PETALING JAYA: The equity market is expected to perform better in the second half of the year although earnings growth may remain lacklustre.
According to AllianceDBS Research, the gradual commodity price improvements, receding US-China trade tensions and resilient domestic demand may help support a better stock market outlook.
However, near-term earnings prospects remained downbeat with a weak quarterly results season expected in May.
“We believe our bourses will remain swayed by external developments. We reiterate our year-end FBM KLCI target of 1,735 points, pegged to 16 times earnings,” it said in a note yesterday.
In the first three months of 2019, the benchmark FBM KLCI registered a 3% loss, although the FBM Small Cap Index rallied by 13%.
AllianceDBS Research said its top stock picks gained an average of 9% in the period.
The brokerage forecast the earnings of the FBM KLCI stocks to grow by about 1.9% for full-year 2019, largely supported by banks and telecommunications companies.
“Given the lack of earnings growth, we advise investors to build more defensiveness in their strategy while looking out for quality names with resilient earnings and yields.
“We see opportunities in high-quality names that have resilient earnings and are less exposed to risks of being adversely affected by government policies.
“Our top picks are Hong Leong Bank Bhd , RHB Bank Bhd, Axiata Group Bhd , Gamuda Bhd , Time dotCom Bhd , BIMB Holdings Bhd , Capitaland Malaysia Mall Trust , Media Chinese International Ltd and Matrix Concepts Holdings Bhd ,” it said.
On the government’s fiscal reforms such as the gradual bumping-up of the minimum wage, targeted fuel subsidies, repayment of corporate tax refunds and increasing efficiency in government spending, AllianceDBS Research said it was confident that the measures would create a positive impact on the Malaysian economy.