KUALA LUMPUR (May 27): Rakuten Trade Research has cut its end-2021 FBM KLCI target to 1,700 points, from 1,870 previously.
At its virtual second quarter 2021 Market Outlook (2Q21) Market Outlook media briefing today, Rakuten Trade head of research Kenny Yee said one factor contributing to the research house cutting its year-end FBM KLCI target is “uncertainty”.
“I think… the uncertainty in the spike in Covid-19 cases as well as the MCO 3.0. These would be the main reasons,” he said.
Yee added that Rakuten’s new target of 1,700 points — which he said is supported by solid earnings growth as well as prevailing alluring market valuation — is based on a 14 times calendar year 2021 price-earnings ratio (PER) versus 15.5 times before.
In his presentation, the FBM KLCI as of May 26, 2021 was carrying an estimated 2021 PER of 13.3 times, which Yee classified as being at a “very attractive level now”, but noted that there are “still no takers for the local market”.
In contrast, the Singapore Straits Times Index has a PER of 14.7 times.
“I have never seen our market trading at such a low valuation. We have always been trading at a premium against our regional peers and now we are actually trading at a discount,” he noted, while adding that this would serve as a catalyst for the market.
When queried on whether investors should accumulate stocks on share price weakness, Yee said investors should do so if they have the risk appetite.
He noted the saviour for the local bourse has been the FBM Small Cap Index, which has posted a 4.3% year-to-date (YTD) gain, versus FBM 70’s 2% YTD decline and FBM KLCI’s 3% decline.
Yee noted that at the moment, small-cap stocks will take the lead because of prominent participation from retail investors. As for big-cap stocks, some waiting would be involved, at least until funds decide to come back into the domestic equity market.
On whether he expects small-cap stocks to continue leading the local bourse in the medium to long term, Yee opined that they will do so in the short term.
This is as he expects institutional investors to come back at least in the fourth quarter of the year.
At the time of writing, the FBM KLCI was 0.21% or 3.35 points higher at 1,581.75.
Read also:
Rakuten Trade Research cuts end-2021 FBM KLCI target to 1,700 points due to ‘uncertainty’
