Investment Highlights

• We maintain our BUY call on FBM KLCI ETF but tweak our fair value (FV) down to RM1.83 (from RM1.85) (Exhibit 1). Our FV is based on our FVs (for stocks under our coverage) and consensus FVs (for stocks not under our coverage). It is at a premium to its NAV of RM1.62 (Exhibit 1).

• The slight decline in the ETF FV is mainly due to changes applied on the fair values of MR D.I.Y. Group (M) and Sime Darby.

• We believe that 2022 should be a year when the FBM KLCI should fare relatively better. According to our inhouse projection, Malaysia GDP is expected to grow at 5.4% in 2022, higher than 2021’s estimated GDP growth of 3.4%.

• The GDP growth momentum in 2022 is premised on these positive factors: i) high Covid-19 vaccination coverage; ii) the ongoing booster rollout; and hence iii) the progression of the National Recovery Plan (NRP). Currently, all states in Malaysia have already reached Phase 4 of the NRP, which is the final phase. Our base case assumption is that there will be no lockdown in 2022 despite potentially higher number of cases caused by Omicron unless the hospitalization rate surges.

• According to The Guardian in a 24 Dec report, those infected with Omicron are estimated to be 50% to 70% less likely to require admission to the hospital, according to a study by the UK Health Security Agency (UKHSA).

• Risks to our FV. The FBM KLCI ETF price is tied to overall market performance of the top 30 index stocks. This means it is exposed to the risks of climate change if severe floods become more frequent, a potential ban from the US CBP on Malaysian corporates and a potentially slower-than-expected economy growth in China.

Source: AmInvest Research - 13 Jan 2022