KUALA LUMPUR (Feb 16): The risk-to-reward profile for FBM KLCI has become less attractive following a 6% rise in the index since the last week of January, according to Hong Leong Investment Bank (HLIB) Research.

In a note on Wednesday (Feb 16), analysts Jeremy Goh and Felicia Ling said the KLCI recovered 6% from a year-to-date low of 1,509 points on Jan 25, owing to foreign inflows of RM796 million in February and RM332 million in January, as well as the National Security Council’s proposal that Malaysia’s borders be reopened by March 1.

“With the KLCI hitting our 1,600 target (15.5x PE; -1SD), we feel the risk-to-reward profile has turned less attractive. We continue to advocate a trading oriented approach for 2022 — 'sell on strength' at >1,600 and 'buy on weakness' at <1,500,” said the analysts.

Drawing on the global experience with Omicron, where the number of daily cases has quadrupled from the 2021 peak, it would not be too far-fetched to caution that Malaysia could mirror the trajectory, Goh and Ling said.

“Despite the spike in Malaysia’s headline cases, we draw some comfort that 'severity indicators' are still under control. Most importantly, mortality has not seen an upswing as daily deaths in February mostly recorded 'single digits to teens' despite headline cases inching close to the levels during the deadly July-September 2021 wave (average deaths of 230 per day back then),” they said.

The analysts acknowledged that economic softening could still ensue from reduced mobility as people self-imposed restrictions, although there is a reasonable chance that another lockdown can be averted.

“With this in mind, our 2022 GDP forecast of 5.5% remains at the lower end of MOF’s [Ministry of Finance] range of 5.5-6.5%.

“Should the Omicron wave in Malaysia pass with limited economic repercussions (i.e. no lockdown), we see an increasing probability of two OPR [overnight policy rate] hikes this year — our official stance is now one (+25bps) in 4Q22,” they added.