KUALA LUMPUR: There is a strong hope among investors and analysts that 2020 will be a year of recovery for Malaysia’s equity whose valuation has become more attractive.
Some analysts have penned down a higher 2020-end target for FTSE Bursa Malaysia KLCI than the current level of 1,600 points.
They said any positive outcome to the trade deal between United States and China would be an extra boost to spark a rally in the local bourse.
The key index continued its rise for two consecutive days on Monday as it closed 0.60 per cent higher to 1,604.36 points than Friday’s close of 1,604.36 points.
“If trade war eases, there would be some positive impact on Malaysia’s equity market. Funds may be coming to Asia and we may benefit too,” Rakuten Trade head of research Kenny Yee said.
He said currently, majority of investments had flown to fixed income and only about 10 per cent into equity.
“This may continue in the short term. But once there are more interests into equity market with more investment flows into the market let say to about 30 per cent, just imagine the rally the stock market is going to experience,” he said.
Rakuten has targeted the FBM KLCI index to improve to 1,750 points by end of next year from its end-2019 forecast of 1,630 points.
“Following a negative growth this year, we expect corporate earnings to fare better in 2020 with growth of 5.8 per cent,” Yee said.
He does not rule out the possibility of an upward revision to the target on any positive outcome from US-China trade deal.
Maybank Investment Bank Bhd, in its report, also forecast the index to end above 1,700 points at 1,710 points.
Yee said in the event of a turnaround, Malaysia’s blue chips, currently under-owned by foreign funds, were ripe for pickings due to their low valuations.
He expects foreign funds to flow into the Malaysian stock market in the first quarter of next year.
“Blue chips are still interesting. For example, banks' share prices are expected to pick up, given their low base,” he said.
UBP Asset Management Asia Ltd chief investment officer for Asian equities Michiel van Voorst said Malaysia’s equities, which remain a perennial underweight position for foreign investors, were getting cheaper.
“Local stocks have fallen substantially but valuation without a catalyst is not enough. The profit cycle needs to improve on an incremental basis,” he told Bloomberg.
According to CNBC, Morgan Stanley expects trade tensions and monetary police to ease and as a result, global growth will recover from the first quarter of 2020 onward, reversing the downward trend of the past seven quarters.
“Easing trade tensions (the key factor in the global downturn) will reduce business uncertainty and make policy stimulus more effective,” the bank was quoted as saying.
In its 2020 Global Outlook report, Morgan Stanley projected global economic growth of 3.2 per cent next year, compared with three per cent in 2019.