Investment Highlights

• We maintain our HOLD call on FBM KLCI ETF but adjust our fair value (FV) up marginally to RM1.77 (from RM1.76) (Exhibit 1). Our FV is based on our FVs (for stocks under our coverage), consensus FVs (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 RM1.62 (Exhibit 1).

• In 1H2020, the ETF reported an investment loss of RM107,364 (comprising a gross dividend income of RM61,501, offset by a net investment loss of RM168,865), which was a reversal from an investment income of RM16,251 in 1H2019. Having accounted for expenditure and tax, it registered a net loss after tax of RM124,480, which was significantly higher than a marginal net loss after tax of RM4,101 in 1H2019 (see Exhibit 2). This is reflective of a steeper fall in the Malaysian equity market in 1H2020 amidst the Covid-19 pandemic during which the FBM KLCI lost 5.5% to 1,501 pts from 1,589 pts, vs. only a drop of 1.1% to 1,672 pts from 1,691 pts in 1H2019.

• 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, which is consistent with its 5-year historical average.

• We believe there is a case for the FBM KLCI’s multiple to stay elevated. The financial system globally remains awash with liquidity, underpinned by continuous bond buying programmes by key central banks in the world (and in the case of the US Fed, the promise is an “unlimited” one), and policy rates being anchored at near-zero (and in the Malaysia context, the consensus is pointing to Bank Negara Malaysia cutting the overnight policy rate by another 25bps from 1.75% currently to 1.50% before the year is out).

• The robust domestic liquidity (from both institutional and retail investors) has effectively neutralised YTD net foreign outflow that stood at RM20.2bil as at 27 Aug 2020 (which has way surpassed the net foreign outflows of RM11.1bil and RM11.7bil recorded during the whole of 2019 and 2018 respectively)

Source: AmInvest Research - 28 Aug 2020