KUALA LUMPUR (Sept 4): AmInvestment Bank Bhd raised its 2023 FBM KLCI target to 1,570 points (from 1,500) on the assumption that domestic institutions will largely maintain their buy position towards the end of the year.

This is seen on the back of ample local liquidity, below-average valuations, highly attractive dividend yields as well as window dressing amid improving corporate earnings growth next year, AmInvestment said in a note.

The research house also pointed to moderating political noise, the 16-year low in foreign shareholding of 19.9%, and the prospects of a normalising ringgit, notwithstanding the vagaries of foreign equity flows.

In a best-case scenario, such as an abrupt reversal of US Fed policy and an improvement in global economic conditions, the FBM KLCI should reach a target of 1,645 by the end of this year, it added.

“We acknowledge that the US Fed rate hike cycle with stronger-than- expected economic news flow could continue to spur volatility in global markets over the near-term.

"However, underpinned by Malaysia’s firmer currency outlook, we expect foreign equity buyers to continue since July this year amid Malaysia’s still-below median equity valuations, ringgit normalisation and our in-house 2023 GDP growth forecast of a relatively robust domestic consumption-driven 4% vs US’ 2% (from 0.6% last month),” AmInvestment said.

“With a soft landing expected for the US economy next year, we continue advocating investors to accumulate on weakness in anticipation of a stronger domestic stock performance towards the end of the year,” it added.

Meanwhile, a global recession, the emergence of a new Covid-19 pandemic and intensifying geopolitical conflicts could push FBM KLCI to a worst-case scenario of 1,222, said the research house.

AmInvestment has an “overweight” call on banks, oil and gas, autos, consumer, power, property, real estate investment trust (REIT) and healthcare sectors. Its top picks include CIMB Group Holdings Bhd, Tenaga Nasional Bhd, Telekom Malaysia Bhd, Dialog Group Bhd, Inari Amertron Bhd, Sunway REIT and Duopharma Biotech Bhd.

“We also like small cap stocks with strong brand names which can safely navigate inflationary pressures such as Spritzer and niche agrichemical producer Ancom Nylex Bhd, as well as grossly undervalued companies such as Deleum Bhd,” said the research house.

On environmental, social and governance (ESG), the research house said its top picks include Malayan Banking Bhd, Petronas Chemicals Group Bhd, Petronas Gas Bhd, IHH Healthcare Bhd, Westports Holdings Bhd and Gamuda Bhd.

Regarding the recently announced New Industrial Master Plan (NIMP) 2030, AmInvestment said Malaysia has a good chance of successfully implementing the masterplan given the country’s strategic location in the middle of busy east-west trade routes, high level of English-speaking talent, established governance structure, abundant natural resources, high-quality infrastructure and existing industrial or commercial ecosystem.

“Hence, we are long-term positive on NIMP to underpin Malaysia’s structural transformation with neighbouring countries such as Thailand, Indonesia, Vietnam and Philippines jostling for foreign investment inflows against the backdrop of multinational corporations recalibrating for US-China trade tensions via reshoring and friend-shoring strategies.

“Together with the recently-launched Madani economic framework, these NIMP initiatives will have a positive impact on all sectors of the country,” said the research house.

Last Friday, Prime Minister Datuk Seri Anwar Ibrahim announced NIMP 2030, which calls for an estimated RM94.7 billion in investments over the next seven years to drive the country's economic growth, to be mobilised mainly from private equity, capital and financial markets.