PETALING JAYA: The mid-term review of the 11th Malaysia Plan is not enough to excite the equity market in the near term as it provides no material surprises that may spur significant buying interest, according to MIDF Research.
The research house has made no changes to its earnings forecasts as well as target prices of companies under its coverage.
“Furthermore, in so far as the broad market reaction is concerned, the benchmark FBM KLCI (FTSE Bursa Malaysia KLCI) was hovering within a narrow trading band (both before and after the 11MP-MTR reading in Parliament) and ended the day marginally lower by -0.15% to close at 1,738.01 points,” it said in a report on Friday, referring to Thursday’s closing.
On Friday, the FBM KLCI closed 0.34% lower at 1,732.14 points.
Additionally, the research house said it expects the short-term market undertone to continue to be dominated by the prevailing vagaries on Wall Street as well as other external developments, particularly the ongoing US-China trade spat.
However, MIDF Research stressed that the mid-term review’s objectives of fiscal consolidation while ensuring more inclusive economic growth are of long-term strategic importance to the nation’s well-being, particularly on Malaysia’s sovereign credit rating and country risk, global investors’ confidence and the government’s continued ability to provide adequate backstops during economic downturn.
Therefore, it said, over the long term, lessening sovereign and country risks which attract a lower required return would naturally drive market valuation market.
MIDF Research reiterated its FBM KLCI year-end 2018 target at 1,800 points, which equates to PER18 of 16.6 times. It also reiterated its FBM KLCI year-end 2019 target at 1,900 points, which equates to PER19 of 16.7 times, a slight discount to its multi-year (2010-17) mean of 16.8 times.
On a separate note, FXTM research analyst Lukman Otunuga said there will be an extra focus on the nation’s macro fundamentals following growth downgrades in the mid-term review and by the World Bank.
He said the ringgit is likely to remain pressured by external risks, including trade disputes, global growth fears and prospects of higher US interest rates.
He added that global sentiment is expected to remain fragile in the week ahead as investors juggle with trade tensions, growth fears, Brexit-related uncertainty and geopolitical tensions.
The ringgit closed at 4.16 to the dollar last Friday.