Inve$t | Market Sentiments | 9 December 2022
According to MIDF Research director/head of research Imran Yassin Md Yusof, the research house expects the equity market to rebound next year, with the FBM KLCI reaching 1,700 points at an implied price-earnings ratio 2023 (PER23) of 15 times. The rebound is anticipated despite economic headwinds, as pressure on valuation stemming from external factors, is expected to start dissipating. In the equities market, the FBM KLCI started the year on a positive note on the back of the reopening of the economy. Despite the unexpected eruption of the Ukraine-Russia conflict, the first quarter of 2022 saw the FBM KLCI registering a 1.3% rise. However, the aggressiveness of the US Federal Reserve (Fed) in raising its federal fund rate by 375 basis points year-to-date had caused the performance of the FBM KLCI turning negative, where it is registering a 6.1% decline as of Dec 5, 2022. He was speaking at a media briefing on the market outlook for 2023.
This impact was not confined to Malaysia’s equity market only as global markets were similarly impacted or had it worse. Hence, he expects external factors such as the decision of the Fed will continue to be an influencing factor for the Malaysian equity market in 2023. In this regard, it is expected that the Fed will start to decelerate its pace of rate hikes in 2023. In general, the baseline expectation going into 2023 is that the Fed is pivoting, the risk of US recession is not insignificant, no escalation in the Russia-Ukraine war beyond the borders of Ukraine, and the authorities in China would be adept in handling its domestic economic situation (limiting the risk of cross border contagion).
The research house said the equity market would become more bullish principally due to the unwinding or subsiding pressure on required return as the upside risk diminishes with the end of the tightening cycle. The market would also be expected to tread cautiously due to the heightened risk of an impending US recession, the unsettling situation in Ukraine which could change drastically, as well as uncertainty surrounding the real situation of China’s economy. As such, in 2023, the equity market is expected to be supported by a less hostile monetary environment, but equity valuation would continue to remain subpar relative to its historical range due to these limiting factors.
Besides the equity market, the aggressive Fed had led to a strong US dollar in 2022. But with the pivot by the Fed, the Ringgit is expected to move forward to average stronger at RM4.30 per US dollar and ending 2023 at RM4.23. Commodities’ prices are expected to remain elevated despite normalising. The research house forecasts Brent crude oil price to average at US$96 (RM422) per barrel and crude palm oil to average at RM3,500 per tonne.
Emphasis on digitalisation, nation building for PLCs – Bursa
Bursa Malaysia has launched the final two digital guidebooks under the Public-Listed Companies Transformation Programme, aimed at transforming Malaysian PLCs into high-performing organisations. According to chairman Tan Sri Abdul Wahid Omar, Guidebook 4 titled “Being Digitally Enabled”, focuses on the imperatives, opportunities, and benefits for businesses to become more digitally-enabled, which can lead to significant improvements in their overall performance, in line with technological advancements. Meanwhile, Guidebook 5 titled “Contributing Towards Nation Building”, emphasises how the growth initiatives of businesses can fundamentally and profoundly benefit not only the companies themselves, but also directly shape the growth of the economy, community and nation.
Speaking at the launch of the PLC Transformation Programme’s latest guidebooks, he said that with targeted strategies that are aligned to their respective business purpose and national agendas, PLCs can be more competitive, enhance capabilities of the workforce, and help the nation have stronger standing in global supply chains. These final two books are timely as the two-year COVID-19 pandemic has demonstrated how digitally enabled and agile businesses not only survived but thrived amid difficult times. The PLCs’ earnings performance, as measured by growth in Malaysia’s Index earnings per share (EPS) has been muted since the global financial crisis. Earnings fell to a 10-year low in 2020 and only began to recover last year. Similarly, Malaysia’s weightage in the Morgan Stanley Capital International (MSCI) Emerging Markets Index has been generally declining since 2019, negatively impacting the ability to capture larger fractions of global funds. He noted that that the weightage has recently increased to 1.62 per cent in October 2022, up from 1.39 per cent in 2021. Hence the PLCs clearly need to take deliberate and committed actions to improve their performance.
He urged all PLCs to actively participate in the PLC Transformation Programme’s upcoming planned activities which span multiple years, up to 2025. To date, more than 100 PLCs have committed to participate in the PLC Transformation Programme. Bursa Malaysia launched the PLC Transformation Programme in March with the aim to steer and support Corporate Malaysia to higher performance levels by nudging actions and strengthening the growth narrative of PLCs of all sizes.
Whilst the first guidebook focused on building purpose and performance-driven organisations, the second was on sustainable, socially responsible and ethical practises and the third guidebook was on strengthening stakeholder management and investor relations. All five digital guidebooks are now available for download on the Bursa Malaysia website, as a resource for all PLCs and even private companies, especially the small and medium enterprises.
Eye On The Markets
This week, on Friday (9Dec), the Ringgit opened at 4.3965 against the USD from 4.3810 on Monday (5Dec). Meanwhile, the Ringgit was 3.2512 to the Sing Dollar on Friday (7Dec). On Monday (5Dec), the FBM KLCI opened at 1482.08. As at Friday (9Dec) 10:00am, the FBM KLCI is down 13.88 points for the week at 1468.20. Over in US, the overnight Dow Jones Industrial Average closed up 183.56 points (+0.55%) to 33,781.48 whilst the NASDAQ gained 123.45 points (+1.13%) to 11,082.00.