PETALING JAYA: Investors will continue to focus on quality stocks with liquidity as the local bourse goes through recovery since the 90-day reciprocal tariff pause, says Kenanga Research.
The research house said the general market recovery had gone to pre-Liberation Day levels and market valuation discount would dissipate once a favourable verdict is given on the reciprocal tariffs.
The stocks in focus include YTL Power International Bhd
, IJM Corp Bhd, Sime Darby Property Bhd, and CIMB Group Holdings Bhd.
“Since the tariff pause, Malaysia’s large cap stocks have generally rebounded faster than the broader market.
“Valuations of the small cap segment, where we previously only concentrated on visible sectors such as renewable energy/water, is becoming more palatable,” the research house said.
Malaysia’s 24% tariff stacked favourably compared with those of its peer countries including Vietnam (46%), Thailand (36%) and Indonesia (32%).
“We foresee that if the outcome of the negotiations shows that Malaysia is a net beneficiary, our economic forecast for gross domestic product (GDP) of 4.3%, will largely remain intact.
“Likewise, our market earnings growth estimate of 3.5% is also consistent with a GDP growth of at least 4%, in our view,” it added.
The research house projected reciprocal tariff discussions to even be prolonged beyond July 9.
“So far, Malaysia has described talks as ‘progressing well’, and thus could emerge more hopeful to seal an agreement as both sides accelerate talks towards a deal.
“Elsewhere, the United States and China have formalised a deal involving rare earth shipment, with the United States also looking to cancel a series of restrictive measures,” it said.
The research house added that the risk of a prolonged reciprocal tariff would not be a welcome development given that the uncertainty premium would act as an overhang.
Kenanga Research said a favourable tariff differentiation outcome would help the tech sector, particularly certain tech stocks such as PIE Industrial Bhd and SKP Resources Bhd who can crystalise their pipeline of potential relocating customers.
It expected a manageable environment, with an anticipated ringgit tailwind that augurs well for dividend stocks or banking counters.
It added that the third quarter of the year could usher in some domestic cost hurdles, but overall inflation is a manageable 2%.
“Our top market picks see CIMB join the likes of AMMB Holdings Bhd, Tenaga Nasional Bhd, Fraser & Neave Holdings Bhd, Gamuda Bhd and YTL Power, but Malayan Banking Bhd is dropped,” the research house said.
It has retained FBM KLCI year-end target at 1,655 based on a 15.5 times price earnings ratio valuation.
“Geopolitics form a potential risk. We have earlier said that the Iran-Israel conflict escalation could cause us to revisit market valuations if there was a spillover into a broader regional conflict, and this has been so far averted,” Kenanga Research added.
