Standard Chartered sees KLCI at 1,680-1,700 by year end

by **Cals** Mon 23 Nov 2015, 22:04

Standard Chartered sees KLCI at 1,680-1,700 by year end

By Tan Siew Mung / The Edge Financial Daily | November 23, 2015 : 10:08 AM MYT

This article first appeared in The Edge Financial Daily, on November 23, 2015.

KUALA LUMPUR: [size=16]Standard Chartered, which has an “underweight” call on Malaysian equities due to their uncompelling valuations, poor corporate earnings growth and weak ringgit, expects the FBM KLCI to

hover between 1,680 and 1,700 points by the end of this year.

Standard Chartered head of managed investments and products management Danny Chang said, from a valuation point of view, the KLCI is trading at a price-earnings ratio (PER) of between 17 and 18 times now, yet Malaysian corporates are only expected to achieve earnings growth of 5% to 6%.

“If you look at China, its PER is below 10, Korea is also around 10 as well,” he said. However, he adopts the view that other Asean markets like Singapore and the Philippines, are considered expensive as well.

Based on Bloomberg data, Thailand market was trading at an estimated PER of about 16 times; Singapore 13 times; Philippines 19 times and Indonesia about 16 times.

Chang added, from a market point of view, Malaysia is also facing headwinds, such as low commodity prices and a weakening ringgit.

“If the stock market is flat, you are getting hit with the ringgit, you are losing money anyway,” he said adding that he does not see the KLCI going beyond 1,680-1,700 points this year.

“When [the] ringgit stabilises or corporate earnings growth improves, then we can see a turnaround for [the] KLCI,” he said.

He also highlighted that Malaysian equities always traded above their regional peers due to the support of domestic pension funds.

Last Friday, the KLCI closed 1.83 points or 0.11% higher at 1,661.89 points. Year to date, the KLCI has lost 5.64%.

However, Chang sees plantation and construction sectors as two potential growth sectors for long-term investment.

He explained this is because prices of plantation stocks already reflect the sector’s all-time high palm oil stock, and the construction sector is expected to benefit from the government’s budget.

“We are not super bullish on commodities, but plantation stock prices seem to have come off recently,” he said.

Malaysia’s total palm oil stocks in October rose 7.29% to 2.83 million tonnes against 2.64 million tonnes registered in the previous month, according to the Malaysian Palm Oil Board.

Prime Minister Datuk Seri Najib Razak in his Budget 2016 speech announced that the government had allocated RM50 billion for development projects, which included a total of RM482 million investment in economic corridors, and RM942 million for building and improving the rail transport network and highways.
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