2016 REVIEW IN BRIEF

• Concern over weakening China economy with crude oil prices hitting multiyear low, hit the market hard, resulting in central bankers stepping in with interest rate cuts and stimulus packages. And FBMKLCI managed to bounce out of year’s low of 1,601 points after foreign funds turned net buyer, hitting the year high of 1728 points in mid-April. • The good ?ight was hampered by the reduction of Malaysia country weight by MSCI and the unexpected Brexit referendum outcome. The impact, however, was mitigated by a slew of favourable news on macroeconomic numbers, BNM’s interest rate cut and Fitch reaffrm Malaysia’s “A-“ rating • However, the weakening of emerging market economy and the outcome of the US Presidential election further dampened market sentiment as Ringgit suffered signifcant depreciation and FBMKLCI turned sideways.

LOOKING FORWARD TO A BRIGHTER 2017

• Malaysia’s GDP is expected to slightly rebound in 2017, based on the prospect of a stronger trade activity. But we are wary danger of the possibility of countries with strong purchasing power to lean more towards imports substitution. • However, at the moment we remain optimistic with the better exports performance and hence economic growth in year 2017. Furthermore, we remain slightly bullish on the expectation that BNM’s measures on Ringgit will give a gradual support to the currency. • Moving forward, earnings growth is expected to improve going forward in line with increasing construction activities, stabilizing crude oil prices, coupled with favourable macro growth outlook. MIDFR estimates that the forward year aggregate earnings growth of the FBMKLCI 30 constituents will further improve from an estimate of 5.4%yoy growth in 2016 to 7.5%yoy in 2017.

FBM KLCI 2017 YEAR-END TARGET AT 1,830 POINTS

• FBMKLCI valuation is mostly cheaper relative to its regional peers. And its longer-term trend path of is highly dependent on the expected earnings growth performance during the next 12 to 18 months • Earnings growth in 2017 may yet be stronger than what’s seen so far in 2016, which increases the probability of the equity benchmark to inch up from its current sideways performance. • Therefore, premised on the rooted behaviour whereby earnings and price are trending broadly hand-in-hand, we reiterate our 2017 FBMKLCI target at 1,830 points which equates to PER17 of 17.1x

Source: MIDF Research - 27 Dec 2016