Local Economy, Corporate Earnings To See Growth

With the less than sanguine US outlook, the local economy is anticipated to continue recovering and corporate earnings are expected to improve likewise

Local Economy, Corporate Earnings To See Growth
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The FBM KLCI has fallen from 1,560 points in early June to the current level of 1,420 points. When Wall Street sneezes, the rest of the world catches a cold, as the saying goes.

Nonetheless, local economy and corporate earnings may continue to see growth, says MIDF.

With the less than sanguine US outlook, the local economy is anticipated to continue recovering and corporate earnings are expected to improve likewise.

Moreover, the inflation rate in Malaysia is much less severe partly due to subsidies and price controls.

In this regard, the BNM is not expected to even be nearly as aggressive as its US counterpart. Hence, MIDF Research is expecting Malaysia’s 2022 GDP growth, 2022 CPI rate and end-2022 OPR at 6.0%, 2.8% and 2.50% respectively.

FBM KLCI upward trajectory

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, says the analyst firm.

Insofar as the anticipated recovery in FBM KLCI, the biggest contribution is expected from Public Bank at 25.5 points and the smallest from Top Glove Corp at 0.2 point.

It is also of note that Public Bank has the biggest index weightage (at 14.2%) among all FBM KLCI constituents. Refer to Table 1 for more details.

On sectoral basis, Financial Services is the largest expected point contributor to FBM KLCI henceforth until the end of 2022.

It is also notable that Financial Services has the biggest index weightage at 41.8%. Collectively, the 6 financial services constituents (namely Public Bank, Maybank, CIMB, Hong Leong Bank, RHB Bank and HLFG) are expected to add 52.2 points to the FBM KLCI.

This is not surprising as the banks are expected to be key beneficiaries in a recovering economy.

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Transport and logistics

On the other hand, Transport & Logistics sector is expected to contribute the least points to FBM KLCI until the end of this year. Its sole constituent (namely MISC) may add 2.6 points to the FBM KLCI. Refer to Table 2 for more details.

"All in all, we are cognizant of the elevated downside risks to our forward projections particularly in the event of a manifest sharp slowdown in the US and other major economies.

"Nevertheless, we stay positive on the local macro and earnings outlook at least until the end of this year. Hence, the expectation of positive market trajectory henceforth with FBM KLCI baseline end-2022 target at 1,600 points (PER22 of 15.5x)," MIDF says.