Market analysts are already anticipating a diversion of their portfolios away from the US, and Asian banks will be the prime targets, according to Rakuten Trade head of research Kenny Yee.
The push to move their investments to Asia has been sparked off by the collapse of three major US banks.
On March 8, the Silicon Valley Bank announced that it needed to shore up its balance sheet and raise more funds after it was forced to sell a bond at a loss. Several days later, the New York authorities closed Signature Bank after a surge in withdrawals led to its collapse.
Yesterday, major US banks injected more than US$30 billion (RM134 billion) into the First Republic Bank that was also caught up in the crisis.
Investors, spooked by these events, are likely to move their money eastwards, and Bursa Malaysia will likely be one of the markets that will reap the benefits, Yee said.
He expects the benchmark FTSE Bursa Malaysia KLCI (FBMKLCI) to hit 1,630 by the end of this year based on a 15.5-time price-earnings ratio (PER).
The key index began the day at 1,397.28 points today, up 5.68 points from yesterday’s close of 1,391.60.
The current forecast is for the index to hover within the 13.6 times PER range for the second quarter of this year (Q2 23), which is almost 30% below its five-year historical average of 17.5 times PER.
Yee noted that the local market is normally trading at around 16 to 16.5 times PER.
“The price-earnings ratio of the US index is still high because of the availability of excess liquidity, (but) I believe there will be a selldown in the US market going forward,” Yee said.
While acknowledging that foreign shareholding is showing signs of improvement, he also lamented that it was happening “at a snail’s pace”.
Foreign shareholding on the local market has since recovered from a low of 11.35% at the end of 2022 to 12.6% in February.
While Yee acknowledged that foreign funds had recorded an outflow over the last six months, he was upbeat that there would be a turnaround in the next few months.
For investors looking to diversify their portfolios, particularly in the financial sector, the well-capitalised Malaysian banks would be an attractive alternative, Yee said.
“Although (Malaysia is) not in the ‘premier league’, once the funds come over (to the region) there will be a positive spillover effect to improve the liquidity in our markets,” he said.
He said the ringgit is also likely to strengthen to around RM4.10 to RM4.20 to the US dollar by the end of 2023 on the back of easing trends in the US.
Rakuten expects Bank Negara Malaysia to maintain the overnight policy rate (OPR) at 2.75%.
Given that the FBMKLCI and numerous other Asian indexes are trading well below their historical averages, Yee said the room for growth was attractive to investors.
“(The HK index is) now trading at a single-digit PE, which was unheard of. Imagine the potential upside if foreign funds accumulate on such counters,” he added.