KUALA LUMPUR: UOB Kay Hian Malaysia Research expects the stock market to move into a consolidation mode following a spectacular recovery into a bull territory from a global Covid-19 outbreak-induced bear market.
“We expect sentiment in 3Q20 to be affected by a poor economic recovery and consumption, sharply reduced retail investor participation, and internal political bickering, ” it said in its strategy outlook on Friday.
Its strategy prescription is to immunise the portfolio with financially resilient or growth stocks and/or sustain generous dividends.
UOBKH Research said its end-2020 FBM KLCI target at 1,520 values the market at 19.9 times 2020F PE (+2.8SD) and 16.2x 2021F PE (mean). Its top-down target compares to its bottom-up target of 1,583.
“While there could be upside to our conservative KLCI target of 1,520, depending on whether the rubber glove sector rally stretches until the year-end, we continue to expect a market consolidation period to soon set in.
“Raising defensiveness in 3Q20 before turning risk-on again in 4Q20, ” it said.
It continues to focus on high yielders and companies with resilient business models as investors should turn cautious again in view of a tepid U-shaped (and possibly W-shaped) domestic consumption recovery combined with many headwinds ahead.
It cited a likely challenge to Perikatan Nasional’s (PN) control of the country and most importantly, the end of the bank loans and interest repayment moratorium.
“Thematically, glove manufacturing, dividend yield compression, e-government and border re-opening plays appeal the most in 3Q20 while the electrical & electronic (E&E) and cyclical stocks are expected to rise to prominence in 4Q20, when the market positions for the discovery of a vaccine or the achievement of herd immunity against Covid-19, ” it said.
UOBKH Research is overweight on the high-yielding (selective consumer, gaming and REITs) and tactically, the glove manufacturing and utility sectors.
Defensive stocks (eg telecommunications, consumer and pharmaceutical) should also outperform in 3Q20.
“Tactically underweight the cyclical aviation, automobile, property and (selectively) O&G stocks.
“Our top picks are large cap: Genting Malaysia, PPB Group, Tenaga Nasional, Top Glove and Yinson Holdings, and mid caps British American Tobacco (BAT), Duopharma Biotech, Globetronics Technology, MRCB-Quill Reit and Scientex. Other notable timely Buy calls include Kossan Rubber and Time dotCom, ” it said.
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