PETALING JAYA: Bursa Malaysia is showing signs of renewed vitality, buoyed by increasing investor confidence and positive market sentiment.
In view of this, research firm Rakuten Trade Sdn Bhd expects the FBM KLCI, which comprises 30 largest companies listed on the Main Market, to test 1,730 points – a level it has not attained in over five years – with projection based on a price-to-earnings (PE) ratio of 16.5 times.
This is also up from its previous estimate for the index to touch 1,660 by year-end, based on market PE ratio ranging between 15.5 and 16 times.
Year-to-date (y-t-d), the FBM KLCI has gained about 12%, closing at 1,634 points yesterday – reaching a three-year and intra-day high of 1,638.
Despite these gains, the research house said the market is still trading below its five-year average PE ratio of 16.9 times.
Rakuten Trade research head Kenny Yee said a full-fledged bull run has yet to occur, describing the y-t-d gains as a “warm-up” for Bursa Malaysia.
“Certainly, we are not in a bull run yet. We are just warming up, as evident by the improving volume traded,” he said at a virtual media briefing on the firm’s third-quarter market outlook titled “Is Market Liquidity Building Up?”
According to Yee, the y-t-d average daily volume on Bursa Malaysia has exceeded the 10-year average of 3.8 billion shares, standing at 4.6 billion shares.
He said that since May, this average has increased to 5.6 billion shares daily.
“The average daily volume should continue to improve towards the end of this year, when there are more ‘clawbacks’ from government-linked investment companies (GLICs) from their overseas investments.”
Overall, Yee said the local market has been more vibrant, owing to the improving liquidity in the domestic market.
“We reckon both the local institutions and foreign funds are already taking the lead to improve market velocity, after which we can expect the retail segment to take part wholeheartedly,” he said.
Yee was positive about the recent newsflow on the influx of foreign direct investments relating to data centres, totalling about RM80bil, into the country.
This, he said, acted as a “marketing spree, shedding positive limelight” on the nation.
However, apart from data centre investments, Yee described the Johor-Singapore Special Economic Zone (JS-SEZ) as a more exciting development.
“The JS-SEZ can have a massive multiplier effect on the nation’s economy compared to the data centre investments. This is because the JS-SEZ covers a wider spectrum of industries,” he said.
Yee said while data centres may not require a large amount of labour, the influx of FDIs is pushing Malaysia into the limelight with many multinational corporations showing interest.
“Data centres are a good start but their multiplying impact may not be as diverse. This is why I am more excited about the JS-SEZ. If the SEZ is executed diligently, it would be a better initiative,” he said.
Yee applauded Prime Minister Datuk Seri Anwar Ibrahim’s request for GLICs and government-linked companies (GLCs) to reduce their overseas investments and increase domestic investments.
“This may be a massive catalyst for a buoyant local bourse as we noticed trading volume has improved of late and may be a prelude for an exciting development within the local stock market,” he said.
While acknowledging that, previously, overall fund flows were predominantly dictated by foreign investors, Yee said it is now apparent local institutions are taking over the reins.
“We believe domestic fund flows will intensify over time and take the lead in propping up the market,” he said, given Anwar’s mandate for GLICs to focus more on domestic investments.
According to Yee, it is estimated that the top six GLICs collectively manage close to RM1.9 trillion.
Putting things into perspective, Yee said even a percentage of funds being “clawed back” from overseas will induce at least RM20bil back into the local bourse.
“This can play a significant role in laying a solid foundation for our market. The amount could be more,” he said, adding that the signs are positive.
Shifting the focus to foreign shareholding, Yee observed improvements since 2021, when foreign shareholding dropped to a low of 11.35% during the pandemic.
Currently, it has improved to above 17% due to a more stable political climate and business environment.
“If this trend continues, foreign shareholding may surpass the 20% threshold and even possibly test the 25% level,” he added.
On retail participation, Yee noted a steady trend hovering above the 25%-mark until early this year when a selective group of small caps experienced an abrupt selldown.
This affected retail participation sentiment, which dipped to a low of 20% from around 26% before.
“But given the improving liquidity spurred by the institutions, we believe retail participation should revert to normal,” he said.
According to Rakuten Trade’s data, the FBM KLCI performance had outpaced the Philippines Stock Exchange Index and Singapore’s Straits Times Index since the start of the year, while it was slightly lower than Vietnam’s Ho Chi Minh Stock Index.
The research firm is “overweight” on the banking, construction, power and utilities, technology and telecommunication sectors, while it remains “neutral” on the automotive, consumer, glove, oil and gas, plantation, property and real estate investment trusts.
Yee said the banking sector is favoured due to its strong fundamentals, stable dividend yields and projected loan growth within the 5.5%-6% range.
As for the construction sector, he said the positive outlook is driven by private sector jobs such as data centres and the RM10bil Mutiara light rail transit line in Penang, alongside major public infrastructure projects like mass rapid transit 3 and Pan Borneo projects.
Meanwhile, he believes the power and utility sector’s growth is supported by increased electricity demand from data centres and the government’s renewable energy targets, with Tenaga Nasional Bhd forecasting significant demand from new data centres.
The sector also benefits from solar engineering, procurement, construction and commissioning jobs and net energy metering schemes, he added.
Additionally, Yee favours the technology sector due to strong demand for semiconductors, driven by artificial intelligence (AI) applications, 5G adoption and beneficial supply chain shifts.
Meanwhile, in the telecommunications sector, he believes there are opportunities from 5G and AI-powered cloud solutions for enterprises, alongside increasing demand for fibre optics and submarine cables due to investments in data centres.
While Malaysian corporates’ earnings closed flat in 2023, Yee believes 2024 may experience 16.1% jump in growth.
As for 2025, the research outfit expects a decent 8.2% growth, underpinned by improvements across the board.
As for the ringgit, Yee sees the local currency to strengthen to around the 4.50-4.55 range against the US dollar by end-2024, on the back of easing interest-rate regime, coupled with the improving investment climate domestically.
He expects the US Federal Reserves to opt for a rate cut in September. However, thereafter, it is uncertain, given the US presidential election that is bound to take place.