Market expected to turn positive in 4Q despite external uncertainties

TheEdge Tue, Oct 01, 2019 08:36am - 4 years View Original


KUALA LUMPUR: The FBM KLCI ended the last trading day of the third quarter down 6.3% year to date (YTD), but some believe the local bourse could see improvement moving forward as stock valuations turn attractive and corporates see a pickup in earnings.

MIDF head of research Mohd Redza Abdul Rahman told The Edge Financial Daily that although some value has emerged, investors have to remain selective.

“Stocks which were beaten down are probably sitting on attractive valuations such as the banks, with Public Bank Bhd, Maybank (Malayan Banking Bhd) at price-to-book ratios of 1.6 times and 1.1 times respectively, and CIMB [Group Holdings Bhd] at below one time. And Petronas Chemicals Group Bhd at price-to-earnings (PE) below 15 times,” he said.

As global economic uncertainties remain unresolved, he said utilities stocks are still bankable for their stable earnings and decent dividends.

Moreover, he said, the coming Budget 2020 is likely to see through development expenditure in place for infrastructure, which is positive for construction players.

“And consumption play, especially with Visit Malaysia 2020 coming soon, bodes well for Malaysia Airports Holdings Bhd and AirAsia Group Bhd, especially for the latter seeing a stabilising oil price.

“Plus small- and mid-capitalised firms like Muhibbah Engineering (M) Bhd sitting at below 10 times PE despite having strong concession earnings from its Cambodian airport assets,” he added.

Rakuten Trade Sdn Bhd vice-president of research Vincent Lau said the KLCI’s performance in third quarter this year (3Q19) had been lacklustre amid trade tension between the US and China and net foreign outflow.

“However FBM Small Cap Index has done relatively better than [the] KLCI. We expect the 4Q19 outlook to be better with Budget 2020 and recent FTSE Russell Bond Index worry out of the way,” he said.

Although the FBM KLCI has been lacklustre this year, down 6.3% year-to-Sept 30, the FBM Small Cap and FBM Mid 70 Indices both recorded YTD gains of 14.9% and 6.6% respectively.

JF Apex Securities head of research Lee Chung Cheng said this situation is likely to persist this quarter as foreign investors continue to sell down their holdings in blue-chip counters.

“Our market exposure to foreign investors [is] getting lower, so the downside risk has become minimal than before. But we think investors should continue to stay defensive, perhaps they can look at stocks in the utilities, consumer, and real estate investment trust sectors, with some exposure in thematic play sectors like oil and gas, and construction,” he said.

Areca Capital Sdn Bhd chief executive officer Danny Wong Teck Meng said corporates are expected to report better 3Q19 earnings.

“We think corporate earnings have bottomed, and the market should improve towards the end of the year as companies are beginning feel comfortable to kickstart some of their business plans.

“Another reason we expect better corporate earnings for the third quarter [ended Sept 30] is the low base effect, and some of the exporters were benefitting from a weaker ringgit,” he said.

“Is it a good time to enter the market now? Perhaps after the Budget 2020 announcement, when investors have more clarity of the future direction,” he added.

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