KUALA LUMPUR, Dec 16 — The FTSE Bursa Malaysia (FBM KLCI) is expected to end-2021 at the 1,770 level, driven largely by optimism on a synchronised global economic recovery as the world emerges from COVID-19 and bullish earnings prospects, AmInvestment Bank said.
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In a note today, the investment bank said it believes the recovery-focused investment theme from end-2020 would extend well into 2021.
“Investors will continue to accumulate recovery plays, i.e. fundamentally strong names in the banking, power, oil and gas, consumer, real estate investment trust (REIT) and transport sectors, while lightening their positions in pandemic plays i.e. glove makers and selected excessively priced technology names,” it said.
It said although the FBM KLCI could be lifted higher as investors chase up recovery plays, particularly the index-heavy banking stocks, there could potentially be a drag from weakness in share prices of pandemic plays, particularly glove stocks.
Meanwhile, it said the fundamentals of banking stocks should improve in line with the economic recovery.
“While clarity is still lacking with regards to the extent of the irreversible damage the pandemic has inflicted on businesses and hence, asset quality of banks, we take comfort that banks have started to make pre-emptive provisions in the form of management overlays, in addition to provisions based on changes to macroeconomic factors,” it said.
AmInvestment Bank said other key sectors that are poised to benefit from the recovery are power amid increased demand for electricity, particularly from the commercial and industrial segments, seaport following higher throughput on the recovery in global trade, airport amid the eventual reopening of borders and consumer sector due to cash handouts and recovery in the job market to sustain consumption.
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“While the availability of effective vaccines has greatly brightened the recovery prospects of the air travel sector, we remain mindful of the need for airlines to recapitalise its balance sheet after months of massive losses during the pandemic,” it said.
The investment bank said Bank Negara Malaysia is expected to hold its benchmark overnight policy rate (OPR) at 1.75 per cent throughout 2021, in sync with the accommodative monetary policy stance expected from key central banks in the world.
It said the sustained low interest rate environment, coupled with the recovery narrative, would continue to make equities an attractive asset class for local investors.
Hence, it said domestic liquidity from both institutional and retail investors is expected to remain robust in 2021 and shall continue to neutralise foreign selling if any, as it did in 2020.
“We acknowledge that our market has been flying under the radar of foreign investors (due to Malaysia’s insignificant and shrinking weighting in the MSCI Emerging Markets Index, the market’s inherently high valuations, coupled with the lack of tech start-up listing).
“On the flip side, there is a silver lining to the low foreign participation in the local market. Dominated by local participants, the market has remained calm in the face of a dynamic local political landscape,” it added.- BERNAMA