THE market appears to be in a state of flux at this juncture as investors await fresh positive leads to plough further into equities.
Sooner-than-expected rate normalisation which is normally a bane to equity markets is likely a non-event (domestically) for the next six to nine months at the very least given the likely need for Bank Negara Malaysia (BNM) to remain accommodative in facilitating the country’s growth recovery which has been delayed somewhat by the full movement control order (FMCO/MCO 3.0).
While there are questions on impact to earnings from the FMCO/MCO 3.0, the full extent is subject to the length and severity of this lockdown, according to PublicInvest Research.
“At this point (one-month lockdown, more than 50% of businesses remaining open), the overall earnings growth trajectory is unaltered,” opined the research house in a strategic update.
“Longer-term cyclical recovery plays (on stronger economic growth and gradual return to normalcy) like banking, oil and gas (O&G) and construction should get back on track soon enough.”
In fact, PublicInvest Research expects the stock to remain trading-oriented amid the ongoing COVID-19 pandemic and the ever-present possibility of new mutations and waves of infections causing longer-lasting damage to which governments and central banks may find it harder-pressed to defend against given weakened fiscal positions.
“Volatile swings are to be expected but which will present selective opportunities,” observed the research house. “Our 2021 year-end FBM KLCI closing is unchanged at 1,690 points (16 times multiple to one-year forward earnings).”
Below are the research house’s sectorial assessment:
- Global economic recovery and by extension, consumption, will be a boon to the manufacturing sector (“overweight”);
- Global economic recovery will be accompanied by improvements in business activity, leading to increased demand for crude oil. Supply should be constrained by the ongoing OPEC+ arrangements and measured pace of production increases (“overweight” on the O&G sector);
- Greater proliferation of 5G and its related spending in 2021 will continue to support sector valuations (“overweight” on the technology sector);
- Maintaining our “overweight” stance on the consumer sector in line with expectation of a gradual return to normalcy in 4Q 2021 as the country ramps up its vaccination programme to achieve herd immunity target by year-end;
- Despite overtures of a recovery play, the airlines sector continues to be mired in financial difficulties which will take the better part of 2021 to resolve (maintain “underweight” on the sector. – June 23, 2021
