Uncertainties may weigh on markets, PublicInvest Research says

PIVB Research said market valuations are attractive at current levels (16.2 times one-year forward earnings), though not yet compelling.

KUALA LUMPUR: Heightened levels of uncertainty on the political scene are likely to be the order of the day again after Opposition leader Datuk Seri Anwar Ibrahim claims he has a “strong, formidable majority” to form a new Federal Government, PublicInvest Research says.

In its strategy report issued on Thursday, it said with no single bloc having an overwhelming majority, there appears to be many kingmakers in the fold.

“While it remains far from certain if anything will even happen, investors aren’t likely to take too kindly to uncertainties, ” it said.

However, Tan Sri Muhyiddin Yassin reaffirmed he remains the country’s legitimate Prime Minister and that the ruling Perikatan Nasional is strong.

He said Anwar’s remarks that he had the majority support of MPs to form a new Federal Government was merely a claim “unless proven otherwise”.

PIVB Research pointed out the overnight nine-point (-0.6%) drop in the FBM KLCI doesn’t fully reflect the levels of anxiety in the local bourse.

By comparison, the FBM Small Cap index fell 225.3 points or 1.7% while the FBM ACE Index slumped 417.6 points (-3.9%).

“Domestic retail investors who have been particularly active in the few months are likely to take their feet off the pedal pending further clarity on the situation.

“Foreign investors who have been exiting the market in droves (YTD Sept 22: -RM21.5bil) may refrain from re-entering the market. In the interim, the market will continue to throw up trading opportunities until the dust settles (if ever).

PIVB Research said market valuations are attractive at current levels (16.2 times one-year forward earnings), though not yet compelling.

From a shorter-term standpoint, the market is trading near one standard deviation below its long-term average of 17.9 times.

The last five years, up until the recent Covid-19 pandemic, has been relatively “worry-free” hence investors willing to pay higher price-earnings multiples.

PIVB Research said from a longer-term standpoint, the market offers very tempting propositions given that it has fallen back near its long-term average of 15.9 times one-year forward earnings, though still not as compelling (as compared to March 2020) as well.

In a chart, the research house pointed out the inordinately long period (27-year sampling) captures various shocks (and “devastations”) to the market (that is the Asian Financial Crisis in 1997, DotCom bubble burst and 9/11 crisis in 2000/01, the Indian Ocean Tsunami in 2004, the Global Financial Crisis in 2008/09 and European Sovereign Debt Crisis in 2011/12).

It said sector-wise, a global economic recovery (albeit tepid) and by extension, consumption, will be a boon to the manufacturing sector, aided in part by the relatively weaker Ringgit.

The furniture sector is a proxy to stronger US consumption spending. Gloves have been sold down recently, but will continue to attract trading interest owing to lack of fundamentally-stronger alternatives.

Banks will find the going tough in 2020, but will benefit from eventual rate normalisation (margin expansion) and expected economic recoveries (asset quality improvements and loans growth).

Power, particularly renewable energy-related, should gain traction with the government’s resolve toward increasing its share in the generation mix.

“Our year-end 2020 KLCI target of 1,480 points remains unchanged. For stocks, we still like D&O Green Technologies, Homeritz Corporation, Johore Tin, Magni-Tech Industries, Mega First Corporation, Sarawak Plantations, Serba Dinamik and SKP Resources. Digi.Com and Berjaya Sports Toto are attractive for their dividend yields, ” it said.

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