CIMB Research advises investors buy into more defensive sectors like utilities (Tenaga Nasional) and construction (Gamuda)
KUALA LUMPUR: CIMB Equities Research is maintaining its FBM KLCI target of 1,730 for end-2016 and 1,880 for end-2017, based on three-year average forward price-to-earnings (P/E) of 16 times.
The research house said on Thursday there were no changes to its top picks but it advocated investors buy into more defensive sectors like utilities (Tenaga Nasional) and construction (Gamuda), in view of short-term uncertainties.
“The top five stocks under our Add call list that have fallen the most today are Evergreen, Only World Group, Tune Protect, LBS Bina, and DRB-Hicom,” it said.
To recap, CIMB Research said Donald Trump’s victory in the US presidential poll could cause some concerns.
“Trade protectionism, unpredictable policymaking, heightened global market volatility and an escalation in geopolitical tensions are potential risks to Malaysia.
“The Trans Pacific Partnership Agreement (TPPA), may not go through, as it is opposed by Donald Trump. A potential winner is the palm oil sector, while a loser could be technology sector,” it said.
On Wednesday, the KLCI ended down 16.2 points or 1% after Trump’s surprise victory. The market fell by as much as 23.42 points to 1,641 before rebounding to close at 1,647.6.
CIMB Research said the Trump victory was a surprise to the market as earlier polls showed Hillary Clinton holding a narrow lead in the days leading to the election.
Trump’s win has led to a selloff in global markets due to concerns over his policy positions. Trump has said he would consider pulling the US out of multinational trade deals, or renegotiate them and impose high import tariffs on goods and services from China and Mexico. This may result in slower global growth.
On the impact on Malaysia, the research house said at this point, it is too early to triangulate the impact of Trump’s election victory on Malaysia’s economy.
“Nevertheless, trade is a key risk as the US constitutes RM100.7bil or 9.3% of Malaysia’s total trade in 9M16, comprising 10.4% of total exports and 8.1% of total imports.
“Although we think Trump’s threat to levy a 45% tariff on China has a limited chance of being realised, the indirect trade impact of such a policy is significant. We estimate about 5% of
Malaysia’s intermediate exports to China are destined for the US,” it said.
It also said the Trump victory has raised concerns that the TPPA, which Malaysia signed on Feb 4, 2016 and due to come into effect earliest Feb 2018, may not go through as it has been opposed by Trump.
In a PWC study, Textiles, Electrical and Electronics, Automotive, Plastics and Wood sectors in Malaysia are potential beneficiaries of the TPPA when it comes into effect in 2018.
“In the short term, this news will have minimal impact on the earnings of the companies under our coverage as it is uncertain if Trump will follow through with his campaign promises. Things will become clearer after he takes office on 20 Jan 2017.
“The sector under our coverage most vulnerable to a protectionist policy is technology (as US may impose higher import tariffs on China) while a potential beneficiary could be the palm oil sector (assuming China buys more palm oil from Malaysia and less soybeans from US),” it summed up.
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