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Rakuten Trade expects KLCI to end 2022 at 1,560, targets 1,800 points for 2023

KUALA LUMPUR (Dec 6): Rakuten Trade Sdn Bhd forecast that the benchmark FBM KLCI index will touch 1,560 at year end, which means a 90-point gain for the market bellwether over the next three weeks from its current level of about 1,470.

“For the KLCI this year, we have placed 1,560 as our target, premised on a very reasonable 13 times calendar year 2022 price-earnings ratio (CY2022 PER),” Rakuten Trade head of research Kenny Yee said on Tuesday (Dec 6) during a media briefing on the end-2022 market outlook after the 15th general election (GE15).  

At the time of writing, the KLCI was trading at 1,469.90, down 1.66 points or 0.11% from the previous day's close.

Yee's optimism is based on the anticipation of continued post-GE15 “feel good factor”, which he expects will usher in heightened trading activities from local retail participants, as well as foreign participants, fuelling the local market’s liquidity needs.

“I certainly feel that the 'feel good factor' will persist going forward. [Prime Minister Datuk Seri] Anwar [Ibrahim] is rather popular among the foreign community currently, and also when he was the finance minister 20 years ago. With him now helming the Cabinet, I am pretty sure he will be able to invite foreign funds to look into Malaysia again as the prime destination for investment.  

"With regard to retail participation, for the best part of this year, there’s been a downtrend. However, post GE15, we are seeing retail participation improving.

“I think the [recent corporate] results and the finalisation of the GE15 have instilled some sort of confidence or improved sentiment among retail players. Going forward, we expect retail participation to improve during the course of the next few weeks until the first quarter of 2023,” he said.

Despite his optimism, Rakuten's latest target is down 20 points from its previous end-2022 target of 1,580 for the KLCI. Yee said this was due to the recent change in the KLCI's constituents, with AMMB Holdings Bhd and QL Resources Bhd replacing Hartalega Holdings Bhd and Top Glove Corp Bhd, adding that the firm’s forecast is maintained at 13 times CY2022 PER.

Looking forward into 2023, Yee said the research house has pegged a target of 1,800 points for the KLCI, based on 14 times CY2023 PER, with the banking and telecommunications (telco) sectors expected to support its growth momentum for the remainder of this year and in 2023.

As for the ringgit, Rakuten believes the local note will strengthen to 4.30 to 4.35 by end-2022, from its current level of 4.38, and possibly to 4.10 to 4.20 in 2023, as the firm anticipates regional currency turmoil to be at its tail end, given the easing of the US Federal Reserve's stance on rate hikes.
Rakuten ‘overweight’ on banking and telco sectors

Meanwhile, Rakuten Trade equity research vice-president Thong Pak Leng said the firm is "overweight" on both the banking and telco sectors, which it expects to support the local market’s momentum until end-2022 and into 2023.

“October 2022 loans grew by 6.5% year-on-year, and 0.5% month-on-month, in line with our CY2022 industry loan growth target of 6% to 6.5%. Broadly, more inflows are expected to be seen from businesses, mainly for greater working capital needs, as household demand for debt could wane on higher borrowing costs,” he said of the banking sector.

“At present, we reckon that healthy domestic economic prospects will keep loan demand strong. We prefer CIMB Group Holdings Bhd, which has demonstrated defensive performance in non-interest income contrary to most other banks, thanks to its regional operations, and Malayan Banking Bhd (Maybank), which is preferred for its alluring dividend yield,” he said.

Thong said the telco sector, meanwhile, has resolved the uncertainties it faced this year, which came in the form of Digital Nasional Bhd’s (DNB) stake sale as well as the Celcom-Digi merger, and is positioned to support the local market while being insulated from external headwinds.

“The single wholesale network is no longer an issue, as all parties concerned have agreed to the terms of the lease pricing, and have signed the access agreements. So far, YES 5G, unifi Mobile, Celcom, U Mobile and Digi have rolled out their 5G plans.

“We also see telcos as domestically-driven plays, hence they will escape external headwinds. Meanwhile, the merger [exercise] between Axiata Group Bhd and Telenor Asia Pte Ltd has been completed. Celcom and Digi are strategically poised to invest in network expansion, and support the growth of Malaysia’s digital ecosystem,” he added.


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