 13 at 1,411.32 points.

Last Friday, the index slipped 1.62 points to 1,418.44 from Thursday’s close of 1,420.06.

MIDF Research said despite the less than sanguine US outlook, the local economy was expected to continue recovering and corporate earnings to improve likewise.

Moreover, it said the inflation rate in Malaysia was much less severe than many countries partly due to subsidies and price controls.

In this regard, MIDF Research said Bank Negara Malaysia was not expected to be nearly as aggressive as its US counterpart.

The firm expects Malaysia’s 2022 gross domestic product (GDP) growth at six per cent this year, with the Consumer Price Index (CPI) at 2.8 per cent and Overnight Policy Rate at 2.25 per cent.

“In view of Malaysia’s relatively resilient macro as well as earnings fundamentals, the FBM KLCI is expected to resume upward trajectory towards 1,600 points level by end of this year.

“Insofar as the anticipated recovery in FBM KLCI, the biggest contribution is expected from Public Bank Bhd at 25.5 points and the smallest from Top Glove Corporation Bhd at 0.2 point,” the firm noted.

MIDF Research said Public Bank had the biggest index weightage at 14.2 per cent among all FBM KLCI constituents.

Meanwhile, Kenanga Research said during its third quarter (Q3) 2022 market outlook and strategy presentation recently, questions were raised if the bourse had bottomed with the FBM KLCI currently trading at 13-14x its 2022 earnings.

It said historically, the FBM KLCI rarely traded at low teens in terms of price-earnings ratio (PER) over a prolonged period of time.

“As such, putting aside the recession risk, one can argue strongly that the FBM KLCI has bottomed at the current level.

“This jives well with our end-2022 FBM KLCI target of 1,610 points based on 16x 2022 PER, of course, barring a sharp and synchronised deterioration in the global economic outlook in the second half (2H) of 2022,” Kenanga Research said.

CGS-CIMB said market sentiment could stay weak with downside risks in the third quarter as the market attempted to price in the peak of US interest rates.

Thereafter, it said the market could be range-bound and rebound if concerns over rate hikes or US recession risks subsided.

“This could offer opportunities for investors looking for bargains.

“We see upside from a potentially stable political environment in Malaysia post the general elections, the return of foreign workers, better-than-expected tourist arrivals, easing inflationary pressures, resolution to some of the ESG concerns, a market-friendly Budget 2023 and return of strong net buy flows by local institutional investors.

“Overall, we expect the market to stay volatile in the second half of 2022,” it said.


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