Is the revival of market laggards sustainable or just short-term joy?

WITH the gradual re-opening of the economy, market laggards in ‘sister’ sectors, namely real estate, construction and building materials are poised for gradual recovery on the back of pent-up demand for properties, an effective vaccine roll-out and low interest rates – at least on paper.

Delving deeper into the three sectors, UOB Kay Hian Research maintained its “market weight” a.k.a “neutral” rating given it expects their recovery to be short-lived or interest in the sectors to be “a short-term play while pre-existing concerns might continue to cloud these sectors’ performance over time”.

“A long-term meaningful re-rating for these sectors still needs to be augmented by a real economic recovery,” opined the research house in a strategy note.

“The catalysts include (i) accelerating roll-out of mega projects; (ii) further interest rate cuts; and (iii) more government incentives such as home ownership campaign (HOC) extension are still crucial to further support the growth outlook.”

Assuming the Government could further solidify its political position, UOB Kay Hian Research expects the focus to shift to spurring the economic recovery, hence more positive news flow on mega projects’ roll-out in 2H 2021.

“Gamuda Bhd and Sunway Construction Group Bhd could emerge as early winners given their key roles in executing previous large-scale public projects,” reckoned the research house.

“However, this will be highly dependent on the Government’s finances, especially after the various fiscal injections to combat the economic impact of the pandemic.”

On a broader term, UOB Kay Hian Research noted that economic recovery could catalyse a rotational play at least in the near term.

“Back-testing suggests the laggard sectors in our universe − property, construction and building materials – had recovered in tandem with the FBM KLCI in past crises,” the research house pointed out.

“Looking forward, overall consumers’ confidence and sentiment could be uplifted with the easing of COVID-19 cases and optimism over effective vaccine dispensation. “

That said, these could catalyse a rotational play into the laggard sectors. As the worst could be over given no more blanket lockdown, the research house is of the view that these sectors still have upside in the near term, underpinned by pent-up demand for properties, protracted low interest rates and attractive valuations. – March 25, 2021

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