DARK clouds are likely to hover over the outlook for 2H 2021 after 1H 2021 was hit by a perfect storm with persistently high COVID-19 cases, multiple lockdowns, ESG (environmental, social & governance) concerns and political uncertainty.
CGS-CIMB Research expects the market to remain lacklustre in 3Q 2021 due to concerns over political direction and ongoing lockdown measures which are likely to dent corporate earnings in 2Q 2021 and 3Q 2021.
“Our analysis suggests that the Government can achieve its target to fully vaccinate 70-80% of the population by 4Q 2021 at the current daily vaccination run rate,” head of research Ivy Ng Lee Fang pointed out in a strategic report on 2H 2021 outlook.
“This would pave the way for the economy to fully reopen in 4Q 2021, leading to stronger corporate earnings. This could also coincide with the return of net buy flows from local institutional investors, leading the market to re-rate in 4Q 2021.”
Among the key events to watch in 2H 2021F are the tabling of the 12th Malaysia Plan (12MP) and 2022 Budget on Sept 20 and Oct 29 respectively.
“The 2Q earnings season in August and 3Q earnings season in November as well as political developments and parliament meetings in July, September and November are also likely determinants of market direction,” suggested CGS-CIMB Research.
“The key concerns are emergence of COVID-19 variants that are vaccine-resistant, slower-than-expected vaccine roll-out, worsening political uncertainty and the sustainability of aggressive fiscal and monetary stimulus measures.”
CGS-CIMB Research further expects the FBM KLCI earnings to rise 37.4% in 2021F and 1.9% in 2022F. For end-2021, the research house retained its target at 1,604 points based on price-to-earnings ratio (P/E) target of 14.2 times.
“We advise investors to position themselves in recovery stocks in August/September ahead of the expected full re-opening of the economy in 4Q 2021F,” the research house pointed out.
The six themes it has identified for 2H 2021 are (i) laggard plays; (ii) merger & acquisition (M&A)/value plays; (iii) high dividend yielders; (iv) beneficiary of overnight policy rate (OPR) rate hikes; (v) recovery plays; and (vi) ESG picks.
“Our top three picks are Gamuda Bhd, Telekom Malaysia Bhd and Unisem Bhd,” reckoned CGS-CIMB Research. “Our preferred sectors are Islamic banks, oil and gas (O&G), media, healthcare, EMS (electronic manufacturing service), technology, packaging, transport and utilities.” – July 29, 2021
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