A CHALLENGING and volatile 2H 2022 beckons with investors being generally neutral to bearish on Bursa Malaysia with the key concerns being rising operating costs, policy risks and the forthcoming 15th General Election (GE15).
On the economic outlook front, CGS-CIMB Research said it received greater resistance on the domestic side, especially with regard to its currency outlook.
“We estimate US$/RM to trade at 4.25 by end-2022, balking the current weakening trend of the currency,” projected bead of research Ivy Ng Lee Fang in a strategy note which sums up three weeks of marketing the research house’s 2H 2022F outlook to some 190 investors.
“From our point of view, the fundamentals of the US relative to the Malaysian economy are in favour of the latter. While interest rate differential is widening, inflation differential was much greater, putting Malaysian real rates at a much more favourable position.”
Another query received by CGS-CIMB Research was regarding the nature of Malaysia’s labour market situation.
“The tight labour market condition currently reflects a shortage of both foreign workers as well as local,” opined the research house. “Within local workers, the shortage was broad-based across all categories including skilled, semi-skilled, and unskilled.”
Separately, there is also interest in the Government’s fiscal situation given the huge subsidies being pumped into the Malaysian economy.
“From our perspective, the Government can still keep to its 6% fiscal deficit target this year despite the additional RM46 bil spending for subsidies (RM77 bil allocated now compared to RM31 bil initially),” rationalised CGS-CIMB Research. “This amount will be gained from better collection in commodity-related revenues amid high crude oil and palm oil prices.”
Moreover, the Government can also expect to collect more income tax as well as sales & service tax (SST) from the better economic environment, according to the research house.
“The shortfall will be obtained from higher PETRONAS dividend (additional RM15 bil-RM20 bil on top of the RM25 bil already committed) as well as some reduction in supply and services expenditure,” contended CGS-CIMB Research.
Back to stock market outlook, the research house reckoned the property sector as a dark horse as the KL Property Index was the only sector in the market that has posted four consecutive year-on-year (yoy) declines (2018-2021).
“(The) 1H 2022 and P/BV (price-to-book value) for property companies were among the lowest in our coverage. Our top property pick is Sime Darby Property Bhd,” added the research house. – Aug 16, 2022
