FBM KLCI target for 2016 lowered

PETALING JAYA: BIMB Securities Research has lowered its FBM KLCI target for 2016 to 1,790 points from 1,820 points previously premised on a market price-to-earnings ratio (PE ratio) of 16.5 times, with earning forecasts this year reduced to 5.3% from 6.7% earlier.
Its analyst Kenny Yee said in a note last Friday that 2016 was a discouraging start for the local bourse, noting that the massive sell-off in Chinese stocks erased hopes for a strong opening for the year.
Yee said the local bourse started the year on a weak note declining 1.5%, as sellers overwhelmed the regional markets.

“In fact, for January the Shanghai Index lost a massive 22.6% that reverberated across the region. The scenario was further clouded by the trashing of crude prices that touched a low of US$26.39 before recovering back to above the US$30 levels.
“Due to this, we also witnessed a recalibrated Budget 2016 for Malaysia where the most telling feature is the auctioning of spectrum to telco players thus adding to the players’ woes and government’s coffers,” Yee said.
He added that it is inevitable for the research house to revise its estimates from the changing landscape of the telco sector, coupled with the hike in foreign workers levy.
“As a result, our forecasts have been downgraded to 5.3% from 6.7% before for 2016 and 8.2% growth for 2017. Exacerbated by currency volatility, the regional equity markets were all victims of the exodus of foreign funds.”
“The Chinese market fared the worst with a loss of 22.7% which dragged down the Hang Seng Index (-10.2%) in the process,” he added.
Yee said the Japanese market was in the doldrums until Bank of Japan’s (BOJ) introduction of negative interest rates towards the end of January, while only Thailand (+1%) and Indonesia (+0.5%) ended the month on a positive note.
On funds flow, he said foreign funds continued their selling with a net outflow of RM932.2 million for January following a net outflow of almost RM19.6 billion in 2015.
“Nonetheless, we envisage that the foreign outflows to diminish overtime as most of these hot monies have already exited the domestic equity market.”
“Interestingly for the month under review, there were net foreign inflows amounting RM1.3 billion during the final week of the month amid the cut in statutory reserve requirement (0.5%) and also BOJ’s negative interest rates introduction,” Yee added.
On a separate note, Maybank IB Research said the foreign inflows to domestic debt securities should be sustained in the near term, but the momentum may eventually taper off.
“And we are still cautious against the risk of volatility in flows especially in 2H16 due to the potential of rapid swing in risk sentiments and rates outlook,” its analyst Winson Phoon said.
In January, total debt securities netted in RM1.7 billion of foreign flows, with the stock of total foreign ownership edging up to RM216.5 billion, Phoon noted.
He said the inflows was driven by net gain of RM2.3 billion from Malaysian Government Securities (MGS), although it was slightly offset by RM0.5 billion outflow from discount instruments.
“The pace of foreign inflows to domestic debt securities has thus far outperformed our expectation as the global major rates markets have turned more dovish than initially expected.”
“Regional flows trend remain positive with IndoGB the biggest beneficiary netting in US$1.4 billion in January,” Phoon added.