Wednesday, December 7

‘FBM KLCI could achieve year-end target of 1,800pts’


KUCHING: Analysts at MIDF Investment Bank Bhd (MIDF Research) believe the FTSE Bursa Malaysia Kuala Lumpur Composite Index (FBM KLCI) could possibly achieve a year-end target of 1,800 points.

“In a previous report back in April, we communicated our wariness over short-term corrections in the global equity market after the roaring start to the year which may be triggered by the risk of liquidity overhang in the system,” the analyst recapped in the report.

The awaited correction in global equity, he said, was now here, signalled by the US Federal Reserve’s announcement on Quantitative Easing 3 which prompted bouts of selling particularly among foreign investors.

“This is attested by the recent foreign fund net flows out of the market,” the analyst noted. “But as mentioned earlier, the prevailing correction is not expected to jeopardise the positive secular trend in global equity market.”

Notably, the US economy was performing broadly consistent with expectations and regaining its recovery traction.

“The US real economy is already beginning to regain on its recovery traction as evident by the incipient end to the post-2008  great household deleveraging and (by which is helping to precipitate) the gradual re-emergence of growth in its housing sector,” he stated. “Consequently, corporate earnings prospects are getting brighter.”

Thus, the MIDF Research analyst expected the market to “climb the wall of worry.”

He opined that the knee-jerk market reactions over the tapering QE3 will be transient in nature.

Having said that, he highlighted the fact that it may take quite a while for the “hot money” investors to unwind its positions hence the selling pressures may last for weeks or even months to come.

“Furthermore, during period when the market is climbing the proverbial “wall of worry”,  volatility generally rises due to the flare up in tug-of-war between the so-called optimists and pessimists elements in  the market. We think it is going to be a bumpy summer ride in the equity market.”

As such, MIDF Research maintain FBM KLCI 2013 year-end target of 1,800 points.

“The equity market may be somewhat perturbed by the liquidity impact of tapering QE3. However, as stated earlier, we do not expect the liquidity rollback to go any length ahead of the recovery in the US real economy.

“Furthermore, as the ‘hot money’ dust settles, we expect the market to measuredly regain its upward thrust conceivably towards the last quarter of the year.”