KUALA LUMPUR: RHB Research said the December quarter earnings were unexciting after 32.3% of the stocks under its coverage reported results below expectations.
"Nonetheless, downward revisions to estimates were modest and we continue to forecast improved earnings growth of 7.3% and 9.5% in 2015 and 2016 respectively
"While we do see some near-term risks, we continue to like equities, specifically growth stocks that can create shareholder value," it said in a note on Tuesday.
The research house said seven sectors (auto, plantations, timber, media, logistics, rubber products and basic materials) reported earnings that were below expectations while the remaining 16 were in line.
Three sectors were awarded upgrades – consumer to Neutral from Underweight and ports and shipping were both raised to Overweight from Neutral.
Notably, the O&G, banks, aviation, construction, utilities, telecoms and property sectors all reported earnings that were within expectations.
The auto sector retains its unenviable record of the longest (eight quarters) streak of disappointing earnings, it said.
With oil prices off their lows and in a consolidation phase, RHB said the shrill voices harping on the risk of a twin deficit have faded for the time being.
"However, we highlight risks of the market having to navigate a possible sovereign rating downgrade by Fitch in late May that could trigger another knee-jerk sell-off from foreign funds in addition to raising funding costs and project risk premiums.
" A normalisation of interest rates by the US Fed as early as July could also see the markets revisiting volatility in capital flows," it added.
However, RHB said it continued to hold the view that global economic recovery is intact while the pace of interest rate normalisation in the US will be gradual, with a rate shock for emerging economies looking unlikely.
"We continue to see a recovery in earnings after three consecutive years of disappointments as corporates leverage on investments in new capacity and technology," it added.
RHB said investors should adopt a trading-oriented strategy to stay nimble in the short term.
"But going forward, we continue to be optimistic on domestic equities given the lack of appeal of other asset classes with a preference for growth stocks that can create new shareholder value. We have Overweight calls on construction, aviation, logistics, utilities, rubber products, basic materials and shipping," it said.
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