PETALING JAYA: The recent uptrend in stock prices has outpaced that of their actual fundamentals, said Rakuten Trade Sdn Bhd.

The online trading platform’s head of research Kenny Yee said while there were pockets of trading opportunities, investors were advised to exercise extreme caution.

“The recent performance of equity markets seemed detached from reality, particularly in Wall Street.

“Liquidity is the main reason why equities are performing in such figures despite the pandemic, ” he said in a virtual media briefing on the market outlook.

He warned that that more that the market has strengthened, the more dangerous it was for it to decline further.

Yee added that stock markets were highly susceptible for another sell-down since prevailing negative news have overshadowed that of the positives.

He also pointed out that the volatility of Asean markets has surged between 60% and 100%.

“Previously when the FBM KLCI was down by two to three points, people will start raising questions. But a fluctuation of 10 to 20 points seems to be the norm nowadays.

“Of course on Wall Street, the Dow (DJIA) can shed 500 to 600 points a day, ” he said.

Rakuten projected that the benchmark FBM KLCI will end the year at 1,400 points, based on a 15 times market price to earnings ratio.

Yee said corporate earnings were still in the uncertain phase and there has been constant revisions.

There has been a downgrade across the board except for the plantations sector for the calendar year 2020, where most analysts were still expecting the crude palm oil to perform better than last year.

“The plantation sector could play a part in pulling down earnings growth and the FBM KLCI target of 1,400.

“Consensus is still expecting about 40% growth. As we move down this year, expectations could be lower and lower

“As for banks, there has been an overall downgrade. Hence we’re seeing earnings to be in the negative phase again this year, by almost 4%, ” he said, adding that there could be more downgrades.

Rakuten expected an overall negative earnings growth forecast for the FBM KLCI by 3.9% and a positive growth of 14.2% in 2021.

https://www.thestar.com.my/business/business-news/2020/05/20/uptrend-in-stocks-outpaced-fundamentals-says-rakuten-trade