KUALA LUMPUR (June 2): The lacklustre earnings performance in the first quarter of 2014 (1Q14) is unlikely to have a significant dampening impact on the FBM KLCI, according to Affin IB Research.

In a strategy note Monday, the research house said 1Q14 was another weak quarter, and also the 13th consecutive quarter of earnings downgrades.

“Post the reporting season, we cut our CY14 market earnings growth from 13.4% to 10.6% which means that valuations are now looking even more stretched, at 15.5x 2015 PE.

“We nevertheless believe that the lacklustre earnings performance is unlikely to have a significant dampening impact on the KLCI in the near term as: 1) domestic liquidity remains ample; 2) economic datapoints continue to be encouraging; and 3) capital inflows have recently returned to the KLCI,” it said.  

Affin IB Research said its end 2014 KLCI target stood at 1,980 (based on 16x CY15 EPS.

“Key risks to our view include: 1) Government losing focus on reining in its fiscal deficit; 2) Developed markets reversing to an economic slowdown; and 3) US Fed rapidly tapering and also beginning to tighten,” it said.

Business & Markets

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