Investment Highlights

• We maintain our HOLD call on FBM KLCI ETF but cut our FV by 8% to RM1.64 (from RM1.78) (Exhibit 1). Our FV is based on our fair values (for stocks under our coverage), consensus fair values (for stocks not under our coverage) and last traded price (for Hap Seng Consolidated, which is not under any coverage). It is at a slight premium to its NAV of RM1.58 (Exhibit 1).

• Following its latest semi-annual review, the index providers FTSE Russell and Bursa Malaysia have removed two constituents from the FBM KLCI, namely, AMMB Holdings and Malaysia Airports Holdings, replacing them with Telekom Malaysia and KLCC Prop & REITS-Stapled Sec, with effect from 22 June 2020. We are reflecting these changes in our revised valuation.

• We are mildly positive on the outlook for the FBM KLCI. We have an end-2020 target of 1,530 pts for the benchmark index based on 18x our projected 2021F earnings, consistent with its 5-year historical average.

• The local economy is reopening thanks to the relatively successful containment of the spread of the Covid-19 virus via the movement control order (MCO) and the conditional MCO over the last 2–3 months.

• The robust domestic liquidity (from both institutional and retail investors) has effectively neutralised the persistent selling by foreign investors (net foreign outflow stood at RM13.3bil in the first five months of 2020, surpassing RM11.1bil and RM11.7bil recorded during the whole of 2019 and 2018 respectively).

• We believe the ferocity of the domestic liquidity has been driven by:

1. the risk-on sentiment globally triggered by the massive monetary and fiscal stimulus packages put in place by central banks and governments around the globe (and in the case of the US Fed, the monetary stimulus promised is an “unlimited” one), optimism on the economy reopening and the news flow on vaccine development; and

2. the reality that risk-free assets, i.e. cash and Malaysian Government Securities (MGS), are hardly generating any positive inflation-adjusted yield, following a series of cuts in the overnight policy rate (OPR) by Bank Negara Malaysia to 2.00%, a level last seen during the global financial crisis in 2008/2009.

Source: AmInvest Research - 23 Jun 2020