KUALA LUMPUR (Feb 13): The reopening of China should boost the growth prospects of certain small-cap companies in Asean, said RHB Investment Bank Bhd.

In a strategy note on Monday (Feb 13), RHB Investment Bank analyst Lee Meng Horng wrote that the divergence of the state of the economy in China post reopening versus the decelerating global economic growth could lend the support to global demand and benefit Asean players.

According to him, the weakening of the US dollar and brewing expectations of a peaking US Federal Reserve funds rate in 2023, as well as the improved investor sentiment, could spur fund flows into emerging-market counters where valuations of rate-sensitive growth names have bottomed up.

Following the RHB Small Cap Corporate Access 2023 held on Feb 9, Lee said most companies featured agreed on growth opportunities with differentiated strategies, country and industry exposure, domestic-demand growth, relatively low bases and production capacity relocation exercises taking place.

He said the companies believe in these opportunities despite the challenges that will be exacerbated by decreasing economic growth, high inflation and volatile exchange rates, the escalation of input costs, and certain demand uncertainties. 

Lee added that overall market sentiment had also improved of late, due to renewed confidence in the global economy and the strengthening of emerging-market currencies. 

Meanwhile, among Malaysian companies, Lee said he sees strong earnings growth potential for Wah Seong Corp Bhd, led by a strengthening order book (about RM3 billion) and tenders (RM4 billion to RM4.5 billion) for its pipe-coating, engineering and construction businesses. 

"Its capabilities in the fabrication of equipment in renewable energy and modules could also help to fuel growth," he said.

At the time of writing on Monday, the FBM Small Cap Index had fallen 113.42 points to 16,070.26, from last Friday’s close at 16,183.68.