IF THERE is something to watch out for from the recently-concluded reporting season moving forward, it has to be that the March 2022 quarter results were somewhat dampened by the escalating cost environment and other operational impediments.
Although management guidance remained cautiously optimistic against the backdrop of the economic re-opening theme; macroeconomic, regulatory and political risks coupled with uncompelling valuations could limit the market’s fundamental upside, according to RHB Research.
“We acknowledge the swirling macroeconomic headwinds that will continue to buffet equity markets,” observed head of research Alexander Chia in a March 2022 quarter earnings review.
“The potential for volatility suggests that domestic investors are not inclined to look too far forward given limited visibility, especially considering the paucity of earnings growth in 2022.”
For now, RHB Research is of the view that market positioning remains trading-oriented with outperformance requiring astute bottom-up stock-picking.
“Investors should remain focused on value and cyclical names that can leverage on the recovery and seek attractive entry points while maintaining core holdings in defensive, high-yield stocks and companies with a strong environmental, social and governance (ESG) profile,” suggested the research house.
“We retain “overweight” calls on the bank, non-bank financial institutions (NBFIs), oil & gas (O&G), utilities, healthcare, basic materials, gaming and technology sectors.”
Despite mounting challenges emanating from supply chain-related disruptions, PublicInvest Research noted that the current 1Q CY2022 reporting cycle “appears to not show any significant worse-for-wear, though it may be argued that these inflationary pressures have not filtered fully into companies’ operating environments as yet”.
“The market will continue to be a trading-oriented one. There is still reason to be in the market though heightened uncertainties will be an ongoing feature,” reckoned the research house.
“It is still encouraging to note that foreign investors have been net buyers in recent months, suggesting regional investor flow potentially picking up in momentum as the country’s growth prospects continue to strengthen.”
Meanwhile, AmBank Research highlighted the fact of how foreign investors – who were net sellers over the past four years prior to switching to buying positions earlier this year – were more hesitant buyers in May (last month).
“Net purchases sank 91% month-on-month (mom) to only RM77 mil and a deeper plunge of 98% from a five-year peak of RM3.3 bil in March this year,” observed analyst Alex Goh in a 2022 strategy note.
“Last month (May), foreigners were net sellers for eight trading days compared to five days in April 2022.”
However, year-to-date (YTD), foreigner equity investors have remained in net buying positions with a total of RM7.4 bil, raising foreign shareholding to 20.4% as of May 2022 from near an 11-year low of 20.1% in February this year.
In comparison, foreigners were net sellers of RM3.2 bil in 2021, RM24.6 bil (2020), RM11.1 bil (2019) and RM11.5 bil (2018).
Supported by robust oil prices, AmBank Research expects the ringgit to strengthen against the greenback from RM4.39 currently to RM4.25 in 4Q 2022 (and gradually normalising to RM4.12 in 2023) with expectation for up to two interest rate hikes in 2H 2022.
“Under this relatively contained currency risk outlook, we expect foreign investors to continue gravitating towards Malaysian equities,” added the research house. – June 2, 2022
