IT seems that investors can expect economic recovery to happen but this certainly would not occur overnight. While economic recovery will ensue, RHB Research has acknowledged gathering headwinds with market valuations may not be compelling given the paucity of earnings growth in 2022.
“Accordingly, the potential for volatility suggests that domestic investors will not look too far ahead while maintaining a nimble stance,” opined head of research Alexander Chia in a market strategy note.
“2022 will be a traders’ market that will require astute bottom-up stock-picking.”
Investors therefore should remain focused on value and cyclical names that can leverage on the recovery while looking for more attractive entry points to build positions for the longer term, and maintaining core holdings in defensive, high-yield stocks and companies with a strong environmental, social and governance (ESG) profile.
“We are ‘overweight’ on banks, non-bank financial institutions, oil & gas (O&G), utilities, healthcare, basic materials, gaming and technology,” noted RHB Research. “We lift our end-2022 FBM KLCI target to 1,670 points (from 1,630 points) after ascribing a 16 times (unchanged) P/E (price-to-earnings ratio) to FY2023 EPS (earnings per share).”
Moving forward, the research house expects Malaysia to remain in the nascent stage of a new growth cycle but geopolitical risks are clouding the outlook, thus adding to global inflationary pressures.
“A more aggressive-than-expected US Fed and the escalation of the Ukraine conflict are key risks on top of fragile domestic public finances, policy and regulatory worries, and an evolving political backdrop,” projected RHB Research.
“The investment strategy will centre on trading angles – a core defensive posture with opportunities in the small-mid cap space.”
Despite a spike in new COVID-19 cases, the research house is of the view that the percentage of patients requiring hospital intervention remains low, henceforth the healthcare system has been able to comfortably manage the load on the back of high vaccination rate.
“The base effect, absence of new movement restrictions, high levels of pent-up demand, steady pick-up in global growth and near-term political status quo will help to support the 5.5% year-on-year GDP (gross domestic product) growth projection this year,” added the research house. – April 8, 2022
Main photo credit: The Star
