KUALA LUMPUR: Investors appear to be looking towards a rosy 2021 and giving up hope of a strong Bursa Malaysia recovery this year, Rakuten Trade Sdn Bhd.
The firm expects Bursa's key index FBM KLCI to close at 1,400 level this year barring any drastic revision of corporate earnings.
Rakuten Trade head of research Kenny Yee said the projection was based on the current earnings forecast on price-earning-ratio (PER) of 15 times with earnings growth likely to remain in the doldrums.
"Consensus are seeing a double-digit growth for 2021. Overall, the market is expected to be very volatile.
"Currently, most of the markets are sustained by high liquidity as the US are working overtime in printing money, that is why money has cascade down in the equities market," Yee said at a virtual press conference on the market outlook yesterday.
He said foreign shareholding aof local equities was at a multi-year low of 12.9 per cent from around the 20 per cent in 2017.
Year-to-date, net foreign outflows totalled RM11.9 billion.
"On a positive note, the prevailing remnants of foreign shareholding on Bursa depicts low possibility of another massive net outflow," he added.
Yee said the plantation sector could play a part in pulling down in earnings growth and FBM KLCI's target 1,400, if earnings expectation was slashed.
He said most analysts expected crude palm oil to be traded around RM3,000 per tonne this year, with the forecast likely to be revised later this year.
"We reckon the US dollar to remain volatile with downside bias in view of their printing activities.
"Therefore we foresee the ringgit to strengthen against the US dollar but be curtailed by the low crude oil prices," Yee said, expecting the ringgit to trend between 4.20 and 4.25 by the year-end.
He said retail investors had indulged into the share market due to low valuation and steep sell down in March, citing that most of them had taken advantage on cheaper price and valuation.
"Hence, we will see a lot more retail participation. At the moment, we are seeing, 65 per cent institutional investors and 35 per cent retail participation," he said, adding that a lower ringgit would attract foreign inflows to the local equity market.
He said retail investors had played a large part in terms of market participation on the local bourse since late February.
"We detected a surge in retail participation and became more obvious in March following the market sell-down during that month. Overall, retail participation has risen by 62 per cent compared to 2019 average."
As a result, the local bourse experienced a surge in daily trading volume averaging 4.42 billion shares (February until current) from 2.51 billion shares for 2019.
Yee said the banking sector was in enigma due to lower interest rate and a six-month moratorium on hire-purchase loans.
He does not expect banks earnings to be "rosy" over the next two quarters.
"No one knows the actual impact on the banks yet. Banks earnings traditionally have been steady - like Maybank, Public Bank and Hong Leong - as they trade at a premium," he said, adding that banks would be in the negative growth this year, averaging -4.0 per cent.
Meanwhile, Yee said the utility sector was more resilient compared to others sector with the exception of the glove sector.
"We can see more funds channelling into the utility sector."
He cautioned investors not to be over zealous of active investment and greedy as major dips in earnings were expected in the next quarters.
"We expect another major dip but not too negative. It will likely be based on the expectation performance of the Wall Street."
Yee said investors should also pay less focus on the property and automotive sectors including airlines due to the uncertainty arising from the Covid-19 impact on the local economy.
"We are entering into a phase of there are more negative than positive. To ignite panic selling is not difficult because of the way of the equity market has been performing over the past weeks.
"The only way the market to be more on a solid footing will be the emergence of vaccine. But now we are only standing on one feet but can fall anytime on a slightest push," he said.
He also expects more sale of properties at lower prices in the secondary market in the next six months, owing to weaker demand for office or retail space.
"Business models have to be revamped including downsizing, a leaner workforce, enhancement of IT infrastructure thus possible decline in demand for office and retail space."
Yee said companies which have invested heavily or spent massive capital expenditure before the pandemic would likely have problem as their cash flow were on tight side.
"It is important to look at the free cash flows among the companies in determining if they are sustainable going forward.
"The need to re-look at valuation methodologies is essential as the traditional PERs and earnings per share may no longer be valid during this Covid-19 period," he added.