PETALING JAYA: Analysts are upbeat about the market this year, and for most, the sector that will drive the FTSE Bursa Malaysia KLCI (FBM KLCI) above the 1,600-point psychological level is banking.
Banking institutions account for 20% of the index’s constituents, making it the “go to” sector for foreign funds looking to invest in the local market, according to the fintech trading platform Rakuten Trade.
Its head of research, Kenny Yee, told FMT Business the index could reach as high as 1,650 points based on a 16-times market price-to-earnings ratio (PER).
The FBM KLCI composes the 30 largest companies on Bursa Malaysia. The financial institutions in this list of 30 include AMMB Holdings Bhd (AmBank), CIMB Group Holdings Bhd (CIMB), Hong Leong Bank Bhd, Malayan Banking Bhd (Maybank), Public Bank Bhd and RHB Bank Bhd.
“Banks have displayed resilience and achieved solid earnings as seen in the recent quarterly results,” Yee said.
Apart from the banking sector, he said, the telecommunications and plantations sectors cannot be ignored either.
“They are the biggest sectors on the index, where foreign funds are concerned. They are the first sectors that these investors look at,” he added.
A senior equity analyst, who spoke on condition of anonymity, concurred with Yee’s views.
He likened the banking sector as a proxy to the renewed optimism in construction and property.
“The multiplier effect of the activities (in construction and property) are huge for the banking industry as it funds these players,” he said. “It is all intertwined.”
The analyst also pointed out that the second largest purchases after homes, which is motor vehicles, also feeds into the banking industry. “Most people do not buy cars with cash but through hire purchase,” he said.
“These strong data points feed into the argument that the stock index is bullish as it ties back to underlying economic growth,” he said.
“Property, cars, and retail sales which are on the upswing are key indicators,” he added.
The Malaysia market had not performed too well in 2023 despite a recovering economy. The index dropped to its lowest at 1,374.64 points on Jan 8 and peaked at 1,500.33 points on Jan 20.
In 2023, foreign investments on Bursa Malaysia amounted to RM4.05 billion. However, foreign funds sold RM6.38 billion worth of their holdings, leaving a net outflow of RM2.33 billion.
Affin Hwang Investment Bank analyst Loong Chee Wei, who has a more modest target of 1,600 points, has upgraded his call on the banking sector to “overweight” from “neutral”.
He expects the sector to benefit from organic loans growth, more advanced digital capabilities and expansion of non-interest income this year.
In research notes published recently, Affin Hwang noted that Malaysian banks have proven their resilience in withstanding shocks with adequate capital on the balance sheet and having exercised prudence in maintaining asset quality.
“Malaysian banks are expected to deliver a higher level of profitability buoyed by expansion of fund-based income and non-interest income in 2024,” it said.
Areca Capital CEO Danny Wong agreed that the banking sector will be one of the drivers of this uptick in the stock market.
They are the proxies for large cap stocks that will be the main beneficiaries if foreign funds come back in a bigger way in 2024, he told FMT Business.
Wong also favours technology and the industrial sector given that they are in line to benefit from the national agendas and major policy changes announced by the government.
These include the New Industrial Master Plan and the National Energy Transition Roadmap.
“We also like some of the ‘turnaround’ play like healthcare, property and construction players,” he added. - FMT
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