Malaysian equities to outperform in first quarter of next year

The research house said this was largely because the FBM KLCI has generally yielded positive returns in the three-month periods up to the past election polling dates, apart from robust headline economic indicators which support the ringgit and investment sentiment. The GE14 is widely expected to be held in March or April next year.

PETALING JAYA: The Malaysian equities’ outlook is expected to be less promising post-14th general election (GE14), according to UOB Kay Hian Malaysia Research.

However, equities on Bursa Malaysia are likely to outperform in the first quarter of 2018 (Q1’18), amid the anticipation of a general election, firm domestic economic indicators and ample global and domestic trading liquidity.

The research house said this was largely because the FBM KLCI has generally yielded positive returns in the three-month periods up to the past election polling dates, apart from robust headline economic indicators which support the ringgit and investment sentiment.

In addition, only minimal risk is expected in a portfolio sell-down of Malaysian bonds next year, given the much lighter maturity schedule.

The research house also said that uncertainties of the GE14 results may turn the market more cautious, with mild downgrades to domestic corporate earnings growth by the second half of 2018 and gradual withdrawal of liquidity.

The GE14 is widely expected to be held in March or April next year.

“Domestically, apart from an uncertain political landscape, the firm headline economic indicators are still not translating into strong domestic consumption and corporate earnings.

“We advocate a trading-oriented and mid- to large-cap-biased investment strategy for Q1’18, focusing on mega infrastructure, electrical and electronics (E&E), tourism-related and selective GE14 plays.

“While we continue to peg the market at above-historical mean price-to-earnings multiple, we assume the premium will ease in 2018.

“Our bottom-up FBM KLCI target is 1,860,” said the research house in a note.

On the investment strategy theme for 2018, UOB Kay Hian Malaysia Research recommended investors to focus on beta stocks in Q1’18 before turning defensive.

The research house is “overweight” on the building materials, construction, E&E, gaming, technology and utilities sector. On the flip side, it issued an “underweight” call on cyclical sectors such as automobile and plantation.

“Our top picks include large-caps Bumi Armada, CIMB Group, Gamuda, Genting Malaysia and Tenaga Nasional, as well as small or mid-caps Ann Joo Resources, Choo Bee Metal Industries, Gabungan AQRS, Globetronics Technology, Hume Industries, VS Industry and Yong Tai.

“Other notable picks include Magnum, Serba Dinamik and YTL Power. Potentially interesting election trading plays include FGV, MRCB and TH Heavy.

“Sell calls continue to be the pricey Hartalega Holdings and UMW Holdings which is expected to underperform as 2018 remains a consolidation year,” said UOB Kay Hian Malaysia Research.