What is driving the expected FBM KLCI rise to 1,760 points?

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Expected FBM KLCI Rise Driven by Reversal in Foreign Fund Outflows and Positive External Factors

The benchmark FTSE Bursa Malaysia KLCI (FBM KLCI) is projected to reach 1,760 points this year, primarily driven by a reversal in foreign fund outflows. This anticipated inflow is supported by positive external developments, a weaker ringgit, and expectations of improved corporate earnings growth. These factors collectively are expected to encourage foreign investment back into the ASEAN market, with Malaysia poised to be a significant beneficiary.
Reversal of Foreign Fund Outflows and ASEAN Market Attraction

Foreign funds are expected to return to the ASEAN market after a significant outflow in 2018, a trend that should benefit Malaysia. This shift is attributed to diminishing concerns surrounding the US-China trade dispute and an anticipated reduction in US interest rate hikes. Bursa Malaysia's position as the region's lowest volatility equity market, coupled with its lower correlation to the Dow Jones Industrial Average, makes it an attractive destination for foreign investors seeking stability and diversification. Rakuten Trade anticipates foreign fund inflows to reach between RM5 billion and RM8 billion this year, a notable recovery from the nearly RM11 billion net outflow experienced in 2018.
Impact of a Cheaper Ringgit and Corporate Earnings Growth

The current valuation of the ringgit is also a contributing factor to the optimistic outlook. The Malaysian currency weakened to around 4.18 against the US dollar in 2018, but Rakuten Trade forecasts a strengthening to 3.90 against the greenback this year. This projection is contingent on the resolution of the US-China trade dispute and the removal of US trade sanctions. Furthermore, corporate earnings growth is expected to improve, with a projected growth of 2.3 per cent this year, albeit lower than the 4.9 per cent recorded in 2018.
Sectoral Drivers and Investment Opportunities

The construction and banking sectors are anticipated to lead the FBM KLCI's earnings growth this year. This optimism stems from the potential revival of major government infrastructure projects, including the MRT2, MRT3, LRT3, East Coast Rail Link, and the Kuala Lumpur-Singapore High Speed Rail. Index-linked blue-chip stocks are considered particularly attractive, as many are currently under-owned by foreign funds and trading at reasonable valuations. Specific recommendations include CIMB Group, Genting Malaysia, Hartalega, Press Metal Aluminium, and Tenaga for blue chips, and Econpile, Kelington, MBSB, Tri-Mode, and Vizione for small-cap opportunities.
Potential Pressures on Gaming Stocks

Despite the overall positive outlook, gaming-related stocks are expected to face pressure. This is a direct consequence of the increased gaming tax announced in the 2019 Budget. Investors will need to monitor the impact of this tax hike on the profitability and performance of companies within this sector.

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What is driving the expected FBM KLCI rise to 1,760 points?

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