Tuesday, February 22, 2011

2011 Malaysia FBM KLCI Reviews

ING Funds Berhad (ING Funds) foresees the FTSE Bursa Malaysia Kuala Lumpur Composite Index (FBM KLCI) to touch 1,650 points by end of 2011 as Malaysia continues to attract investment flows into the country due to its strong economic growth and appreciating ringgit.

The FBM KLCI has been able to stay mostly above the 1,500 key psychological level after it hit a fresh record high of 1,528 points in November to breach its previous peak of 1,516 points. Since the beginning of the year, in tandem with the region, the local benchmark index has been charting a convincing upward climb, rising close to 20 percent year-to-date.

“We are guiding a target of 1,650 for the FBM KLCI Index next year based on our projected corporate earnings growth of 15 percent for 2011 pegged to an average 5-year price earnings (PE) ratio of 15.5 times. Our optimism is driven by capital flows and potential increase in money supply domestically,” said Philip Wong, Chief Investment Officer of ING Funds.

Wong added that the recent introduction of Quantitative Easing II in the United States, which is highly likely to lead to further weakening of the US Dollar, coupled with sub-par growth and a low interest rate environment in the West, are extremely favourable to equities in emerging Asia markets and bodes well for Malaysia. This is because investors who seek higher yielding assets will continue to channel their investments into this region, which offers strong growth, higher interest rate and currency appreciation. As such, Wong reckons in the coming months,
capital inflows into emerging Asia markets, including Malaysia, are expected to remain strong.

Macroeconomic-wise, Wong is optimistic, saying that the outlook remains rosy. He projects the country’s gross domestic production (GDP) to grow by 7.5 percent this year and 5.0 percent in 2011, driven chiefly by strong private consumption and private investment.

“The country’s strong private consumption is reflected in the robust take up rate of big-ticketed items like new home and car sales. Meanwhile, retail sales, electricity sales and even traffic for highways are also seeing healthy upticks,” Wong noted.

“In addition, the pump-priming activities under the Economic Transformation Programme (ETP) and the 10th Malaysia Plan (10MP) are expected to pick up more aggressively over the next one to two years. Furthermore, the improved relationship between Malaysia and Singapore is expected to bring about long-term foreign direct investments (FDIs) from Singapore and Middle East to the Iskandar economic region in Johor. Hence, this should lead to a re-leveraging process with further creations of employment, income and consumer spending,” elaborated Wong.

Source: ING Funds Berhad

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