Time for market to refocus

PETALING JAYA: With the conclusion of the six-state elections and the status quo maintained, fund managers and analysts believe that it is time for the Malaysian economy and Bursa Malaysia’s FBM KLCI to kick on under the initiatives outlined by the unity government.

Investment managers contacted by StarBiz attributed the heavily anticipated poll results to the rather subdued performance on the local bourse yesterday, which saw the benchmark FBM KLCI receding by a marginal 0.16 points – or 0.01% – with 3.53 billion shares traded.

Tradeview Capital Sdn Bhd chief investment officer Nixon Wong believes that with the local index having recovered about 6% over the past month, the muted reaction of the market yesterday underlined the likelihood that investors could have priced in the outcome of the state elections.

More importantly, however, he said with the overhang from political uncertainties over, investors can now shift their focus to policy implementations that will drive and improve the country’s economy, with more room to the upside for the local index as it has yet to revert to its historical average.

“The primary catalyst for the market over the near term would be clearer policy that spurs domestic consumption and the return of tourists,” he noted.

“On the other hand, it could be determined by the corporate results season this month, with possible weakness due to high operating costs, slower pre-election business investments and a slower recovery of China.”

KAF Research senior analyst Mak Hoy Ken remarked that the conclusion of the state polls – which many saw as the final political hurdle to the administration of Prime Minister Datuk Seri Anwar Ibrahim before the 16th General Election – would provide some badly-needed runway for the unity government to fully concentrate on delivering its electoral pledges, reforms and more importantly, place the economy on a stronger trajectory.

As such, he said investor attention will naturally lean towards the unveiling of any policy pronouncements on infrastructure spending under the upcoming Budget 2024. “Of particular interest, all eyes will be on any follow-through from the government’s targeted subsidy reforms or other fiscal revenue-enhancing measures, such as the reintroduction of the goods and services tax.

“This is crucial to shore up the country’s finances, and reinvigorate fiscal spending on infrastructure,” he said. Notably, amid an evolving national landscape, Mak foresees a stronger emphasis being placed by the government on Sabah and Sarawak, given a divided landscape within the peninsular states.

He said the federal government may grant more concessions to Sabah and Sarawak than what it has done hitherto, before adding: “This will undoubtedly extend towards infrastructure spending – much like the RM20bil outlay that has already been approved for Pan Borneo Sabah and the Sarawak-Sabah Link Road earlier this year.”

Chief executive for fund management firm Areca Capital, Danny Wong, meanwhile, said the advent of a more stable political situation in Malaysia could be one of the catalysts for better sentiment and the return of foreign flows, which itself is evidenced by a report yesterday from MIDF Research.

On the flip side, he said that the direction and momentum of the local index from here on would also hinge on external factors such as global interest rate policies and China’s recovery. “We expect a risk-on situation over the next 12 months where domestic consumption and foreign direct investment are expected to support growth.

“Key sectors that we favour are consumer-related industries, infrastructure, tech and digital as well as the export-related sectors,” he said.

Tradeview Capital’s Nixon Wong is also positive on the consumer staples sector, especially as domestic consumption is seen to continue driving the economy, coupled with the sector’s improving top line due to its capacity to pass on rising costs through higher selling prices.

“We are also optimistic on the tourism-related industries such as airlines, airports and gaming, as we believe the ringgit’s current weakness may be able to lure tourists, especially from China to choose Malaysia as their destination, in particular to spend the Golden Week holiday (Oct 1 to Oct 7, 2023),” said Nixon.

In addition, the anticipated rollout of public infrastructure projects after the state elections could also be bullish for certain construction counters, he said adding that banking stocks will continue to offer defensive value. Meanwhile, a host of brokerage houses are also echoing the sentiment that it is “time to get down to work”, with investors’ focus returning to the financial performance of corporate Malaysia during the second quarter of 2023 (2Q23).

Hong Leong Investment Bank (HLIB) Research interestingly predicted the languid movement of the FBM KLCI yesterday in its note, saying: “A knee jerk reaction on the local bourse is possible as investors digest Malaysia’s voter base shift from centrist to a more conservative one.

“Also, seeing that the FBM KLCI has recovered 5.8% thus far in the second half of 2022, coupled with concerns of another weak upcoming results season, investors could opt to take some money off the table this month.”

This came as yesterday’s trading session was mildly impacted by some profit-taking, especially with a number of banking and plantation counters. The research house is positive on the gaming sector, specifically on Genting Bhd, a view also shared by TA Research and UOB-Kay Hian (UOBKH) Research.

Concurrently, TA Research also concurred with optimism of Tradeview’s Nixon and Areca Capital’s Danny Wong for the consumer sector, posting buy calls on several companies including Able Global Bhd, Aeon Co (M) Bhd, Fraser & Neave Holdings Bhd and Padini Holdings Bhd.

Of note, a number of research houses have placed their respective end-2023 predictions for the FBM KLCI to between 1,515 (TA Research) and 1,540 (Kenanga Investment Research) with HLIB Research projecting a target of 1,530, while UOBKH Research believes the local index could touch 1,520 points by year-end.

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