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PETALING JAYA: With Malaysia set to transition into more relaxed phases of the National Recovery Plan over the coming months, the stock market is expected to perform better in the second half of the year.
Increased vaccinations and the projected drop in infections are likely to fuel investor sentiment further and spur the markets recovery play. Stocks and sectors that were previously the laggards of the market, due to weak macroeconomic conditions, are expected to show signs of rebound once again.
Supported by a slew of fiscal measures, MIDF Research said domestic demand would also improve with the progressive reopening of the economy in the third and fourth quarters of this year.
Moreover, notwithstanding the possible heightened volatility from US Federal Reserve action, we expect the local bourse to outperform due to its relatively undemanding valuation.
Hence, we maintain our FBM KLCI end-2021 target at 1, 700 points, it said in a note.
For comparison, the bellwether index closed at 1, 532.63 points yesterday.
The research house added that as at June 25, the FBM KLCI had retreated by 4.2% on a year-to-date basis, underperforming its peers.
This was despite the considerably lower foreign fund outflow of RM3.81bil from the Malaysian equity market, in comparison to an outflow of RM16.05bil in the same period last year.
Despite the positive outlook ahead, MIDF Research foresees some short-term negative sentiment to continue affecting the market.
One of the factors will be the persistence of the pandemic.
Other potential factors in the second half of this year could be the action of the US Federal Reserve and locally, the domestic political scene, it said.
Meanwhile, AmInvestment Bank Research said that the local bourses underperformance in the first half of 2021 makes it an even more attractive recovery play over the next six months.
It acknowledged that the Malaysian market has been flying under the radar of foreign investors due to the countrys insignificant and shrinking weighting in the MSCI Emerging Markets Index and the markets inherently high valuations, coupled with a lack of technology start-up listings.
Nevertheless, the research house expects domestic liquidity from both institutional and retail investors to remain robust in the second half of this year. Domestic liquidity shall continue to neutralise foreign selling as it has done over the last 12 to 18 months.
It said in the event the 15th general election (GE15) is called, investors are likely to stay on the sidelines until the dust settles.
For the second half of this year, AmInvestment Bank Research is overweight on 11 sectors.
These sectors are automotive, cement, consumer, electronics manufacturing services, financial, media, oil and gas, power, real estate investment trust, telecommunication as well as transport and logistics.
We maintain our end-2021 FBM KLCI target of 1, 695 points based on 16 times of our 2021 earnings projection (+56.7%).
This is at a discount to its five-year historical average of 18 times, it said.
On the contrary, Kenanga Research has a much lower forecast for FBM KLCI at 1, 575 points. It said that while the upside to FBM KLCI may be limited, market pullbacks would present selective buying opportunities.
The research house is overweight on the building materials, construction, REIT, gaming, rubber gloves, technology or semiconductor and utilities sectors.
It is not underweight on any sector.
Surging infections since late May has delayed the anticipated recovery in the domestic economy.
But Junes renewed lockdown and acceleration in vaccinations should likely lead to reductions in infections, paving the way for a volatile and somewhat hesitant rise in equities in the second half of this year amid an investment landscape spooked by fears of an uneven recovery, it said.
Commenting on the first-quarter earnings season that concluded at the end of May, Kenanga Research described the performance as fairly good shape.
On the basis that over half of our stock universe met expectations, and among the bell-weather FBM KLCI components, over half also met expectations with outperformers outnumbering misses by two to one, it has not been a bad conclusion to a challenging quarter, it said.
