Monday, 29 March 2021 (The Malaysian Reserve) - BURSA Malaysia is expected to see better days in the second quarter of 2021 (2Q21), backed by a global effort to speed up the inoculation drive against the Covid-19 pandemic and Putrajaya’s additional stimulus measures.

MIDF Amanah Investment Bank Bhd (MIDF Research) in its latest report on local equities for 2Q21 maintains its target for the FTSE Bursa Malaysia KLCI (FBM KLCI) for 2021 at 1,700 points, at an implied price-earnings ratio of 14.5 times, which equates to -3.0 standard deviation above its 10-year historical average.

The FBM KLCI closed at 1,601 last Friday, gaining 3.69 points or 0.23%, as all major Asian indexes ended higher amid progress on vaccine distribution.

The research house further expects the commodity boom seen in 1Q21 to continue into 2Q21, driven by liquidity abundance and specific sector issues.

“It seems that the commodity play was one of the themes in 1Q21 and we expect it to continue at least until end-2Q21. We forecast Brent crude oil price to average at US$59 (RM244) per barrel and crude palm oil at RM3,000 per metric tonne,” it stated.

MIDF Research made three changes to its sector calls by upgrading the oil and gas, plantation and consumer sectors from ‘Neutral’ to ‘Positive’.

It remains ‘Positive’ on the automotive, banking, construction, healthcare and glove sectors.

“We maintain our belief that stocks with ties to economic performance will likely benefit the most. This is evident from our and the market consensus’ out- looks on corporate earnings which anticipated a long-awaited resumption of positive corporate earnings growth,” it said.

MIDF Research has a ‘Neutral’ call on power, property, real estate investment trusts, technology, telecommunications, transportation and logistics, and media.

The brokerage forecast Malaysia’s GDP to grow 5.4% in 2021 as both domestic and global economic activities are expected to gradually resume buoyed by positive elements, aside from the low base factor in 2020.

MIDF Research expects growth to be limited due to the Movement Control Order (MCO) 2.0 in 1Q21 and the Conditional MCO, which is likely to continue going into the 2Q.

“We expect no further easing is needed as the cumulative 125-basis-pointcuts last year will continue to provide support to the economy in 2021. We expect the ringgit to appreciate this year, moving towards RM3.95 against the US dollar by end-2021.

With Malaysia’s Covid-19 vaccination programme being rolled out, Putrajaya targets to achieve herd immunity by the end of this year, faster than the initial target of 1Q22.

“We welcome this initiative because, in our opinion, the certainty and strength of Malaysia’s economic recovery depends on the success of its immunisation programme.

“Should herd immunity be achieved earlier, we believe the country’s economic recovery will move in tandem and can also be achieved earlier.”

MIDF Research expects governments globally to continue to provide support to their economies even as vaccination is ongoing due to the effect of the pandemic.