It said on Thursday that at 1,790, the price-to-earnings is 16 times while its top three picks continue to be Axiata, Tenaga and Gamuda.
“Investors generally concur with our view that the Malaysia market is likely to remain range-bound,” it said, awaiting new catalysts.
“We are of the view that potential catalysts for KLCI could include stronger-than-expected corporate earnings and/or strong foreign funds inflows,” it said.
CIMB Research spent several weeks marketing its 2H17 economic and strategy outlook to 178 investors from 52 investment firms in Kuala Lumpur, Bangkok, Singapore and Hong Kong.
Overall, domestic funds were less upbeat compared to the start of the year, following the strong year-to-date KLCI performance.
“However, we noted stronger foreign funds interests compared to our marketing trip in January-February 2017 due to stronger-than-expected GDP growth of 5.7% in 1H17,” it said.
The research house said areas of macro interests have shifted to GDP growth.
At the start of the year, foreign investors were more interested in the research house’s forex views but that has now shifted to the sustainability of the strong 1H17 GDP growth as well as better appreciation of key drivers behind the GDP.
“We sensed that foreign investors are now more comfortable with the ringgit, which has appreciated 7.3% YTD to RM4.1875/US$1.
“In terms of investment themes, investors are most keen on our PNB transformation, tourism, GE14 and progress of the small-mid cap research schemes (MiDs) themes,” it said.
Top questions on strategy are: 1) potential timeline and market impact of GE14, 2) potential reasons for slower-than-expected corporate earnings growth against better-than-expected GDP growth, 3) whether the PNB transformation will unlock value for companies and 4) which companies offer the best exposure to the infrastructure and consumer stories in Malaysia.
Key questions on macro were potential measures in Budget 2018, which the research house thinks is likely to maintain a prudent fiscal deficit and focus on advancing infrastructure investments, improving business conditions for SMEs, spurring productivity growth and providing fiscal support to lower income households.
Investors broadly agreed that macro risks had subsided, following the stronger-than-expected upturn in Malaysia’s economy (1H17: +5.7% on-year; 2017F: +5.4%).
“Many, however, pointed out that consumer confidence, business sentiment and corporate earnings continued to lag the robust headline GDP growth numbers,” it said.
A key driver of sequential gains in real GDP growth was the recovery in the upstream and downstream palm oil output after weather-related disruptions last year.
Other sectors that contributed to accelerating growth in 1H17 were E&E, retail trade and finance.
As economic momentum reasserts itself in Malaysia and inflationary pressures gradually moderate, the urgency for monetary policy to pull strings from the top has reduced.
Investors concurred that there was little urgency for Bank Negara Malaysia to raise or lower the Overnight Policy Rate from the current rate of 3%, at this juncture.
There were also divergent views on whether the market’s more dovish view of global interest rates in the next year or the more hawkish guidance by central bankers in the US and Eurozone would prevail.