Rakuten Trade Sdn Bhd head of research Kenny Yee expected the 30-stock KLCI to reach 1,870 by year-end as foreign funds return. PETALING JAYA: Foreign investors are expected to return to Bursa Malaysia this year due to a recovery in corporate earnings and attractive valuations. Rakuten Trade Sdn Bhd head of research Kenny Yee said the FBM KLCI is trading at 13.8 times price-earnings ratio (PE), which is lower than its five-year average of 18.8 times. “This is a good sign as Malaysia has always been trading higher valuation compared to its regional peers. We are always deemed as a more ‘expensive market’. "Due to the robust earnings growth forecast this year, and the lack of buying interest from funds, the KLCI has been trading below 14 times PE, ” he said at Rakuten Trade’s outlook briefing on Monday. Yee pointed out valuations in developed markets such as in the US are trading at staggering valuations and are “running way ahead of fundamentals” buoyed by ample liquidity. This, he said, would see some funds flow into emerging markets especially in Asia due to its undemanding valuations. “We believe ‘easy money’ has been made in the US market. Sitting on current valuations, we believe Wall Street is highly susceptible to the slightest of negative news and foresee high volatility ahead, ” he said. He expected the 30-stock KLCI to reach 1,870 by year-end. At midday on Monday, the KLCI was last traded at 1,580.79, down 4.14 points. Yee also said Rakuten Trade raised its corporate earnings recovery estimates for 2021 to 38.7%, from 35.3% previously driven by the banking sector, healthcare and energy sectors. Rising foreign participation in the Malaysian market would help to push the ringgit higher this year. Yee expected the ringgit could strengthen against the US dollar to between RM3.80 and RM3.90 this year. “Nonetheless, we may continue to see rotational plays to persist hence volatility will play a huge part as interest rates continue to stay low for now, ” he added. Last year, Bursa saw a good run especially in the small and medium-sized companies, glove stocks and manufacturing sector buoyed by the large participation of retail investors. But there is a disconnection with how the foreign funds reacted to the local market. Foreign investors remained net sellers for the third consecutive year and the outflow last year was more than double than in 2019. The outflow expanded to RM24.6bil in 2020 compared with RM11bil in 2019, the largest outflow since 2015 at RM19.7bil. The massive participation of retail investors had absorbed the 2020 sell-off with net buying of RM14.2bil while local institutions took on the other RM10.4bil.
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