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KUALA LUMPUR, Dec 7 (Bernama) -- MIDF Research expects the equity market to rebound next year, with the FBM KLCI to reach 1,700 points, at an implied price-earning ratio 2023 (PER23) of 15 times.
The research house anticipates the rebound despite economic headwinds, as pressure on valuation stemming from external factors, is expected to start dissipating.
Its director/head of research Imran Yassin Md Yusof said in the equities market, the FBM KLCI started the year on a positive note on the back of the reopening of the economy.
“Despite the unexpected eruption of the Ukraine-Russia conflict, the first quarter of 2022 (Q1CY22) saw the FBM KLCI registering a 1.3 per cent rise.
“However, the aggressiveness of the US Federal Reserve (Fed) in raising its Fed fund rate by 375 basis points year-to-date had caused the performance of the FBM KLCI turning negative, where it is registering a 6.1 per cent decline as of Dec 5, 2022,” he told a media briefing on the market outlook for next year, here today.
Nevertheless, he said this impact was not confined to Malaysia’s equity market only as global markets were similarly impacted or even worse.
“Hence, we expect external factors such as the decision of the Fed will continue to be an influencing factor for the Malaysian equity market in 2023. In this regard, it is expected that the Fed will start to decelerate its pace of rate hikes in 2023.
“In general, our baseline expectation going into 2023 is that the Fed is pivoting, the risk of US recession is not insignificant, no escalation in the Russia-Ukraine war beyond the borders of Ukraine, and the authorities in China would be adept in handling its domestic economic situation (limiting the risk of cross border contagion),” he added.
The research firm also foresees a situation whereby the equity market would become more bullish principally due to the unwinding or subsiding pressure on required return as the upside risk diminishes with the end of the tightening cycle.
On the flip side, Imran said the market would also be expected to tread cautiously due to the heightened risk of an impending US recession, the unsettling situation in Ukraine which could change rather drastically, as well as uncertainty surrounding the real situation of China’s economy.
“As such, in 2023, we expect the equity market to be supported by a less hostile monetary environment, but equity valuation would continue to remain subpar relative to its historical range due to these limiting factors,” he said.
Besides the equity market, he said the aggressive Fed had led to a strong US dollar in 2022.
“With the pivot by the Fed, MIDF Research expects the ringgit to move forward and we foresee the local currency to average stronger at RM4.30 per US dollar and ending the year 2023 at RM4.23.
“MIDF Research also expects commodities prices to remain elevated despite normalising. We forecast Brent crude oil price to average at US$96 per barrel and crude palm oil to average at RM3,500 per tonne,” he said.
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